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Tierney on Using Energy, Getting Rich, and Saving the Planet

John Tierney argues that:

1. There will be no green revolution in energy or anything else. No leader or law or treaty will radically change the energy sources for people and industries in the United States or other countries. No recession or depression will make a lasting change in consumers' passions to use energy, make money and buy new technology — and that, believe it or not, is good news, because...

2. The richer everyone gets, the greener the planet will be in the long run.

How could this be? Tierney explains:

By the 1990s, researchers realized that graphs of environmental impact didn't produce a simple upward-sloping line as countries got richer. The line more often rose, flattened out and then reversed so that it sloped downward, forming the shape of a dome or an inverted U — what's called a Kuznets curve.

In dozens of studies, researchers identified Kuznets curves for a variety of environmental problems. There are exceptions to the trend, especially in countries with inept governments and poor systems of property rights, but in general, richer is eventually greener. As incomes go up, people often focus first on cleaning up their drinking water, and then later on air pollutants like sulfur dioxide.

Tierney makes two big mistakes. First, the environmental Kuznets curves (which are themselves somewhat controversial) depend on legal institutions to translate people's preferences into outcomes (as Tierney briefly acknowledges). As I get richer, I am willing to pay more for clean air. But I can't buy clean air at the store. I have to lobby my legislator for regulation that increases the price of goods that I buy.

This makes good sense if I live in a city with factories that pollute the air and can be regulated. But if the problem is flooding caused by greenhouse gas emissions, I can't just lobby my legislature to fix the problem. If my city or state or national government increases the costs of fossil fuels, while the rest of the world does nothing, the effect on climate change will be virtually nil. I have to lobby my government to enter treaties with other governments. But if Tierney is right that "no leader or law or treaty will radically change the energy sources for people and industries in the United States or other countries," then I am wasting my time trying to lobby my government. I'll be richer but more miserable because I can't do anything about climate change—and over the long term I'll not even be richer in monetary terms, as my taxes rise so that the government can afford sea walls and the like.

What Tierney misses is that the Kuznets curves assume the government doing something at the behest of citizens. He talks as though richer people will independently consume less as they become richer, but there is absolutely no evidence of that!

Second, there is no particular reason to think that the Kuznets curves (even if there is one for carbon, and it is not clear there is) will level off in all countries in time to save us from the worst consequences of climate change. Indeed, if Tierney is right that the Kuznet curve peaks at when a country's income reaches $30,000 per capita, then we are in deep trouble. China's per capita income is around $6,000 and it is the biggest emitter in the world. Even with relatively optimistic assumptions, we will be in trouble unless carbon emissions from the energy sector has been reduced to zero or close to it by, say, 2050 (based on figures taken from the Stern Review). (Agriculture and land use, which are harder to control, would continue to account for significant increases in greenhouse gases, and of course there is the large stock of carbon already in the atmosphere.) Even if the United States and other rich countries have in fact reduced their energy-related emissions to zero by that time, on Tierney's account China, India, Indonesia and other huge industrializing or industrialized countries will be belching out vast quantities of the stuff, far more than is being emitted today, and with disastrous consequences if mainstream climate models are correct.

Related Posts (on one page):

  1. Is Richer Greener?
  2. Is Richer Greener? A Comment on Posner on Tierney:
  3. Tierney on Using Energy, Getting Rich, and Saving the Planet
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Is Richer Greener? A Comment on Posner on Tierney:

Eric has an interesting post commenting on John Tierney's recent column on wealth and the environment. Eric notes that Tierney's argument is overly simplistic, and that basic arguments about the correlation between economic growth and environmental performance may not apply in the context of global climate change. Fair enough, but I would also like to qualify some of Eric's remarks.

First, I think it is important to note that one of Tierney's primary claims is that the formula of environmental impact advanced by Paul Ehrlich, John Holdren, and others -- the so-called I-PAT formula -- is incorrect. Ehrlich, et al., asserted that overall environmental impact (I) is a function of population (P), affluence (A), and technology (T), such that increasing P, A or T leads to an increase in I (and impact is presumed to be negative. Thus, as Tierney summarizes, "protecting the planet seemed to require fewer people, less wealth and simpler technology." Yet, as Tierney notes, wealthier societies are more able and willing to pay for environmental protections. Moreover, technology can enable us to satisfy human wants and needs with less environmental impact, as occurs when technology increases agricultural productivity, enabling us to feed more people on less land (and set aside more land for nature).

What about population? Is the relationship between population and environmental impact still a positive one? Not necessarily. As economist Seth Norton has shown, economic institutions have a greater effect on some measures of environmental quality and human well-being than does population growth. Specifically, Norton looked at measures like access to safe drinking water, water pollution, and deforestation rates. As Norton found, "compared with other forces, the purely adverse effects of population are very small." Moreover, as it happens, the institutional arrangements which improved environmental performance in Norton's study (and tend to correlate with, although almost certainly do not explain, reduced fertility rates), are also those that tend to encourage economic growth.

