Pope is right to hate cap-and-trade, which is akin to the Church selling indulgences

Yale economist William Nordhaus writes as if he wants to address human-induced global warming—euphemistically called “climate change” even by the most ardent environmentalists—but I think he loves what he calls “the market” more than he does the environment.

You can see him grasping for straws to balance his love or humankind and other living things and his greater love for the “market” in his recent New York Review of Books critique of Laudato Si’, Pope Francis’s encyclical on the environment and capitalism. While he applauds the Pope’s concern for the environment, he essentially condemns the Pope for specifically rejecting the use of carbon credits. To do so, he has to take a leap of faith similar to the one taken by Pascal and Kierkegaard. But instead of leaping towards a silent, hidden god, Nordhaus leaps towards the infallibility of “markets.”

Nordhaus does a good job of describing how the carbon credit system, also called cap-and-trade, operates, so I’ll repeat his brief explanation: Cap-and-trade begins with actions by which a country, through its government, caps or limits its carbon dioxide emissions. The country then auctions or issues a limited number of ‘emissions permits.’ These convey the right to emit a given quantity of emissions. Firms that own the permits can use them or sell them on carbon markets, while firms who need them can purchase permits. The advantage of establishing a market in permits is that it ensures that emissions are used in the most productive manner.”

The Pope rightly asserts that the trading of carbon credits can lead to speculation and enables countries and industrial sectors to buy the right to pump excessive pollution into the environment. The Pope doesn’t mention another problem with trading carbon credits: it give these dirty industrial companies and utilities absolutely no incentive to clean up their acts.

It makes sense that the Pope condemns markets. Markets by their nature are brutal, because they reduce everything to money, and not to the well-being of a community and its members. The market assumes that all market players are individuals, responsible for their own selves. Market theory further assumes that the mostly unguided action of all these individual players will lead to the greatest good for all. This basic premise strikes me to be as much based on faith as is the idea that a half god-half man born of a virgin died for our sins and came back to life three days later. I have a feeling that Pope Francis would rate the absurdity of the invisible hand much lower.

I’m uncertain why Nordhaus has so much faith in markets, when it is the market economy that has helped to create the environmental mess in which we find ourselves in several ways: 1) The market hides the social cost of pollution by reducing the value and cost of producing goods and services to dollars and cents; 2) The market mentality has contributed to the rampant consumerism that has infected all western-style economies, thereby driving the rapid rise of greenhouse gases, resource shortages and other environmental challenges.

Like all those who believe in the religion of free markets, Nordhaus has to construct an overly complicated argument for why the current market does not work to benefit the environment. Basically, he (and others) say that environmental degradation results from “distorted market signals” that put too low a price on environmental effects. The good professor uses as his examples the water shortage in California and people dying before their time because of small sulfur particles in the air. In both cases, he blames underpricing—if people paid more for water or air pollution, they would use less. That argument ignores the fact that the wealthy won’t care what they pay, which will engender an inequality in resource access similar to the gapping inequality in wealth that currently exists throughout the planet. It also ignores the fact that water and some of the products made in processes that emit sulfur particles are necessities for human life.

Nordhaus is talking in convoluted euphemisms. What he means to say is that the market isn’t working because it’s leading to the carbon-loading of the atmosphere and oceans.

And his solution for something that isn’t working? Create another thing just like it. A market for the right to pollute.

Wouldn’t it be much simpler just to set limits for each industry and make companies pay huge fines and shut facilities if they can’t meet the standards? Sure prices will go up, but I assert that instead of raising prices, corporations could absorb some of the costs to pay for pollution controls, more fuel-efficient processes and alternative energy. All they have to do is shrink the profit before paying executive salaries, bonuses and benefits. In other words, executives could choose to pay themselves and shareholders less.  That certainly won’t happen with cap-and-trade.

The essence of cap-and-trade is a dirty company paying a clean company so that it can keep polluting. The immorality of this market solution will leap into focus when you think about rich folk paying people to serve in the military in their place during the Civil War. What about someone who paid the Catholic Church money to receive absolution for sins or a church office for a ne’er-do-well nephew in the 15th and 16th centuries?  These situations rightly offend us. Cap-and-trade is the very same thing. Nordhaus’ argument that cap-and-trade enables society to use its carbon emissions most productively would apply to the wealthy draft dodger or church manipulator. Why get the wealthy banker’s son shot up when he could be making lots of money that he will use to build an art collection to donate to a museum for a tax write-off?

In both the analogies I gave, an informal market was created: Buying and selling humans for slaughter. Buying and selling church favors. Buying and selling the pollutants that are rapidly degrading our planet. Do you see a difference?  I don’t, nor does Pope Francis. Only a true believer in markets blinded by the invisible hand would.

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