In the general scheme of things, libertarians oppose government action to deal with problems. There are an array of good reasons for doing so – the problem may be overstated, or non-existent; it may be done better or cheaper privately; once government is involved it’s hard to get it out; and people might object to specific government action that necessarily uses their money, but they get no say in the matter.
So it is somewhat unusual for someone like me, who is more libertarian than not, to believe government action is required to properly deal with the risks arising from anthropogenic global warming (AGW).
There are a lot of things that government can do that aren’t ‘proactive’ as such, like removing impediments to market forces (ie subsidies to fossil fuels and water) that distort or muffle the incentives to adapt to a changing climate, and of course there are any number of things that individuals and private organisations can do voluntarily (like buying green power, riding to work, etc). Libertarian prescriptions like those, if adopted widely, will do a lot to mitigate AGW. However, I think there is an argument consistent with libertarian principles for government to go further and actively engage in limiting AGW and lessening its effects.
Normally, problems with pollution and other environmental damage can be resolved through the normal workings of private property and tort law – that is, if government hasn’t interfered by protecting the polluter or setting up institutional roadblocks.
Things get more complicated when it is common property being polluted or damaged, because the incentives are much changed. Action against the damaging party is therefore less likely, and also prone to delay and agency problems. You only need to look at the Murray-Darling, a commonly owned resource, to see that – irrigators and urban centres take too much water out, so the river and associated ecology suffers.
The standard libertarian answer is to harness the power of market forces by privatising the common resource that we want to protect and allowing someone to make a living from it. This has worked very well in such places as Namibia, where local populations are given property rights over wildlife, and similar schemes in other African countries. A form of privatisation called individual transferable quotas has also done wonders for fisheries, with the collapse of fishing stocks halted completely wherever they are adopted. There is also scope for foreign investment in natural resource conservation, as Canopy Capital has done in Guyana, gaining approval from Greenpeace and other green groups. Here in Australia, the CSIRO has expressed its support for market-based conservation like the above examples, as they should – incentives matter.
With AGW, unfortunately, we face a global problem involving a complex interplay between atmosphere, oceans, flora and fauna, where cause and effect are widely spread. The standard answer of privatisation in this case is unworkable – you can’t assign property rights to the atmosphere.* So right away we have to abandon the best method available to combat pollution, and instead have to rely on collective agreement and action.
So what’s the second-best approach? We still want to employ market forces as much as possible, since they are too useful to ignore. That has luckily been recognised by various governments including our own, which is why they have opted for cap-and-trade mechanisms like the EU’s Emission Trading Scheme and Labor’s Carbon Pollution Reduction Scheme. Superficially, they look promising – they put a cost on CO2 emissions, and allow a market for permission-to-pollute to operate. But they are not ideal. They are open to corruption, because companies argue for grandfathering considerations and free credits, they add another layer of bureaucracy and thus cost, they create special interest groups, they have big compliance costs, and the caps can be insufficient to do any good.
Instead of complex schemes, what is needed is a simple carbon tax. An ETS is essentially a quota, and is thus inherently inferior to a tariff. A carbon tax would be more flexible, more efficient and more cost-effective. The administrative end would be far easier to implement as well. One of the best reasons for charging a tax is that instead of having a complicated compensation set-up for increased energy, transport and product prices (as the Rudd government has proposed), the revenue going to government can simply offset other taxes. I’m sure everyone can think of a stupid tax they’d like to see reduced or eliminated!
I know it goes against the libertarian grain to bring in a new tax, even if it is revenue-neutral overall. It’s true that tax reduction is a central feature in libertarian ideology. But a carbon tax is more than just another revenue-raising exercise.
Taxes distort the economy. That is, people’s behaviour changes and efficiency drops. However, when the market is unable to account for certain actions or consequences, it sets up distortions of its own. These are externalities, and can be good and bad. In the case of AGW, a cost (and risk of much greater costs) is being imposed on the world at large by the emissions of various people and industries. However, because this cost is not being solely borne by the emitters, they benefit at everyone else’s expense. That goes against the user-pays ethos of libertarianism, not to mention violating economic efficiency.
So in that sense, a carbon tax is a Pigouvian tax, correcting the market imbalance that exists. It reduces distortion rather than increasing it. Any moderate libertarian, like me, should be firmly behind the concept.
* Airspace is a different concept.