In his post, Eric makes the important point that the Environmental Kuznets Curve (EKC) depends upon "legal institutions to translate people's preferences into outcomes." He further criticizes Tierney for not acknowledging the role of government, in particular the role government plays in enacting people's environmental preferences. He writes: " As I get richer, I am willing to pay more for clean air. But I can't buy clean air at the store. I have to lobby my legislator for regulation that increases the price of goods that I buy. . . . What Tierney misses is that the Kuznets curves assume the government doing something at the behest of citizens." I agree with Eric on the importance of institutions, and I accept that government intervention is sometimes necessary for environmental improvement, but I think it is wrong to suggest that the positive aspects of the EKC are solely (and perhaps even primarily) the result of such governmental intervention.

Some improvements in environmental performance brought about by increased wealth and technological advance are somewhat independent of people's preferences. That is, some technological changes have dramatically positive, albeit unintended (and certainly not governmentally mandated) environmental effects, and there are reasons to expect such changes to be common. So, for instance, replacing copper wire with fiber optics has substantial positive environmental effects. Insofar as increased wealth and market institutions are necessary for such technological change, these are changes that are dependent upon our legal institutions, but are not dependent upon governmental intervention.

A really good example of an EKC effect that is not the result of legislative action is reforestation in developed nations. Let's take the United States (about which I wrote an article "Poplar Front: The Rebirth of America's Forests" about a dozen or so years ago). For most of the 20th century, the U.S. underwent dramatic reforestation -- and legislative action of the sort Eric describes had almost nothing to do with it. Indeed, if anything, it may have slowed down the process. Why did reforestation occur? Many things contributed. First, increased agricultural productivity meant less land was necessary for agriculture. No less important, agricultural production had migrated from the eastern U.S. into the midwest, allowing forest regrowth in areas formerly under plow. Whereas the eastern U.S. was once farm country, it is now quite forested. Even areas that we like to think of as "wilderness," such as portions of the Adirondacks, had been previously cleared and farmed.

Other technological factors leading to greater forest growth were things like improved sawmill technology (e.g. thinner sawblades so there is less waste in timber production) and the development of the internal combustion engine. As cars and tractors took over for horses, much land formerly farmed for animal feed went back to nature.

What about government efforts to protect forestland? Well, much of the "protected" forest land, particularly in the east, was only protected after it had undergone the forest regrowth I describe above. Second, rates of forest growth in the 20th century appear to be greater on private than on government land. Rates of replanting and regrowth after cutting appear to be greater on private land than on federal land.

My point is not that government intervention is never necessary for environmental improvement. Rather, it is the more modest point (with which Eric might agree) that many of the forces that drive EKC effects are more dependent upon the underlying legal institutions of a liberal market order (e.g. property rights, rule of law, etc.) than upon legislative action. I would also suggest that, in many cases, greater reliance upon such institutions might actually produce superior results than legislative intervention. so, for instance, building upon common law protections of property might produce stronger EKC effects than legislation. Work like Elizabeth Brubaker's Property Rights in Defence of Nature, on the history of the use of common law property protections to protect water quality in Canada -- and the eventual sabotage of such protections by legislatures -- is highly suggestive on this point.

Finally, let me note that I agree with Eric with regard to the application of the EKC to climate change. First, although there is evidence of market-driven improvements in energy efficiency and per-GDP greenhouse gas emissions, we have yet to see an EKC effect with greenhouse gases. Further, there are reasons to doubt that such effects will occur on a national level due to the global nature of the atmospheric commons. That said, meeting the climate challenge -- whether through controlling atmospheric carbon, adapting to anticipated climate changes, or (as will almost certainly be necessary) both -- will require increased wealth and technological advance, so it is worth remembering that environmental policies which reduce economic growth can hamper our ability to meet present and future environmental challenges.

Related Posts (on one page):

  1. Is Richer Greener?
  2. Is Richer Greener? A Comment on Posner on Tierney:
  3. Tierney on Using Energy, Getting Rich, and Saving the Planet
7 Comments

Is Richer Greener?

Jonathan's fine post reminds us that some of the gloom-and-doom predictions of people like Paul Ehrlich have proven false, and that it is just as easy to exaggerate the problem of environmental degradation as to neglect it. But in rereading Tierney's column and some of his other work, I realized that Tierney's reporting on the environmental Kuznet's curve repeatedly makes a serious error. I don't know whether Jonathan has made the same error or not—not explicitly if he did—but it is worth explaining.

As Tierney describes it, the EKC describes a recurrent—but not universal—pattern where increasing wealth in a country is not (as Ehrlich predicted) correlated with increasing environmental degradation; instead, the emission of at least some types of pollutants and activity that causes other forms of environmental degradation flatten out and decline as wealth increases. Tierney observes this pattern and leaps to the conclusion that we needn't worry too much about global warming and other pollution problems because eventually the flattening out will occur in these cases as well. (And, indeed, he cites empirical research that shows a long-term reduction in carbon per unit of energy.)

