As part of a binding commitment to cut all carbon dioxide emissions 80 percent from 1990 levels, the U.K. today confirmed a target of implementing 57 percent of cuts by 2032.
For those wary of the artificial contrivances of central planning, this serves as a depressing reminder that the same population which just voted to exit the regulatory confines of the EU is also independently one of the world’s leaders in restrictive environmental legislation. The kind of high turnout that propelled the Brexit vote is not the rule; and without constant vigilance by leave-side citizens the deregulation benefits of independence will fail to materialize.
In the face of advancing environmental austerity, it is worth revisiting the economic impacts of such deep cuts. After all, for everyone excepting the most rabid environmentalists, reducing the tonnage of carbon dioxide in the atmosphere is not a good thing in and of itself. The value of a reduction in emissions is simply the cost of intervening in the market to fix over pollution weighed against the cost to society of the state doing nothing in a credible alternative world. Whatever the costs of global warming, if it so happens that the attempt to stop it is more costly than the alternative, we ought approach the issue differently.
Three questions then arise: what will the U.K.’s emissions cuts cost, what will they achieve, and how do they stack up to a hypothetical world without this goal?
The Department of Energy and Climate change will spend about $1.4 billion this year, and lost fuel duty revenues will probably hurt government income in the short term, but the broader impacts on the U.K. economy are subject to lots of debate. Broadly speaking, groups which make optimistic assumptions in their macroeconomic models tend to see the costs to GDP growth, and, via Okun’s Law, unemployment, as negligible, or even slightly positive.
Predictions which do not assume perfect market efficiency, painless implementation, and unbiased lawmaking generally see emissions reductions doing relatively significant damage to economic growth. If you want a rudimentary way to test the impact of key assumptions in these models for yourself, see here. Note that the most aggressive drawdown the model predicts is an only 40 percent reduction in current output, not twice that percentage off 25 year old levels.
As for what is achieved by emissions cuts, obviously U.K.-based emissions will go down. However, developing countries will, and ought to, continue polluting, and global emissions will increase. Investment in green energy and conservation technology will be allocated based on government discretion. However, governments are bad at picking winners, well-meaning programs like U.S. ethanol investment often have enormous unintended consequences, and subsidies create zombie markets dependent on subsidies to be competitive. There is also the argument that subsidizing renewables as a response to the dominance of already-subsidized fossil fuels simply compounds waste and inefficiency, when really the object should be to remove support from any component of the energy industry and allow for the market to clear.
A defensible understanding, then, of the U.K. emissions targets, is that they stand to significantly reduce economic growth and interfere with the energy market. Both of these impacts will compound over time. If the U.K. avoided just a 1 percent reduced growth rate compounded over the 34 years between now and 2050, it would be 40 percent richer for it. In a world without artificial support of the current best environmental technologies, more vigorous competition would drive even better future tech.
One alternative world that would likely see more efficient outcomes is one in which specific targets are abandoned but the government invests in an incentive structure for audacious technical breakthroughs in the energy industry.
Another solution proposes to, instead of fetishizing zero emissions, set more moderation reduction goals, do less damage to the economy, and amply pay off the balance of global warming’s impacts later.
It’s no coincidence that the government still has no idea how to actually effect over half of its intermediate 57 percent reduction target: 2050 and 80 percent are nice round numbers, and they sound impressive in speeches, but they don’t reflect a realistic accounting of costs and benefits. It is a shame the British people continue to march down this path of self-denial.