Joe Biden’s unconventional climate strategy may be what the U.S. needs


The author is a PhD student in the Department of Economics at the University of Georgia, with Political Economy Club Essay Award

At this year’s climate leaders’ summit, US President Joe Biden announced a plan More than half By 2030, U.S. greenhouse gas emissions will begin to decline from 2005 levels. Unlike previous attempts to tackle climate change through a carbon tax, this proposal includes extensive government investment and regulatory changes.

But now, the grim reality of passing relevant legislation has arrived. Is more state spending politically feasible? Are there alternatives, such as the mileage-based driver tax recommended by some legislators? However, regulation and small tax changes cannot replace comprehensive and transformative interventions. The president’s initial proposal is on the right track.

In economic theory, climate change is a conceptually simple but inconvenient problem: it is just a negative externality. When one person’s behavior adversely affects another person in a way that she cannot (legally) control, negative externalities occur. In an unregulated market, too many of these negative externalities have been generated. In the case of climate change, each of us will produce too much greenhouse gas, because we have not considered its impact on others’ climate damage.

Economics has a readily available remedy: taxation. This will have an inhibitory effect on the activity, thereby counteracting external effects. Limit and transaction plan If used in the European Union, it has a similar effect.

Biden’s climate change strategy avoids this straightforward strategy.Instead, we get a Complex combination Supply-side investment and supervision for specific industries. This is a kind of government intervention traditionally suspected by “mainstream” economists, and I do hear many economists complain about it. If there is such an elegant correction to market failures, why risk a more unconventional strategy? Is this a concession to political reality? Part of it is. Biden believes that the new tax on consumers cannot pass Congress. So, is this a suboptimal strategy? unnecessary.

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The problem with the simple story of climate change as an externality is that it is too simple. It ignores the important motivation for adapting the economy to climate change, which requires a broader response than a carbon tax. Biden plans to solve these dynamic problems.

The first is the supply side of the economy. The traditional saying is that, regardless of our own equipment, we consume carbon-intensive products, so we need to levy taxes to shift our consumption. In turn, this will incentivize companies to produce more carbon-efficient products because the demand for them has risen.

However, this ignores the market failure on the supply side of the economy.Many of the commodities that we want consumers to turn to are Public goods, Private actors have little incentive to provide goods.This Bipartisan Infrastructure Act Including the installation of electric vehicle charging stations throughout the United States. If there is no direct government investment, this kind of regulation will not happen automatically-no matter how much you tax my gasoline car, unless you give me a place to recharge, I will not use an electric car.

The second is innovation economics. Commodities are not simply “supply”; in many cases, they need to be invented. For some time, it has been known in economics that there is insufficient supply of research and development in the free market.Paul Romer won Nobel Prize 2018 In economics for this discovery. Even if you create a demand for more carbon-efficient energy, the private sector will be too slow to innovate to supply it.

This strongly advocates the inclusion of a bipartisan proposal in the government’s R&D expenditure on carbon capture and energy storage.

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Finally, the textbook story ignores dynamic effects. Many green energy sources benefit from “learning by doing”: the more we produce and consume them, the more efficient they are. The carbon tax ignores this point. The carbon tax imposes a tax on the carbon generated today, but it does not take into account the carbon we may save tomorrow. Therefore, Biden’s plan to require some energy from zero-carbon sources in legislation is welcome. In these respects, subsidies for electric vehicles are also reasonable, although this measure has again failed to pass bipartisan negotiations.

The plan is far from perfect. Increasing investment in railway infrastructure on the scale currently observed in China will help Americans get rid of cars. Almost nothing in the proposal involves the consumption of carbon-intensive imported goods; this is an area where a well-designed carbon tax may actually help.

Of course, some people do worry that this may be too little and too late. This is particularly the case when we consider measures that can be supported by Republicans through a bipartisan agreement, or if the support of “centrist” Democrats is obtained through reconciliation.

The plan to transition to a low-carbon economy has been late. Although this may not look like the plan stipulated in the textbook, it may be better.



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