The moderate libertarian case for proactive government action on climate change

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.

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33 Responses to The moderate libertarian case for proactive government action on climate change

  1. Erik Buck says:

    The case for proactive government action on climate change depends upon the case that human activity is causing climate change (plus the conviction that God’s plan requires government intervention). Granted, on average, the globe has been warming up sine the “little ice age”, about 600 years ago. Where is the evidence that human activities, like burning coal, are the cause? Especially when other planets are warming up also? By evidence, I mean measurements and experiments, not computer games and mere correlations. (You know, of course, that bathing suits cause sunny days)When the glaciers advanced, hundreds of years ago, the consensus of learned men was that the “inconvenient truth” was that it was caused by witches. When they burned enough witches (proactive government intervention), the glaciers started to recede. Do we need more witches?


  2. Jarrah says:

    Erik, in future don’t paste other people’s words without attribution, especially very long articles like that one. Put it in your own words, and be succinct.

    You are correct that my argument depends on AGW being real, though incorrect that it depends on the existence or intentions of God.

    “Where is the evidence that human activities, like burning coal, are the cause?”

    You can start with reading this. You might want to start with the FAQ – it has colour pictures.

    “Especially when other planets are warming up also? ”

    Some are cooling. Only 6 out of over 100 Solar System bodies are warming. The Sun can’t be the reason because its output hasn’t changed in decades (apart from the normal cycles).

    “When the glaciers advanced, hundreds of years ago,”

    You cannot be seriously making this argument. Are you seriously making this argument? Because that would make you seriously desperate.

  3. Graeme Bird says:

    False advertising fatty. You didn’t make the case.
    Now since we last spoke about this did you find some evidence that CO2 was a pollutant?

    You didn’t did you?

    No you didn’t.

    So obviously you’ve got nothing to offer to this debate.

  4. Jarrah says:

    AGW is real. Get used to it.

    PS You are on a tight leash here. I won’t ban you out of hand, but be careful.

  5. Graeme Bird says:

    No you are lying. Lets go over it again:

    False advertising fatty. You didn’t make the case..
    Now since we last spoke about this did you find some evidence that CO2 was a pollutant?
    You didn’t did you?
    No you didn’t.
    So obviously you’ve got nothing to offer to this debate.

    So have you got it this time Fatty? Where is your evidence that CO2 is a pollutant? You didn’t have it last time we talked? So whats happened in between. We are COOLING not warming COOLING. Get used to it. Find some evidence or stop lying.

  6. Not even a mention? I’m hurt. :(

  7. Jarrah says:

    John, check the link for ‘carbon tax’ in the ninth paragraph 😉

  8. Jarrah says:

    Graeme, my ‘case’ relies on the assumption that AGW is real. Therefore you can’t say I didn’t make the case by not proving AGW.

    We all know you don’t believe in it (or apparently any scientific thought after Newton), but just for the sake of argument, if you did, do you think my logic holds regarding a carbon tax?

    If you can’t stick to the topic, I won’t let your comments through. Capisce?

  9. Graeme Bird says:

    Why was the last one wiped so quickly?

    Look do you not want to try and make a logical case?

    You appear to be implying that IF AGW is real then no matter how big or small it is, there must be some government action attached to it!!!

    Now its very clear that you imply this? But this is not logical. So try and make a case for yourself. Explain yourself.

  10. Jarrah says:

    Graeme, you are now moderated, so they are not wiped, but kept waiting until I approve them. I allowed this one through because it raises a valid point – the magnitude or severity of AGW is uncertain, and at some sufficiently low level, no government action would be needed. I agree with most in thinking we are far beyond that level.

    However, Humphreys’ article that I linked to in the original post suggests a carbon tax should be tied to measured temperatures (as a proxy for the impact of AGW). That way if warming deviates from projections, the tax can increase or decrease to adjust its economic effect accordingly.

  11. John Davidson says:

    Markets and price manipulation are one of a number of tools that can be used to solve a number of problems. However, they are not the only tools available. To a pragmatic engineer the idea that we can stop thinking as soon as we can see a way of using markets to drive change offends my pragmatism.

    Your desire to reduce emissions by “putting a price on carbon” is a good case. For example, Malcolm Turnbull acheived an 80% improvement in house lighting efficiency by using regulations instead of pushing up the price of electricity. Want to speculate on how far the price of electricty would have to have risen to acheive the same result? Now think of what else might be best acheived by simple regulation instead pushing up prices?

