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The Nordhaus Shuffle

November 30, 2010

Via Michael Levi’s excellent blog, I was alerted to this article by famous (conservative) environmental economist Ted Nordhaus and co. on technology transfer and a technology more supply sided approach to tackling climate change as opposed to demand side approaches like carbon pricing and subsidies for feed-in tarrifs. (Here it is.)

For mine they raise a number of very interesting practical questions about the phase in low-carbon technology.

At the same time I find practically  every concrete suggestion to be either impractical or much more limited in reality than what they would seem to imply.

They seem to think that developing stand-alone competitive  clean technologies in time to avert disaster is both do-able and more or less a free lunch (if so, its only because they seem to think the tax payer should pick up the bill for it!).

And what about placing a price on carbon? What role does that have in making marginal technologies compete? They are silent on this question, under what I find to be the bad faith argument that economic growth would be reduced and no government wants to accept that. Well, actually the normal estimates are like 0.1% of GDP a year in terms of reduced output in the economy for carbon pricing that is relatively strong (50-150 euros a tonne), so global growth is hardly going be killed by pricing carbon.

In general, while there are plenty of fruitful ideas to follow up in the Nordhaus article, I find the conclusions very much smack of a capitalise your gains but socialise your losses approach to economic policy making: i.e. by asking the taxpayer to pay the larger share for businesses to develop the solution to climate change.

Compare this with demand side approaches…Carbon pricing says: no the atmosphere is a public good, therefore you the polluter should pay to use it (ie emit). Making cleaner technologies more competitive though carbon pricing is therefore fair and sensible.

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