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Forcing the Market’s Hand

May 27, 2010

Kate Sheppard has been filling in over at Ezra Klein’s spot during the past week, writing primarily about the BP oil spill but occasionally delving into other topics on the subject of energy.  I’ve mostly been absorbing her writing rather than responding to it, but this particular post on carbon pricing caught my eye.  The crux is that carbon pricing will be good for the economy rather than bad, but instead of explaining it to you, I’ll just air (almost) the whole thing:

The main point is that yes, jobs in old industries will disappear, but carbon pricing will necessitate new industries. Most importantly, the United States lost 149,000 jobs in the manufacturing sector alone last year; something needs to be done to create new jobs in that sector:

Indeed, this transition is not unique—industries die and are born all of the time, as new technologies usurp the old. For example, the ice delivery industry once had 2,000 commercial ice plants nationwide, but the industry was driven to extinction by the refrigerator. By 1985, 1.1 billion typewriters were sold in the United States. That number has fallen to virtually zero only two decades later thanks to the rise of the personal computer. The once thriving telegraph industry carried 69 million messages as recently as 1970, but inexpensive long distance phone calls, the fax, and now email have reduced the number of telegraph messages to only 20,000 today.

It’s always puzzled me why it’s so hard to communicate this idea when it comes to energy. No one sits around mourning the decline of jobs as cobblers and chimney sweeps as the U.S. economy has shifted, yet we still dwell on the idea that jobs in oil, coal and other industries are something we should expect to always exist.

That idea just doesn’t hold up to the objective reality of our current and future reserves of those resources, even if you ignore the greenhouse gas problem. Take, for example, coal. We have, at the most optimistic estimates, maybe 100 years of it left here in the United States (though some studies have suggested that recoverable reserves are far lower). We already know that we don’t have much oil here. Even if one don’t think the planet is warming, there is a need to shift our power supply. And doing so will necessarily create new jobs.

I’ve come away from this puzzled at something else.  I’m flummoxed by the fact that Sheppard cannot see the difference between the ice delivery industry being driven out of business by the invention of refrigerators—or any one of the other examples she lists above—and the oil/coal industries being driven out of business by the rigid pricing of carbon.  It’s almost too obvious to point out that one of these changes involves market adaptation and the other involves government determining what it believes to be the best course of action for our economy.  Nobody believes that the oil and coal industries should always be our primary source of energy just because the Left says they shouldn’t—proponents of carbon-based energy just believe that the natural evolution of the market away from oil/coal and towards other types of energy will be much more efficient/cheap than forcing the industry in that direction.

In fact, the only real reason to support carbon pricing (or a carbon tax) is—theoretically speaking—that global warming is such a pressing issue that we don’t have time to allow the market to adapt, i.e. we can’t wait until the scarcity of fossil fuels and subsequent price increase drives energy providers out of the carbon market and into the nuclear/renewables market, which doesn’t really jibe with Sheppard’s “even if you ignore the greenhouse gas problem” comment.  If we really do have as little oil and coal here as she suggests, then it will be sooner rather than later that the market begins to adapt.  The converse of her befuddlement may be actually be a better question: why do carbon pricing proponents like Sheppard tout the ability of the market to quickly adapt to new changes such as computers versus typewriters, but see it helpless against the challenges of developing non-fossil-fuels energies in the face of diminishing fossil fuel supplies?

This argument has already been made a million times in a million other spaces, but I thought it was worth repeating since apparently we still don’t understand each other on this subject.

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