Climate Change

Capitalism Is the Key to Fixing Climate Change

Slowing or stopping economic growth will only delay solving the problems caused by man-made warming.

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Today's Climate Strike protests are supposed to bring attention to the science showing that human-made global warming is becoming a problem. Fair enough. But some participants see climate change as pretext for destroying a market system that they have always hated.

Naomi Klein made this point crystal clear in her 2014 book, This Changes Everything: Capitalism vs. the Climate. Speaking with New York magazine this week, Klein claimed that "taking climate change seriously decimates the entire neoliberal project because you can't have a laissez-faire attitude, where it's having your emissions in 11 years; you actually need to regulate your way out of it. And yeah, you can have a few market mechanisms in place, but the market is not going to do it for you."

The science, insists Klein, "says our future is radical. The present is pretty radical too. The idea that there is some sort of gradual, incremental, let's-split-the-difference pathway to respond to this crisis is silly at this point."

A headline in The Guardian put it even more forthrightly: "Ending climate change requires ending capitalism."

Global warming is a classic example of what happens in an open-access commons. The atmosphere is unowned, so no one has an incentive to protect and conserve it. Instead, people overexploit and pollute it. Historically this happened with sulfur dioxide, carbon monoxide, and smoke. In the United States, cities initially implemented regulations to cut back on noxious air pollutants. (For example, the first smoke abatement regulations were enacted by Chicago and Cincinnati in 1881.) Eventually federal regulations and market mechanisms were adopted. As a result, since 1980 air pollutants have collectively declined by 68 percent while the economy grew by 175 percent.

Scientists call this the environmental Kuznets curve. Environmental commons tend to deteriorate as countries begin to develop economically—but once per-capita income reaches a certain level, the public starts to demand a cleanup. It's a U-shaped pattern: Economic growth initially hurts the environment, but after a point it makes things cleaner. By then, slowing or stopping economic growth will delay environmental improvement, including efforts to mitigate the problem of man-made global warming.

The MIT economist Andrew McAfee explains the process in a forthcoming book, More from Less:

We have finally learned how to tread more lightly on our planet….In America—a large rich country that accounts for about 25 percent of the global economy—we're now generally using less for most resources year after year, even as our economy and population continue to grow. What's more, we're also polluting the air and water less, emitting fewer greenhouse gases, and seeing population increases in many animals that had almost vanished. America, in short, is post-peak in its exploitation of the earth. The situation is similar in many other rich countries, and even developing countries such as China are now taking better care of the planet in important ways.

How did this happen? Through more capitalism, not less:

The strangest aspect of the story is that we didn't make any radical course changes to eliminate the trade-off between human prosperity and planetary health. Instead, we just got a lot better at doing things we'd already been doing. In particular, we got better at combining technological progress with capitalism to satisfy human wants and needs.

McAfee's book documents how technological progress spurred by market competition is dematerializing the economy. McAfee makes a strong case that climate change is an open-access commons problem that markets can dematerialize once a price is put on greenhouse gas emissions.

The upshot is that Klein, The Guardian, and many of the climate strikers have it exactly backwards. Properly incentivized capitalism is the key to solving the problems caused by climate change.