The Wrong Tools for the Job

By / 4.22.2011

Whatever you read today, you’ll find writers marking Earth Day by taking stock of environmental progress. Some will celebrate how far we have come in the last 41 years: no burning rivers, bald eagles are back, etc. Others will stress how far we have to go, citing biodiversity loss, water crises, and above all climate change. (And if your reading habits are sufficiently diverse, others will argue we’ve gone too far, and that environmental rules are hurting our economy). All of these (yes, even sometimes the third) are partly right, but arguing over which frame is “right,” if any can be, is not that illuminating.

A better way to take stock of environmental progress is to look at the tools we are using. And unfortunately doing that leaves me profoundly depressed. For almost every environmental problem, the best, most cost-effective solutions are rejected in favor of second-bests, hopeful handouts, or inaction. To give just a few examples:

Transportation: With vehicle emissions dirtying city air and contributing to climate change, inadequate investment in road infrastructure, and a strategically costly dependence on foreign oil, the US could increase gas taxes, which are lower than those in almost every other developed economy. Instead, we use some policies that give no incentive to reduce driving while at the same time restricting consumers’ choice of cars (CAFE standards) and others that cost billions while driving up global food prices (ethanol subsidies).

Smog and Acid Rain: For a beautiful moment, from 1990 through 2010, we did it right: we had a nationwide cap-and-trade program for sulfur dioxide emissions that caused smog and acid rain. The program resulted in huge health benefits at far less cost than even EPA estimated. But that program is or will soon be dead. New EPA rules are set to end interstate trading for most of the country and will impose other restrictions that mean allowances now have almost no value. EPA doesn’t deserve all the blame—courts rejection of flexible tools and Congress’ failure to act are the true sources of this problem. But it’s just crazy to kill the best environmental program this country has ever had.

Climate: Despite the Senate’s failure to even consider a single climate bill last year, we do (to the surprise of some) have an American climate policy. States and EPA are leading the way, but even if they are both bold and smart, the patchwork of carbon markets, emissions standards, and energy subsidies that emerges will surely be less efficient overall. Emissions reductions will be less, and those we do get will cost more. How is that a good deal?

I could go on. Everywhere you look, even when we deal with environmental problems, we consistently choose ways to deal with them that are costly, ineffective, or even counterproductive. It would be one thing if the best ways to solve these problems—cap-and-trade, taxing externalities—were untested ideas. But of course they are not. They are well understood, and as close to dogma as is possible among economists. Most damning of all, we used to understand this, across the political spectrum. As the sulfur dioxide story illustrates, even if we are making some environmental progress we are getting worse as a country at dealing with these issues effectively.

There is a political story here, of course. There was a time when many on the left rejected efficiency as a goal of environmental policy. The right pushed for a role for markets, and eventually a grand compromise emerged in the 1990s. Efficiency was understood to be a universally valuable goal: more effective policies meant lower costs or more environmental benefits at the same cost. Politics was about making this tradeoff, as it should be.

But somehow cap-and-trade became cap-and-tax, and a large section of the right seems opposed to any environmental policy, whether efficient or not. They’ve moved the goalposts. This about-face is particularly ironic since it leaves government handouts like nuclear subsidies and inflexible restrictions like renewable portfolio standards as the only politically plausible energy policies. How is that pro-market or anti-big government? (The left is not without some blame too: to see that, just look at how fringe groups have recently derailed California’s cap-and-trade program).

But there’s more to this story than just party politics. Efficient environmental policy simply has not caught on with the American public. Sticker shock (like gas taxes) trumps long-term efficiency every time. Hiding costs through subsidies (like ethanol or nuclear) is always more popular than showing them up front by pricing externalities. Defending or securing benefits to the few is always easier than minimizing costs to the many. With environmental problems, costs are often distant in time or diffuse, or benefits are small but widespread. This exacerbates all these problems—that’s what makes them hard.

To some extent our failure to make good policy is a failure of leadership: hiding costs is classic politics, and tearing down those who ask us to make hard choices is easy. We see this in almost all issues, not just environmental policy. But leaders can’t carry all the blame, not least because we choose them.

So is there anything to be hopeful about on Earth Day? If so, it’s hard to find. The trend is in the wrong direction—it is as if we are forgetting everything we’ve learned about dealing with environmental problems. But eventually the biggest such problems—among them water, energy, and climate—will become too large to ignore (arguably, they are already there). When they do, efficient policies for dealing with them will be available. When we are ready, we can do this.