The Political Economy of Alternative Energy

TCS Daily: The Political Economy of Alternative Energy Arnold Kling

Suppose that a friend of yours is trying to lose weight, and he tells you, "If I eat this salad, it will be good for me. So then I can have cake for dessert." What would you tell your friend?

Al Gore is trying to say that by investing in alternative forms of energy, he is "offsetting" the heavy use of conventional electricity for his home. This is like saying that eating salad entitles a dieter to enjoy cake for dessert.

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It may be true, as Greg Mankiw argues in his Pigou Club Manifesto, that higher taxes on bad energy are justified. Figuring out the optimum tax is a difficult challenge, even for the Pigou Club. However, once the correct tax is set, that by itself provides all the incentive that is needed to get people to switch to good energy. The tax on bad energy will raise the price that people are willing to pay for good energy. That higher price for good energy is all of the incentive that producers need to undertake the effort to provide more good energy.

The public policy goal of those who worry about carbon emissions is for people to consume less bad energy. Whether people consume more good energy is beside the point. Trying to get other people to consume more good energy so that you can consume more bad energy is feeble-minded.

A personal "carbon offset" can be thought of as a self-imposed tax on the use of bad energy, accompanied by a subsidy of something else. The self-imposed tax is only constructive to the extent that it discourages the person from consuming bad energy. The subsidy is only constructive to the extent that it reduces carbon emissions somewhere else. Subsidizing good energy by no means ensures a reduction in the use of bad energy.

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If you want to fight carbon emissions, then join the Pigou Club and push for taxes on bad energy. If you want to fight carbon emissions at a personal level, then act as if there were a high tax on your use of energy from carbon-emitting sources, and reduce your use of that energy. If you are not really all that worried about carbon emissions, but you get pleasure from making empty, self-righteous gestures, then do what Al Gore does — buy carbon offsets.