    The Howard government also achived significant investment in clean electricity by introducing a scheme that gave price and sales guarantees to investors in clean electricity. He could have done this in an indirect way by putting a price on carbon. However, if he had done this the average price of electricity would have to have jumped above the price of clean electricity for the investment to have taken place instead of ramping up slowly as the% of clean electricity increased.

    We need to understand the issues involved in reducing specific emissions and look widely for the best way of resolving the problems.

  12. Jarrah says:

    John D, I’ll leave aside the 80% figure despite its dodginess, since disputing it will take us nowhere.

    It is true that simply mandating change through regulation would be the quickest way to reduce emissions. However, our goal is not to simply take the most-pragmatic-from-an-engineering-POV route to low emissions, because every action must have its costs considered as well as its benefits. For example, shutting down all our coal-fired power stations would have a very large immediate impact on emissions. It would also be catastrophic. Obviously you’re not suggesting anything like that, but I’m just using that extreme case to illustrate the point that we have to make trade-offs.

    A problem with regulation is that it requires governments to think of the solutions first (after identifying the problems, and having public and vested-interest input and dialogue before framing the regulations, then garnering enough parliamentary support for the changes, with inevitable fudging and concessions). Unfortunately, that would be a grave waste of our society’s ingenuity – better to put an incentive on all sectors to find ways of reducing emissions, because far more low-hanging fruit will be found that way.

    Another problem is that regulations of this kind can be wasteful of society’s resources (and perniciously so, as the costs are usually hidden from plain sight). They cannot take into account every individual’s circumstances, and so will by definition not be the ideal solution for everyone – that is, they will impose more costs than benefits in a few/some/many cases. That isn’t a sufficient reason to oppose regulations, but it is an additional factor that needs to be considered.

    So you see, you are gilding the lily a bit to speak of “simple regulation”. Also, what I’m proposing is not a “pushing up” of prices, but instead moving to full-cost accounting so that artificially low prices can be corrected.

    You claim “significant investment in clean electricity” as a result of Howard’s regulatory changes. Like your 80% figure, it’s not nearly as rosy as you make out. Furthermore, it’s picking winners, something governments occasionally do well, but mostly fuck up quite badly. It’s also regressive – money is being transferred from the general public to people rich enough to invest in clean electricity.

    Lastly, from an engineering/economic standpoint, the incentives offered to households to install PV panels have been wasteful – better to have spent the money on large-scale solar energy than thousands of inefficient 0.5Kw-1Kw installations.

  13. john walker says:

    The cause of the increased levels of Co2 in the atmosphere comes down to this : Us, creatures that dig/pump fossil carbon out of the ground and burn it. This carbon has been safely buried for 100s of million years. It was laid down in natural extreme greenhouse world events , events that often mapped to known mass extinction events.
    Is this increased Co2 level a worry? Hard to be sure. The climate is a very complex ‘chaotic’ system . While the greenhouse is but one factor in how climate works, it is very a powerful element because of its capacity for postive feedback: – out of control, rapid chain reactions.
    Carbon taxes are being fudged around because they would mean the end of coal as a big biz. If we are serious about Co2 then we have to stop adding ,’new’,as in very old, fossil carbon to the system. Trees, bushfires and cows farting do not add new carbon to the system, coal and oil do- about 70% coal 20% oil the rest mostly from clearing/draining wet peat forests for oil palm production.( on exposure to air the peat starts to oxidise ) So we have pretend carbon control/trading schemes
    instead. Coal seems to have labour , barnaby J, & the Libs and the rest well in hand.

  14. john walker says:

    Paul Sheehan`s take on the carbon fight in canberra ( 17 Aug SMH)
    is interesting – he claims niether side can get that excited about Rudds scheme;
    for those who believe rising Co2 is a big threat -Rudds scheme is just management “churn”.
    And for the ‘what-threat’ mob , Rudds scheme is also just management “churn”.

    Rudds scheme seems to be mainly aimed at having ‘something’ to take to the big talkfest in december.

  15. Jarrah says:

    “Rudds scheme seems to be mainly aimed at having ’something’ to take to the big talkfest in december.”