But as Jonathan's examples make clear, the reason for this pattern has nothing to do with the problem of pollution properly understood—as a problem of negative externality. Consider the example of the saw blades. A firm that owns a patch of timber rationally switches from thicker to thinner saw blades because thinner saw blades waste less wood. If demand remains constant, then the firm will destroy fewer trees than in the past. In this way, technological development reduces what Tierney calls "environmental impact."

But in this example, environmental impact is purely internalized. When a firm can produce output with a new technology that wastes fewer inputs, it will do so. Happily for the rest of us, the extra trees may absorb some greenhouse gases, but that was certainly not the goal of the firm. It just happens that in this particular setting a firm's profit-maximizing decision to switch to a new technology benefits other people.

But this example reflects contingency only. Why would a profit-maximizing firm care about benefiting the rest of us? Indeed, it will surely destroy more trees than is optimal from the social standpoint since it does not internalize the full social benefit. But Tierney is not comparing the current level of forestation with the optimal level; he is comparing it with a level that existed at an arbitrarily chosen earlier period. Suppose now that a still newer saw blade technology will be even more efficient for the firm, but the manufacturing process needed to produce it generates loads of greenhouse gases. The firm will switch to this technology even though the social costs may be greater than the social benefits (in the form of cheaper wood, more trees, etc.).

I can see only two possible explanations for the EKC. The first is the one I provided in my earlier post: that as people become wealthier, they become more willing to pay for regulation that reduces pollution. (Wealthier people may also be able to demand and secure better governmental institutions that will reliably translate their preferences into outcomes.) The second is that, given our system of incomplete property rights that fails to internalize all positive and negative externalities, it is not surprising that technological change sometimes has positive effects on the environment (a new technology exploits inputs more efficiently, benefiting both the user who needs to pay for fewer inputs and third parties who suffer from less pollution), and sometimes has negative effects on the environment (a new technology benefits a user because it results in more waste being externalized on other parties). Julian Simon won his famous bet with Paul Ehrlich because it turns out that technological development frequently does outpace demand for resources, but Simon never claimed that it follows that we shouldn't tax activities that cause pollution—because it doesn't!

It is certainly possible that the first theory applies to carbon use. Fuels that generate energy alone rather than energy plus a bundle of harmful pollutants will, all else equal, provide greater benefits to those who use them because they get more energy for the buck. The long-term trend toward greater energy efficiency thus can be attributed, in part or even in whole, to market incentives, which have caused energy users to switch from less efficient (expensive) to more efficient (cheaper) sources of energy. But because these energy users care about clean energy only to the extent that it reduces their own costs, and not to the extent that it reduces costs for third parties, this process has occurred too slowly, and so government intervention is warranted.

I fear that people like Tierney have fallen prey to the notorious selection effect. They are looking for examples where environmental degradation has receded (forestry) rather than increased (the atmospheric commons, the ocean fisheries), and then, implicitly, saying that the happy outcomes in the first case mean that we shouldn't care about the bad outcomes in the second. Of course, that is wrong. Where technological change causes people to use their property rights in a way that benefits rather than harms other people, obviously there is no or little reason for government intervention. But where it has the opposite effect, there is. The existence of the first phenomenon does not imply that the second phenomenon does not exist.

A final point. The phrase "richer is greener" may be a reasonable description of the world, but I don't think it has any implications for policy. If some activity produces pollution, the usual prescription is to tax it so that the marginal cost of the activity equals the marginal benefit. The producer should stop the activity at the point at which an additional unit hurts society more than it helps it. The "richer is greener" slogan may seem to imply that in fact we shouldn't tax this activity. The tax will make us poorer—consumers pay more and shareholders receive less. If the tax is not imposed, we'll be richer and therefore (?) greener.

But the goal of social policy is not to make us richer but to make us better off, and when we prefer clean air over extra money, then the tax is justified. The only way I can make sense of the slogan is as a claim that richer people care more about the environment and voluntarily cut back on consumption, buy more green-friendly goods, and so forth; over the long term, more rich people mean a cleaner environment. As I noted before, rich people cause more environmental harm than poor people do. A McMansion uses more energy than a small apartment with leaky windows; a Prius uses more energy than a seat on a bus. But even if this claim were true, by hypothesis, the richer people are worse off than they would be if the tax had been imposed—they are actually poorer in a well-being sense as opposed to a monetary sense. Indeed, if the story about their preferences is true (and I remain skeptical), they will spend a lot of the money they save on taxes by traveling to places with clean air, purchasing oxygen supplies, and so forth, so they may be poorer rather than richer. I suspect that the story is a lot simpler here. In countries where people get their act together and manage to create and sustain high-quality institutions, these institutions (functioning court systems, non-corrupt legislatures, and so forth) adopt socially beneficial policies—including policies that both enable people to accumulate wealth and constrain activities that cause environmental harm.

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