February 02, 2004
Free market environmentalism
A liberal magazine endorsing free market environmentalism? That's right, Mother Jones has an article pushing a free-market alternative to the subsidy-laden energy bill the Bush administration tried to get through Congress a few months ago. I disagree with them that renewable energy should be subsidized, provided that all other energy sources are taken off subsidies as well. Subsidies would distort the market and make energy artificially cheap, leading people to consume more energy than they otherwise would. However, their analysis shows that solar and wind power are cheaper than fossil fuel-based energy generation if externalities (i.e. cost of pollution) are taken into account. Instead of subsidies which would distort the market, what is needed is taxes on dirty energy sources to account for their external health and environmental benefits. It's a case where some government intervention is needed to account for externalities, but once the government corrects the price signals with taxes, free markets can finish the job of bringing us to a more green future.
Posted by Mike Jurka at February 2, 2004 01:58 PM in Environment
I agree, but I think certain types of subsidies for renewable energy would be beneficial without disturbing the market - like tax subsidies for citizens who install solar power systems on their rooftops. I definately agree that corporate welfare needs to be brought to an end. Remember my RFK jr. post from a few weeks ago about corporate capitalism's "pollution-based prosperity" -
"There is no stronger advocate of free market capitalism than myself. This is not free market capitalism. These industries are doing this by escaping the discipline of the free market. You show me a polluter, I'll show you a subsidy. I'll show you a fat cat who is using political clout to escape the discipline of the free market and load his costs on the backs of the public. The free market is a good thing, we should try it some time. A true free market economy would be the best thing that ever happened to the environment."
How do subsidies for solar power systems on the rooftops not disturb the market? That is basic microeconomics... a subsidy will cause consumption of a good to rise above its free market equilibrium.
In addition, it's these kinds of exemptions that clutter the tax code and make our tax system something that accountants and lawyers love, but that costs billions of dollars for US citizens and companies to comply with.
Arguably, a simple tax on fossil fuels will be enough. In that case, the per-kilowatt cost for solar power will be cheaper. There are some reasons why a subsidy would make sense, i.e. for example that solar power could not possibly complete against power plants that were benefits of subsidies in the past, and new subsidies are needed to "even the playing field," but the default should be to avoid subsidies and special exemptions on our tax code.
Posted by: Michael Jurka at February 2, 2004 05:32 PM