APRIL 2008: ECONOMIX
Slow the growth to cut the carbon
Mankind’s history is a story of seeking greater economic
growth. As long as they have been around, economists have stood
on the sidelines coaching everyone else how to achieve greater
growth. So, why am I giving advice on how to slow
Oregon’s growth?
Oregonians are passing through an era where fears for our
children’s — and our children’s
children’s — future welfare exceed our own desire
for present prosperity. Fears of global warming (also know as
climate change if it’s snowing outside) have spurred
Oregon’s government and business leaders to do whatever
possible to reduce the state’s carbon emissions.
BY ERIC
FRUITS
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Few things are known for sure in the study of global
warming/climate change, but one thing that is fairly well
settled is the relationship between increases in carbon
emissions and economic growth: Greater growth is associated
with higher emissions. The relationship is virtually axiomatic:
Economic growth is associated with energy use, and energy use
causes carbon emissions.
The relationship between economic growth and carbon emissions
makes policy analysis straightforward. If Oregon slows economic
growth, carbon emissions will be reduced. Conversely, reducing
carbon emissions will slow or reverse economic growth. Since
Oregon seeks to be at the forefront of reducing carbon
emissions, I propose five ways to accomplish this by slowing
the state’s economic growth.
Charge a carbon tax: A carbon tax typically imposes a fee on
fuel suppliers and utilities based on the amount of carbon
dioxide estimated to be emitted when the carbon-based fuel is
consumed. Gasoline, diesel fuel, home heating oil, natural gas
and electricity from coal or gas-fueled plants would all see
higher prices from a carbon tax. But because the carbon tax
would increase the costs of production and transportation,
every good purchased by every household and business in Oregon
would be more expensive. These higher costs would eventually
result in higher labor costs, further cutting into
Oregon’s competitiveness and slowing its growth relative
to the rest of the country.
Impose green-energy mandates: These mandates are based more on
numerology than on economic or technical feasibility.
Oregon’s 25-25 plan requires the state’s largest
utilities to meet 25% of their electric load with new renewable
energy sources by 2025. Curiously, the mandate does not count
existing use of renewable hydroelectric power, which accounts
for more than half of the state’s current electricity
generation. As with a carbon tax, the 25-25 requirement would
increase the costs of almost every good or service purchased by
every household and business in Oregon. The higher costs would
help to slow economic growth and, in turn, further reduce
carbon emissions.
Defer road maintenance: Who would have thought that we could
slow global warming by simply doing nothing? A sizable portion
of economic growth can be attributed to transportation
improvements. Better transportation effectively shrinks the
world and improves the gains from trade with other parts of the
country and the world. Deferring road maintenance allows the
state’s highway system to deteriorate, thereby increasing
travel time and transportation costs. The increased costs of
transportation reduce the amount of traffic in Oregon, thereby
reducing carbon emissions.
Get rid of industrial land: The lack of usable industrial land
is one of several reasons manufacturers choose to build or
expand outside of Oregon. The condominium craze in the first
half of the decade replaced some of the state’s
industrial land with residential and mixed-use developments. If
communities convert increasing amounts of land currently used
for industrial purposes to non-industrial uses, the
state’s carbon emissions would almost surely shrink.
Stifle investment: Governments around the world think that
they can “pick winners,” or identify burgeoning
industries that would provide problem-free growth to their
communities. Picking winners is usually achieved by directing
tax credits and other incentives to the target industry at the
expense of other businesses that may want to move or expand in
the community. Taxes paid by the unfavored existing businesses
are transferred to the favored businesses. In Oregon, Business
Energy Tax Credits favor facilities that use or produce
renewable energy resources, manufacturers of renewable energy
resource equipment, alternative fuels and homebuilders that
build “high-performance homes.” Such transfers
introduce friction into the investment stream and ultimately
stifle investment. Lower investment ultimately translates into
lower growth and reduced carbon emissions.
Economic growth brings prosperity, and prosperity gives us the
wherewithal to adapt to almost any change the world throws at
us. Perhaps the best way to deal with global warming or climate
change is to encourage growth and prosperity so that we can
adapt to it. It seems so much easier — and more
beneficial — than slowing our progress in the hope of
halting change.
Eric Fruits is a senior
economist at ECONorthwest. He also is an adjunct professor at
Portland State University.
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