The strongest argument for a major U.S. government response to
climate change is the obvious argument: climate change.
Green jobs have long had a whiff of exaggeration to them. The
alternative-energy sector may ultimately employ millions of people.
But raising the cost of the energy that households and businesses
use every day -- a necessary effect of helping the climate -- is not
exactly a recipe for an economic boom.
The stronger argument for a major government response to climate
change is the more obvious argument: climate change. The continental
United States endured its hottest year on record in 2012, and the
planet's 13 hottest years have all occurred since 1998. Major storms
and wildfires are increasing in many regions. The air in much of
China resembles soup. The seas are rising faster than forecast only
a few years ago, and the costs of extreme weather are rising, too.
In Washington, the economic case for responding to climate change
has made little progress, and President Barack Obama has subtly
shifted his approach, talking less about green jobs and more about
extreme weather.
As he prepares to deliver the first State of the Union address of
his second term, on Tuesday night, he and his advisers face some big
decisions on climate policy. One is how to make the biggest dent in
carbon emissions through executive-branch actions, given the long
odds of Congress's passing any substantial bill. Another is to
rethink the economics of climate policy now that the early burst of
green-job enthusiasm has waned.
Alternative energy may not be a solution to the United States'
economic problems. But neither is it guaranteed to make those
problems much worse, despite the continuing claims of opponents. Mr.
Obama has a range of options with the potential for different
economic consequences. Some may indeed do harm, but others could
have economic benefits that equal their costs, particularly in a
world in which temperatures, storms and uncertainty keep rising.
The most intriguing choice facing Mr. Obama is whether to
resuscitate a version of the centerpiece of the Democrats' failed
2009 climate push: a cap-and-trade program. He has little chance of
creating such an economywide program, because Republicans and some
coal-state Democrats oppose it. But he may be able to create a
scaled-down version specifically for power plants -- no small thing,
given that power plants produce about one-third of the country's
carbon emissions.
To economists, the best climate policies are those that allow
market incentives to work, and the most damaging tend to be those
heavy on mandates. "Telling companies they have to install this or
that equipment is the more expensive way to proceed," said Michael
Greenstone, an economics professor at the Massachusetts Institute of
Technology and a former Obama administration adviser. "Instead of a
one-size-fits-all solution, you should allow companies to find the
least-cost solution."
Mandating that every power plant use turbines with a minimum
efficiency, for instance, is likely to impose large costs on some.
Perhaps the plants are designed in a way that makes it easier -- and
cheaper -- for them to use their old turbines and reduce emissions
another way. A turbine mandate could force them to raise prices for
consumers more than necessary to achieve the same climate benefit.
