So why, if we can profitably slash planet-warming pollution, does the world face a climate crisis? The answer is simple: market failure.
The global climate crisis is the result not of an orderly free market, but of a distorted market run amok. A truly free market is the planet's best friend. Free markets promote efficiency. "Efficiency," after all, means the elimination of waste – and pollution is waste. The pollution that is catastrophically heating the Earth is the result of market failure; the incapacity of a poorly designed marketplace to place a proper value on an essential asset – the atmosphere. That market failure has brought us to the brink of a planetwide environmental collapse.
King Coal and the oil barons like to pretend that their industries dominate the energy sector because their products are cheaper and more efficient than alternative fuels, giving them a competitive advantage in the free market. This is a myth. The dominance of fossil fuels is the direct result of corporate welfare and crony capitalism that would make a Nigerian dictator balk. Direct federal subsidies to Big Oil – everything from loan guarantees and research support to outright tax breaks and waived royalty fees – amount to as much as $17 billion a year. That taxpayer money distorts the marketplace, artificially lowering the price of gasoline and making it difficult for other fuels to compete. Little wonder that the oil industry was able to report profits of more than $137 billion last year.
Hidden subsidies to the industry are even higher than the direct benefits it receives from our government. Studies show that oil pollution causes at least $4.6 billion in damages each year to crops, forests, rivers, buildings and monuments – destruction that Big Oil is not held liable for. The industry also fails to pick up the annual tab for the $54.7 billion that Americans pay to treat the host of debilitating illnesses caused by oil pollution. In addition, taxpayers spend as much as $100 billion each year to defend the industry's infrastructure around the world, maintaining bases in the Middle East and providing military escorts for oil tankers bound for America. And that does not include the more than $100 billion that the Pentagon has spent annually in Iraq since the war began – another expense that should appear on Big Oil's tally sheet.
According to Terry Tamminen, former director of the California EPA, the true costs of our oil dependence run as high as $807 billion a year – or $2,700 for every U.S. citizen. If all the hidden costs that Americans currently pay for oil were reflected in the price at the pump, gasoline would cost more than $13 a gallon. In short, taxpayers and consumers are essentially giving the oil industry a subsidy of $10 for every gallon of gas sold in America. If we simply eliminated those subsidies and created a truly free market, renewable sources of energy would beat oil – as well as nuclear power and coal, which receive equally grotesque subsidies. It is only through these giant subsidies that gasoline has a prayer of competing with alternative sources such as biofuels and wind, which produce energy far more cleanly and efficiently, at far less cost.
Back in the 1970s, President Jimmy Carter attempted to level the playing field by creating incentives and minimal subsidies to jump-start clean fuels in the marketplace. But then Ronald Reagan took office and ordered the solar panels that Carter had installed on the White House roof torn off. He rolled back fuel standards for automobiles, killed federal incentives that had given America a commanding lead in wind and solar power, and doubled our oil imports. Reagan's efforts fueled the current oil addiction that has us acting like a crack-house junkie rolling old ladies for drug money. Our jones for petrodrugs has not only superheated the planet, it has embroiled us in the Mesopotamian quagmire and made America a pariah among civilized nations, damaging the cause of democracy across the globe.
Our deadly carbon dependence is the result not just of subsidies, but of a deliberate criminal effort by the oil companies and auto manufacturers to subvert the free market and rig the system in favor of their products. Between 1920 and 1955, General Motors, Standard Oil, Firestone and others financed a front company that systematically bought up and destroyed electric streetcars in forty-five American cities, including New York, Philadelphia, St. Louis and Los Angeles. In an illegal conspiracy to eliminate mass transit, they tore up the rail lines or buried them beneath asphalt tarmac from oil refineries, replacing clean, efficient streetcars with more costly and filthy diesel buses. During the Truman administration, the Justice Department successfully prosecuted GM and the oil companies for antitrust conspiracy, but following their convictions a friendly judge allowed them to walk, slapping one executive with a $1 fine. The crime was done
In 2003, the Justice Department didn't even bother to investigate automobile manufacturers who maneuvered to kill the electric car. After suing California to repeal a rule mandating the production of cleaner vehicles, GM recalled every one of its EV-IS, its popular all-electric car, and sent them to a demolition yard to be crushed. GM also sold its stake in the car's nickel battery system to none other than Texaco – a company with a vested interest in keeping the innovative technology under lock and key.
The truth is, we have designed a perverted market system that rewards oil companies, carmakers and other polluters for bad behavior, allowing them to dispose of their wastes into the publicly owned air for free. But new technologies and materials and the mounting anxiety over global warming give more cause for hope than ever before. With a little tinkering we can reconfigure and rationalize the market so that it punishes bad behavior (releasing carbon dioxide and other greenhouse gases into the atmosphere) and rewards good behavior (reducing pollution and conserving energy). Such a move would unleash the extraordinary entrepreneurial energies of our nation so that every American could profit by devising and implementing their own solutions to global warming. With a rational marketplace, new materials and technologies would allow us to rapidly rerun the playbook strategies that nearly liberated us from oil in the 1980s. Within two decades we could get off imported oil completely – this time for good.
If we really want free markets in America, all direct subsidies to the fossil-fuel industry should be eliminated. In addition, indirect subsidies or "externalities" – the hidden costs of global warming – should be accounted for through a carbon tax. By taxing pollution instead of productivity, America could spur a wave of technological and commercial innovation that would rival the Industrial Revolution, harnessing the power of the profit motive to solve the greatest crisis facing our planet.
Given the clout of the oil industry, however, it will take time and enormous political will to implement a tax on carbon production. Fortunately, there are ways we can foster the immediate adoption of cleaner and more efficient energy technologies – without pissing off the oil industry and its powerful political allies, all eager to stall reform. Here are six modest, tried-and-true mechanisms we can implement to quickly foster free-market solutions to global warming:
California is considering imposing a $2,500 fee on Hummers and other low-efficiency automobiles – and then rebating that money to drivers who choose to purchase more efficient cars like hybrids. This cross between a fee and a rebate motivates manufacturers to develop less-polluting vehicles and is a perfect example of how to give consumers an incentive to conform their self-interest to the public interest, turning every driver into a guerrilla warrior in the battle against global warming.
Cap and Trade
One of the most effective tools for harnessing markets to save civilization is a mandatory cap on planet-warming pollution – one that begins by cutting emissions now and then reduces them eighty percent by 2050. Establishing mandatory limits in all industrial sectors would create a huge market for products and technologies that use less energy and emit far less carbon. In addition, companies that figure out how to cut their emissions to below their limit will earn credits that can be sold to those companies that can't meet their quota, creating a powerful incentive to actually beat the pollution limits. California, New York and a dozen other states are already experimenting with various cap-and-trade systems, recognizing that if they level the playing field with marketwide limits and smart incentives, the market will respond.
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