, , , , , , , , , , , , , , , , ,

I was reading an article in the New Yorker today about the recent conference organized by George Soros at Bretton Woods, NH.   It was the second annual event for the Institute of New Economic Thinking (INET) and as the name implies, the conference was meant to help foster new ideas on how to deal with major economic and financial issues facing the world.

One issue that came to the forefront was climate change.  Former UK Prime Minster Gordon Brown  argued at the conference that the issue of climate change ”cannot be addressed on an individual basis and can only be resolved by global coordination.”  Brown’s thinking on the subject is hardly “new” or “innovative.”  Rather, it’s a recycling of the conventional wisdom.

Right now, there are basically two predominant schools of thought:

(1) Climate change has major scientific evidence backing it and it’s vital for governments across the world to take aggressive actions to address the issue,

(2) The evidence for climate change is inconclusive and it would be economically disastrous to use government action to solve a problem that may not exist.

In my view, position #1 is more defensible, but I’m increasingly convinced that it’s also a very wrong position.  There is overwhelming scientific evidence that climate change is occurring and being, at the very least, exacerbated (if not wholly caused) by human activities, particularly energy uses that emit carbon into the atmosphere.

I agree that climate change is a very real phenomenon and action is needed to solve it.  Where I’m largely in disagreement is the ‘coordinated global action by governments’ part.  Brown takes it a step further and says that the problem can not be solved by individuals.

The Flaws with “Coordinated Global Action”

There are several flaws with Brown’s argument.  For one — it’s not actually practical.  The idea that we could ever get dozens of governments (at least the major ones) to agree on a realistic plan of action that would reduce carbon emissions is nothing more than fantasy.  China, the US, France, India, Japan, Saudi Arabia, and Brazil all have their own unique issues and it’s extremely unlikely that all would ever agree to any “aggressive plan” that could feasibly reduce carbon emissions by some significant amount.

Even if the governments could agree on a plan, it would likely be counter-productive.   What could the governments agree upon?  The immediate thought is some sort of carbon limit scheme, but that would create immediate problems.  Governments would have to implement various schemes to limit carbon emissions, but these schemes would inevitably end up having to focus on stiffing economic production.  Indeed, it’s no coincidence that the “Great Recession” did more to lower emissions in a short period of time than decades of public policy.

So a top-down approach to the problem is in many ways, the wrong approach.  It incentivizes poor decisions in the name of ‘saving the environment.’  Instead of innovating our way out, we would be devolving our way to lower carbon emissions through economic destruction.

Gordon Brown is absolutely wrong on this issues.  It’s not ‘coordinated global action’ by the world’s governments that will solve climate change issues.  It’s those “individuals” that he claims are incapable of solving it.

Empowering the Private Sector to Combat Climate Change

Climate change is a vital issue that needs to be solved by humanity.  Yet, individuals in the private sector are more likely to solve the problem that misguided attempts by large, inefficient governments.

The real solution to climate change:  enact policies that empower small entrepreneurs!   All over the world, there are people who sincerely care about the issue of climate change and are willing to dedicate their entire life to solving it.  They are determined to find a way to get us out of our downward spiral and won’t be happy until they succeed.

Not only is this endeavor attractive on a moral and practical standpoint of trying to create technologies that will help improve the world; it’s also likely to be quite a profitable endeavor to those who succeed with their technologies.   Which is why there are also people out there who hold large sums of capital and are willing to commit that capital to these innovative entrepreneurs.

Of course, not “cleantech” entrepreneurs will succeed.  In fact, most will fail, but there will be a few pioneers who perfect technologies that will help solve our problems.  With a profit motive involved, these technologies will also be commercialized and more quickly gain mainstream acceptance.

It’s not “coordinated global action” that will achieve this.  It’s domestic policies aimed at empowering innovative entrepreneurs that will help solve climate change issues.

In the broadest sense, policies that achieve the following would be beneficial:

(1) Eliminate subsidies for dirty techologies,

(2) Create more capital for small entrepreneurs (e.g. perhaps a lower capital gains tax of 5% for investors with a holding period of more than 5 years)

(3) Find ways to unleash the power of the private sector in state-owned enterprises, such as mass transit

(4) Stop limiting upward urban development and promote policies that encourage more of it

Of course, these aren’t the only ideas and I’m not even dogmatically saying that all my ideas would work.  Rather, I’m suggesting that the direction of debate needs to shift on this issue.

We need to tackle climate change, but the way to do this is from a  bottom-up perspective rather than a top-down one.  We need to think of more ways to empower entrepreneurs who have ideas on how to reduce our carbon footprint.   This will be more successful than a flawed, unenforceable multi-national agreement that deems from above that “thou shall not emit too much carbon.”  Incentive people to solve the problem and they will eventually.