Free Markets

Free Markets Save the Planet

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A startling new report from the International Energy Agency (IEA) reveals a free-market way to thwart climate change: Create a free market in energy. Fatih Birol, chief economist at the IEA, estimates that 37 nations spent $409 billion on fossil fuel subsidies in 2010. (By comparison, renewables received $66 billion in that same year.) Impressively, if fossil fuel subsidies were eliminated, this would avoid 750 million tons of CO2 by 2015, and could potentially save over 2.5 gigatons of carbon by 2035. The latter is 70 percent of what the European Union currently emits. In total, by ending these distortions in the energy market, the world could reduce half of the carbon emissions necessary to stop a 2°C (3.6°F) rise in global temperatures.

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Writing in Slate, Matthew Yglesias expands on what this means for climate policy:

If roughly half of what needs to be done can be achieved simply by eliminating economic distortions—economic distortions that would be unwise even if there were no concern about pollution—then the whole framework of a trade-off between prosperity and sustainability is largely misguided.

With that in mind, here's a simple proposal to fix those UN climate confabs that meet every year and do precious little. Rather than focus on vague, trumped-up emission targets, how about international agreements to phase out energy subsidies? The other half of carbon reductions could be attained by more market-based approaches, like cap-and-dividend or a carbon tax that was guaranteed to be revenue-neutral. In addition, switching from dirtier fuels (e.g. coal) to energy sources with a low-carbon footprint, like renewables, nuclear, and natural gas, would also slow emissions.

Unfortunately, ending these subsidies would be quite difficult. According to the IEA report, most of these fossil fuel subsidies are in non-Western nations, and thus are less inclined to care about global warming. The top energy subsidizer is Iran, which spends over $80 billion each year, half for oil. Meanwhile, Saudi Arabia, Russia, India, and China round out the rest of the top five.

The most common justification for maintaining these subsidies is that they reduce energy costs for the poor. But like so many other government programs, fossil fuel subsidies are socialism for the rich. Only 8 percent of these subsidies actually goes to the poorest 20 percent, with the vast majority benefiting the middle and upper classes. Even if global warming isn't a super serial problem (as this recent Wall Street Journal op/ed argues), ending these subsidies would restore some fairness and fiscal sanity for these nations' budgets.

However, the main, unspoken reason for these subsidies is that artificially cheap energy pacifies the masses. This allows regimes to entrench their power. It's unsurprising that dictatorships like Venezuela and Saudi Arabia have some of the lowest gas prices in the world. Unfortunately, market-minded reformers who try to eliminate subsidies usually must face an angry public. For example, Nigeria was recently racked with nationwide riots after Nigerian President Goodluck Jonathan ended fuel subsidies. While prices doubled for Nigerians, this move is expected to save $8 billion and significantly reduce corruption and cronyism within the Nigerian government.

Reason on global warming.

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  1. I’ma gonna need some detail on what goes into that “subsidies” number.

    From what I’ve seen, the alleged subsidy of fossil fuels in this country is mostly depreciation, which isn’t a subsidy.

    I’m guessing that a lot of what is counted as “subsidies” in these emerging nations is the nationalized oil company charging below (international) market prices to the home folks. Is that a subsidy? I could argue it either way, but certainly the whole arrangement is unlibertarian.

    Oh, and anyone who refers to cap and trade (or whatever the latest obfuscatory euhpemism is) or a carbon tax as “market-based” knows almost as much about markets as Newt knows about capitalism.

  2. Subsidy for “good renewables” is an order or two of magnitude greater (PDF) than any other form of energy, save for some exotic coal technology that is little-used. This suggests that even without “subsidy” (which I assume includes tax breaks), solar and wind can’t compete with fossil fuels.

    1. Er — the above can be found in table ES5 in the PDF linked. And the numbers are about the subsidy per unit energy produced.

    2. Some wind plants are viable. Solar is a pipe dream at this point, especially when eco-dildos stop plants from being built in Death Valley, the best potential location in the US.

  3. Yes, economic freedom, including the end of any subsidies, is a good approach to all markets, including in energy. However, anthropogenic climate change is a hoax, so let’s not indulge the concern over carbon dioxide emissions.

  4. Impressively, if fossil fuel subsidies were eliminated, this would avoid 750 million tons of CO2 by 2015, and could potentially save over 2.5 gigatons of carbon by 2035.

    Who’s your favorite H&R commenter that, for eons, has been touting climate change solutions as a way to sell free market capitalism to the masses?

    Go ahead and say it–you know you want to!

    Denialism puts us in the same boat with creationists if we’re wrong. Some people find it hard to believe that free market capitalism could be the solution to our environmental problems, but there’s no good reason for libertarians to be like that.

  5. “Writing in Slate, Matthew Yglesias expands on what this means for climate policy:

    If roughly half of what needs to be done can be achieved simply by eliminating economic distortions?

    economic distortions

    that would be unwise even if there were no concern about pollution?then the whole framework of a trade-off between prosperity and sustainability is largely misguided.

    Oh so now this fuckface is calling government subsidies economic distortions? How did this not come up when this fuckface was blowing Keyne’s cock?

  6. It’s obvious bullshit that Iran subsidizes oil. Taxing oil is the Iranian government’s main revenue source. Does anyone anywhere really subsidize oil?

    1. Mexico and Nigeria off the top of my head.

      When I was living in Mexico, you could only buy gasoline at the government owned gas station. And it’s cheap.

      I believe there are still direct subsidies that go on in Australia and elsewhere.

      There are heating oil subsidies here in the U.S.

      There are also subsidies on the production side rather than just subsidies to the price itself. If refiners can deduct more of their production costs, that’s basically a subsidy. If the government gives more incentives to drillers by letting them deduct a ton of their exploration costs, that’s basically a subsidy, too.

      It seems strange that they would both tax and subsidize something like oil, but it’s the governmints we’re talking about here–not rational actors.

  7. Did Yglesias just say that economic distortions are unwise?

    FUCK…the apocalypse is coming soon.

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  9. They are all watermelons (green on the outside, red on the inside.) Carbon cools the stratosphere and warms nothing. (http://mc-computing.com/qs/Global_Warming/EPA_Comments/TheGreenhouseEffect.doc R. Clemenzi, 2009) How does the earth stay green? Its the carbon, stupid. More carbon = more green. Weak governments subsidize, because they are weak – but they are bribing the people with their own money.

  10. If they would take 2 billion of that and put it into development of a Liquid Fluoride Thorium Reactor they might actually solve the CO2 “problem”.

  11. See, thats exactly what I am talking about dude.QBStimPL4

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