Nobel Prize-winning economist William Nordhaus explores ways to frame climate change problems and develop solutions
In his new book, The Spirit of Green: The Economics of Collisions and Contagions in a Crowded World, William Nordhaus says there’s a better way to frame the challenges posed by global warming and find solutions. He is interviewed by the Washinton Post’s Steven Mufson and the article appears in the June 14 edition.
In a rapidly warming world, there are plenty of proposals for stopping, or even slowing down, climate change. Yet in the United States, divided by partisanship and special interests, it has been impossible to forge an ambitious climate policy possessing the speed and scale that scientists say is needed.
Enter William Nordhaus, a professor of economics at Yale University and winner of the Nobel Prize in economics for his work on climate change, with new urgency. In his latest book, “The Spirit of Green: The Economics of Collisions and Contagions in a Crowded World,” Nordhaus says there’s a better way to frame the problems of climate change — taxes, individual ethics, corporate responsibility — and come up with solutions.
The Washington Post’s Steven Mufson interviewed him recently. These are excerpts from the interview. They have been edited for clarity.
Mufson: One thing that struck me was the emphasis your book places on the responsibility of government when it comes to climate change.
Nordhaus: One of the big themes of the book is that we have over the last 200 or so years developed elegant and powerful theories about how the private sector works — its strengths, its weakness. We see all around us the miracles of the marketplace. But this does not apply to public goods. The book explains that in a well-managed society we must recognize the need for collective actions as well as actions of the private sector.
To deal with collective action when it comes to public goods will require some kind of government intervention. I don’t think of it as big government but as collective action.
Contagions are, in a way, the most obvious example. Like carbon dioxide, you can’t smell them or see them or taste them but they’re very dangerous. In the olden days they would kill, in the case of the black death, a quarter of the population. We can’t say, “Let the private sector handle it.” It just won’t work.
We want a way to organize collective activities. We want to do it in an effective way, an efficient way. We want to do things that are necessary, with the light hand of government solving problems at the minimal possible cost and minimum limits on our institutional freedoms.
Mufson: Many people think about the potential for individual action especially when faced with a Congress that is gridlocked on climate issues.
Nordhaus: Private markets can work miracles and well-designed government policies can work miracles. There’s no recipe for perfection.
This comes up really strongly in climate change. We’re heading down the road of using very ineffective, costly tools. We could reduce emissions much more efficiently with much less intervention and a much lighter hand on the economy.
I’m focused on how to identify the goals and effective instruments and insist on using those rather than sledgehammers.
Mufson: Such as carbon pricing? Your support for that is well-known.
Nordhaus: We have set the bar for our aspirations so high. Aiming for net-zero carbon emissions by the middle of the century is a very ambitious target.
In my own mind there is a twin set of policies. One is carbon pricing and one is strong support for low-carbon technologies. Both are necessary if we’re going to reach our goals. Carbon pricing by itself is not sufficient. By itself, it won’t bring forth the necessary technologies. Carbon pricing needs the helping hand of government support of new low-carbon technologies.
The analogue here is the covid vaccines. The private sector has incentives of the patent system to make vaccines profitable for pharmaceutical companies. But we went beyond that with the pre-purchase agreements to make sure a strong market was there and guaranteed in advance; this backstop would help these companies make back their investment. It is an unusual way to structure incentives, but it worked amazingly well.
We can use this to think about climate change policies. We can use similar tools to improve our low-carbon technologies.
Mufson: And one of those tools is the carbon tax?
Nordhaus: I think we should use the word “price” rather than “tax.”
Mufson: That sounds better.
Nordhaus: This is not just a matter of rhetoric. It is fundamental. What we really want to do is raise the price of carbon emissions. If you can get it up to $100 a ton, you’re doing a good job. It doesn’t matter whether you do that through a tax or a cap-and-trade system. Canada has a carbon tax. Europe uses cap-and-trade. Others have mixed regimes. Different ones will work better in different environments.
I think it’s true that the U.S. is sort of stuck somewhere in the 18th century, maybe 19th century, on taxes. The rest of the world is moving ahead and we’re sitting here on an island of fiscal denial. One of these days people will wake up and say, “A carbon tax is a good way to reach our goal effectively.”
It is one of the most effective tools. It raises revenues, lowers carbon emissions and reduces mortality from air pollution. Hundreds of thousands of people a year die from the burning of fossil fuels. We’re just so blindered on this that we can’t see what is good for both public health and fiscal health.
Mufson: One popular device here in Washington is the Section 45Q tax provision, which provides a tax credit of as much as $50 a ton for the capture and storage of carbon dioxide. Many lawmakers want to expand this.
Nordhaus: Section 45Q is a subsidy similar to what was given to ethanol in an earlier era. It is a carbon sequestration subsidy. It’s messy. In part, it is subsidizing people already doing that activity. It is helpful rather than harmful. But it is way down the list of priorities. It is going after one of the most expensive ways to reduce emissions, There are so many other things to do before that that are much more efficient than capturing carbon dioxide and pumping it into the ground.
Mufson: ExxonMobil has been facing a revolt by shareholders unhappy with the company’s financial performance and its approach to climate change. Is this part of a wave of efforts to push new and maybe difficult responsibilities onto corporations?
Nordhaus: It’s just another example of efforts we’re expending that are extremely costly and extremely divisive. It takes away valuable analyst time from other more fruitful activities such as pricing fossil fuels at the proper social costs. The movement to have companies measure and disclose their emissions is just an enormous waste of time. If you had a proper price on carbon, we wouldn’t have to do that any more than we need companies to do an inventory of their wheat use or silicon use. It’s another example of how we’re going town a rabbit hole of measures. Even the central banks are getting involved.
Mufson: What about the recent wave of commitments to get to net-zero emissions by 2050, or even earlier?
Nordhaus: I think it’s a worthy goal. But it is largely aspirational and not practical. All the economic modeling up to now says it’s at the outer edge of the possible.
With a high and rising carbon price, you might get to zero by mid-century. Or maybe not. Half the models say you can and half the models say you can’t. But it would require extremely high carbon prices — in the hundreds of dollars per ton with virtually every country participating and cooperating. It’s not the world I know.
Mufson: We spoke about three years ago and I asked whether you were an optimist or pessimist about climate change. And you said you were a dark realist? What are you now?
Nordhaus: I definitely see myself as a realist. Maybe not so dark. If you look around the rest of the world, countries are doing many things about climate change. Some policies are quite effective and some are quite powerful. Almost every country has a carbon price except the United States and Russia.
Robert Keohane [professor emeritus of international affairs] at Princeton made the very persuasive point that regulatory approaches are much more durable than tax approaches. It is hard to turn regulations around, not just legislatively but in the rulemaking process. Regulations lock in the power of vested interests.
My political science friends say, “Look, you never know what’s going to happen. You get used to the Cold War, then Nixon goes to China and the world changes.” I think that external circumstances are changing. People have really come around to see the importance of new technologies and carbon pricing as critical components of an effective climate policy.
I’m hopeful that over the next couple of decades we’ll see a breakthrough.
Mufson: What’s your view of the international side?
Nordhaus: I want to put in a plug for the carbon club or compact. Global warming is not a national problem but a global one. It is analogous to a pandemic. For the climate problem we need to get countries together. There are some proposals about how to change our current approach [seen in the Paris accord] from a voluntary one to one that has some teeth. An agreement with incentives to participate is the only way to get strong agreements to slow warming.
Even if everyone meets the Paris objective, it’s not going to get you anywhere near carbon neutrality by mid-century. So as a final word, I would say we need innovation for international institutions, in this case an international climate club.