Acton Institute Powerblog

A free-market ‘green revolution’

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Society today is pulled between two opposite views towards the environment. At one extreme, some see the environment as only a source of profit and gain, but ignore any larger responsibilities. At the other extreme, some recognize an obligation to nature, but think that the only way to protect the environment is through stifling regulation and the expansion of government. Both of these philosophies contain elements of the truth, but neither are complete. It is possible to develop effective government policies that both protect the environment and benefit the economy. […]

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Mankind has an unquestionable obligation to protect the environment. As Pope Benedict XVI explained in the encyclical Caritas in Veritate, “the environment is God’s gift to everyone, and in our use of it we have a responsibility towards the poor, towards future generations, and towards humanity as a whole.” These obligations, however, do not mean that businesses and society cannot use the environment for economic gain. Instead, these responsibilities imply that we must see the natural world as a gift from God, meant to be used and enjoyed, but also protected for the benefit of others.

With that in mind, it’s important to examine how President Joe Biden’s plans to deal with environmental stewardship stack up. During the 2020 presidential campaign, President Biden promised that he would not just “tinker around the edges” when it comes to addressing America’s climate policy. Instead he pledged to rejoin the Paris Climate Accords, set ambitious standards for reducing America’s greenhouse gas emissions, all with the stated goal of ushering in a “green revolution” in the United States. Addressing climate change remained at the top of his agenda during his first trip overseas as President. After President Biden’s meeting with the Group of Seven countries in the United Kingdom last week, many of America’s allies agreed to adopt similar policies.

After three days of meetings, the G-7 published a report titled “Our Shared Agenda for Global Action to Build Back Better.”  Embracing a “green revolution” is a central tenant in that shared agenda. The member nations called for net zero emissions by 2050, increased conservation efforts, and other policies to halt the rise in global temperatures. With President Biden’s increased focus on the environment, it is worth considering what our obligations are to the environment, what policies are the most effective at stopping climate change, and what America’s “green revolution” should look like.

Society today is pulled between two opposite views towards the environment. At one extreme, some see the environment as only a source of profit and gain, but ignore any larger responsibilities. At the other extreme, some recognize an obligation to nature, but think that the only way to protect the environment is through stifling regulation and the expansion of government. Both of these philosophies contain elements of the truth, but neither are complete. The laissez faire approach “has engendered immense inequality, injustice and acts of violence against the majority of humanity, since resources end up in the hands of the first comer or the most powerful: the winner takes all.”   On the other hand, the protectionist approach ignores the costs to human freedom and economic prosperity that attend government expansion. Instead, America must seek a middle course. It is possible to develop effective government policies that both protect the environment and benefit the economy.

An effective solution to climate change must include a focus on private innovation, open markets, and free trade. The government must adjust tax and regulatory structures to favor investment in renewable energies; it must create open and competitive energy markets; and it must promote free trade to spread green technologies around the globe.

Reforming government regulations and the tax code will reduce the upfront costs to green technology and incentivize green energy production in the long run. Businesses suffer high fixed costs when they choose to adopt green technology. After installation, however, renewable energy is cheaper than fossil fuels. The tax code, therefore, must help businesses that adopt green technologies. Congress must create a tax credit for green energy similar to the “Intangible Drilling Costs” (IDC) credit enjoyed by fossil fuel companies. The IDC allows oil and gas producers to write off all expenses that are “incident to and necessary for” developing wells and other energy production facilities. Expanding this provision would benefit the renewable energy industry and decrease the costs for businesses adopting green technology.

Companies also need an incentive to stay in the green energy market for the long term. Performance-based incentives (PBIs) that reward high energy production over time can provide this incentive. State PBI programs subsidizing companies based on the amount of clean energy they produce would increase the profitability of green technologies. This incentive, combined with lower maintenance costs compared to fossil fuels, will draw new companies to sector that are able to compete against traditional energy producers. This will foster the long-term growth of the green energy industry and will pave the way for a transition to renewable energy, which is critical to arresting global warming.

Second, the government should open energy markets for competition among all energy sources. Traditionally, government regulators have viewed energy production as a natural monopoly created by high startup costs and economies of scale. Regulators used this as an excuse to involve themselves in all parts of the energy sector. Then, in the early 1990s, some states moved toward competition and deregulation in their energy markets to curtail high prices. They awarded contracts to the lowest bidding company and allowed supply and demand to determine consumer energy prices within a wholesale market. These reforms worked. Between 1982 and 1996, the real price of gasoline fell to $3 from $6. These facts illustrate the power that pro-market reforms have to increase renewable production, while also reducing consumer prices. The federal government should open energy markets to competition, which will allow profitable and low-cost green energy sources to thrive.

The final part of the free-market “green revolution” is free trade. Once U.S companies develop new green technologies, it is critical to export them abroad. Free trade will help global efforts against climate change and ensure the success of American businesses. The best way to promote domestic exports is through free trade agreements and the single most important free trade agreement for the future of green energy is the Trans-Pacific Partnership (TPP). The TPP originally included 6 of the 20 largest energy consuming nations in the world, before the United States pulled out of the agreement. Had the TPP gone into effect, the renewable energy industry would have saved roughly $24 million per year in reduced tariffs. Instead, U.S energy companies have to face tariffs as high as 30% on their green energy exports. America’s first and most important step toward increasing the export of green technology is rejoining the TPP. This will boost the American economy by reducing tariffs and other trade barriers, while also disseminating green technologies abroad. Climate change affects the entire planet, so it is critical that new renewable energies spread around the globe.

A “green revolution” does not require new regulations, the expansion of government, or the destruction of the American economy. President Biden’s renewed focus on protecting the environment must also include a commitment to innovation, open markets, as well as free trade. With the right policies, it is possible to both stop climate change and grow American business.

Thomas Richter

Thomas Richter is a member of the Acton Institute’s 2021 Emerging Leaders class. He is junior at the University of Notre Dame pursuing a double major in political science and philosophy. Thomas is originally from Columbus, Ohio, and is interested in working in business consulting before eventually attending law school. He enjoys reading, running, and playing golf in his free time.