JUNE 2008: THE STATE WE'RE IN
The climate’s future isn’t “fixed”
BY JOE
CORTRIGHT
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Sometimes, getting advice from an economist is like getting
driving directions from someone who’s always looking in
the rearview mirror. On the straight-arrow roads in Kansas,
their advice works fine; it’s only in the mountains, when
your right front tire starts wandering in the gravel shoulder,
do you realize that this kind of guidance will lead you
horribly wrong.
Economists build models of the world based on observations
taken from the road we’ve just traveled. You can think of
these models as greatly simplified machines, like say a
bicycle. Eric Fruits’ model of the relationship between
greenhouse gas emissions and economic activity [Economix,
April] is a “fixie” — one of those
stripped-down one-speed messenger bikes, with no coaster
arrangement, where the pedals turn in a permanently fixed ratio
to the rear wheel. Eric’s “fixie” model
assumes that the only way to reduce greenhouse gas emissions is
to throttle economic activity.
The claim that the relationship between carbon emissions and
economic output is fixed is demonstrably wrong today. Most of
the rest of the developed world creates GDP by producing about
40% less carbon per unit of output than we do. To believe that
this ratio cannot be changed in the future is just
wacky.
The problem with the “fixie” bicycle as metaphor
for policy is that it misses the fact that the economy can
change gears. The lesson of pollution control efforts over the
past four decades is that we have enormous ability to change
the recipes for producing goods and services of all kinds in
ways that reduce pollution. Per mile traveled, the average car
today emits about 1% of the amounts of hydrocarbons, nitrogen
oxides and carbon monoxide of a car built in the 1960s. And the
best cars on the road today emit one-tenth as much as the
average vehicles.
Models tied narrowly to data on past relationships often
understate the possibilities for real change in the economy. In
the 1990s, Oregon’s economic model consistently
under-predicted the growth of Oregon’s economy —
not because the model had any technical flaws, but because the
structure of Oregon’s economy changed (high tech grew far
more rapidly than anyone could have imagined) and the economic
relationships that held in the 1980s (which provided the data
on which the model was calibrated) no longer were
applicable.
The most fundamental tool of economic analysis is to think
about how prices influence behavior. And in the case of
pollution, economic theory has a straightforward and
well-established explanation. We have pollution —
including CO2 emissions — for the very simple reason that
we treat the atmosphere as an unpriced dump for anything we
burn. This is a classic tragedy of the commons. As long as we
treat our atmosphere as an unpriced, unmanaged commons, we will
get the same kind of waste and resource degradation that
spoiled the old town commons in the past.
So what prompts the economy to shift gears and build more
21-speed bikes? If we get the incentives right — if we
don’t send signals to consumers and producers that
polluting is free — then the miracle of the market kicks
in, and investors, inventors and entrepreneurs figure out new
and better ways to do things.
States such as Oregon can embrace these changes, or cling to
an increasingly unsustainable past. History has shown that
economic change confers important first-mover advantages on
places that boldly tackle new ideas (like Bill Boeing’s
airplanes and Phil Knight’s running shoes). People and
places that stand pat with outmoded products and economic
models (think domestic makers of 3-ton V-8 powered SUVs) are
the ones who will suffer most. Already, a wealth of new
entrepreneurial businesses from green building, to alternative
energy, to urban planning are growing in Oregon because
we’re ahead of the curve, even if only a little, in
thinking about a greener world.
Those who believe that we can reduce carbon dioxide emissions
only by squelching or reversing the economy are the prisoners
of metaphor. They fundamentally misunderstand the nature of
markets and economic and technological process. The key to
flourishing in a future where we must tackle global warming is
not to continue to gaze wistfully into the rearview mirror, but
instead to look ahead with a sense of excitement at the vast
opportunities for doing things better, smarter — and
cleaner.
JOE CORTRIGHT is vice president
and economist with Portland consulting firm Impresa.
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