The Vox #fancystats eggheads are at it again with a proposal they’re sure will save the environment: cut off the supplies of fossil fuels. David Roberts writes the Restricted Supply Side idea is a really good one and believes it could actually help (!?!?!?!?!) the economy. His particular notation is a study done by London School of Economics and Political Science professor Fergus Green (rather aptly named) and Richard Denniss at Australia Institute. What’s interesting is the fact Green and Denniss don’t 100% believe it’s feasible, at the moment, and also admit to putting oil, coal, and gas in the same bucket when it comes to “the relative strengths of supply-side policies vary among fossil fuel-types.” It doesn’t mean the two aren’t planning to try to convince environmentalists to add supply restrictionist policies to their framework.
The key idea on making restricted supplies economically viable has to do with purposefully harming the consumer who uses the item. Via Section 3.2 of Green and Denniss’ paper:
Restricting the supply of a product, all else equal, increases the market price of that product. Restricting fossil fuel supply will thus raise the absolute and relative price of products that use fossil fuels as inputs. To the extent that higher prices discourage consumption (the premise on which restrictive demand-side policies such as carbon pricing is based), the higher fossil fuel prices will cause a reduction in the quantity consumed.
The pair take it a step further by admitting the failure of certain environmental policies like carbon taxes and cap and trade. Their solution is to restrict access to fossil fuels, despite acknowledging there’s no way it’ll happen anytime soon.
In a world where optimal climate policy is not achievable, it would be beneficial to augment demand-side policies with supply-side policies. The main reason for this is that when demand-side policies succeed in reducing emissions in one country the decrease in demand for fossil fuels can result in lower prices being paid for fossil fuels in other countries (where the relevant market is international). While in a first-best world of global carbon pricing such an effect would not be possible, no such global policy is likely to arise anytime soon, and at present the climate and energy policies of large energy users such as the USA, China and India have significant ability to influence the world prices for each type of fossil fuel. Price reductions that accompany a decrease in demand can slow the global pace of industrial transformation toward low-carbon production. For goods that do not generate negative externalities, the slowing of industrial transformation caused by such price falls is advantageous as it helps maximise the utilisation of existing capital and labour. But when the objective of demand-side policy is to accelerate industrial transformation, restrictive supply-side policy has an important role to play in limiting countervailing price effects. The combination of supply-side and demand-side policies will thus hasten the industrial transformation required to meet climate mitigation objectives.
What’s interesting is Roberts sort of admits this in his summary of the study, but swears price increases will happen “eventually.”
Second, where demand-side policies tend to place the costs visibly on consumers, the perceived costs of RSS policies fall on fossil fuel companies themselves. Of course, those costs are at least partially passed downstream to consumers eventually, but they are relatively more “hidden” that way, and thus more politically palatable.
The rebuttal to this is California. The state could get $4 gas per gallon at some point this year due to a combination of factors including the price of oil and the $0.417 gas tax which went into effect last year. Not exactly the “partially passed downstream to consumers eventually,” as Roberts claims. There are other factors to higher gas prices in California, including higher gas standards for vehicles, which can’t be ignored. One other thing which can’t be ignored is the fact gas emissions from vehicles are going up in California, despite the fact zero emission vehicle ownership is also on the rise.
So why even bother to rebut Roberts, Green, and Denniss if their policies aren’t even feasible at the moment? The trio is playing the long game. They want to plant the seed in the public’s mindset of, “Oh, let’s just start restricting the supply of fossil fuels to solve the problem.” The idea of the grandiose state dictating the economy even more than it already does is something which appeals to these guys, especially if it can “save the planet.” It’s important to show people who care about the environment, but aren’t necessarily “greenies” why this line of thinking can harm people longterm, even if the thought may not become policy for a few years.
There’s nothing wrong with wanting to take care of the environment or conserve energy or trees or whatever, and the idea of solar power is appealing. The big question is whether it should be the state forcing people to choose between multiple different power sources (or one power source) or if companies should be focused on evolving their technology and introducing new items which could save people money in the long run. This is why the philosophical fight between freedom and government overreach never stops, despite our desire to take a deep breath or five. The harebrained theories of today can eventually become the policy of tomorrow. The key is to explain the flaws in the ideas, while also promoting alternatives. It’s also not a bad idea to have data too…even if it may never be the #fancystats Vox prefers.