  16. john walker says:

    Methane is potentially very serious; the methane locked up in gas hydrates
    at the bottom of the Arctic sea is more than enough to cook us all. The worst mass extinction of all time – 250 million years ago, Permian-Triassic event – probably involved the following sequence: a massive, 3k thick volcanic eruption covering the whole of Siberia released enough CO2 to raise global temperatures to a point where an uncontrollable chain reaction involving the release of huge amounts of methane, resulted in a global warming averaging 10 or more degrees. The result: extinction of 90% of all forms of live from the microscopic to the very large. By comparison, the KT extinction (the meteor that took out the dinosaurs) only involved the extinction of about half of the lifeforms on this planet. This doesn’t change the fact that burning fossil carbon is the principle reason why there is more carbon in the atmosphere.

  17. Sebastian says:

    Good argument. While I do have my doubts about the mainstream consensus on AGW (and I am especially distrustful of the IPCC), it’s nice to see sensible thoughts coming from the limited-government side of the political spectrum. Far too often, concern for the environment is seen to be a distinctly “left-wing” opinion, which I personally cannot stand.

    Whatever the truth of the matter, what is undeniable is that the Zeitgeist is moving further and further away from the climate-skeptics, and so we basically just have to accept this and start contributing towards a solution that will preserve our living standards to the greatest extent possible.

    The problem is, government is already involved in the economy on a truly massive scale, which is where I think most libertarians/conservatives are unwilling to often acknowledge any danger with respect to global warming. One libertarian commentator I know described it as “the Trojan Horse of Socialism”, and unfortunately the environmentalist movement is dominated by the type of people who were looking for another cause after the collapse of communism. My own impression from reading the Garnaut report was that AGW was being used as a massive wealth redistribution scheme.

    Just as a thought experiment, do you believe it might be productive if government would extract itself from other areas of the economy, cutting taxes and spending, as a good faith gesture towards the more libertarian elements out there, before implementing any ETS/carbon taxes?

  18. Jarrah says:

    Sebastian, government doesn’t have to do squat for the libertarian elements of the population. The numbers and influence are simply too tiny to worry about, unfortunately. They will be ignored until the LDP or other libertarian-minded party gains some political power.

    So join up and help the cause! :-)

  19. Sebastian says:

    Jarrah, that’s very true, which is why I wanted to consider it as a thought experiment rather than a rational plan of action. I’m already a registered member of the LDP, but I don’t think the problem is so much to do with political parties – they simply respond to voters. The problem is the gross level of ignorance of, and even hostility towards, economic matters that is prevalent in the general populace, and an attitude of “sit back and let government take care of it” which is becoming more and more widespread.

    Until we achieve a shift in thinking towards greater independence and personal responsibility, it’s going to be a hard slog.

  20. john walker says:

    I really agree -the assumption that the environment is a monopoly of bossy left leaning fanatics is both annoying/false and also, I think, a bit of a deliberate attempt by some sectors to make clear thinking about CO2 … a difficult ask.

    Vs Naipaul wrote ( in” memories of a great occasion “1984) about a new kind of political- biz language he called ‘computer language” Watson calls it ” weasle words”
    Public Political debate mostly uses terms that mean what ever the user wants them to mean, little wonder the public get confused.
    Australia is not nearly as bad as the US in this, but the level of ignorance of basic science and in the US open hostility to science is a a major factor in some reactions to climate change , its as though CO2 , evolution , gay`s and all the sins of the world were all some how linked to a lefty science plot and ‘we must preserve our bodily fluids’
    Rent seeking is very common , the idea that there are pure free markets is
    an idea, an abstraction , a good one but mostly honored in the breach.
    There are very few biz in australia that do not seek and often get special treatments,
    The fight between the farmers and the coal miners over the liverpool plains and water is a good example of a very real fight that hardly fits the normal cliches.
    GM and ford have both gotten a lot of public money to — develop a turbo 4 cylinder front wheel drive car- Something that was done in Europe in the 70s! GM
    at the time of the hand-out still owned SAAB

  21. john walker says:

    Jarrah and Sebastian
    The following question is not really about climate change but it is about a related issue. In an era of managerialism, where failures are paid for by the owners and the management sails merrily on with a bonus (ie. Moral Hazard), what is a liberal approach to this problem?

  22. john walker says:

    a clarification to the post above– I by liberal I was using the older/australian usage as in liberal/conservative- libertarian /moderate , like Edmond Burke and all that. Not the current american usage.

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  24. Segun says:

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