The United Nations Climate Change Conference, commonly referred to as COP27, convened November 8th in Sharm el Sheikh, Egypt. Among other things, this conference aims to fulfill the Paris Accords’ goal of aligning “the finance flows with a pathway towards low greenhouse gas emissions and climate resilience development”. The world is showing more interest in the environment and in controlling greenhouse emissions than ever before.
Here in the United States, our mindset concerning environmental regulation has improved recently. The gist is this: you attract more bees with honey than with vinegar. Treasury Secretary Jane Allen had previously proposed a carbon tax to combat greenhouse gas emissions, but this policy failed because it would have made what we do more expensive. It would have used vinegar to make other countries go along. Therefore, this policy was divisive and was vehemently opposed by conservatives, dying on the vine and never coming to fruition.
Policies to combat greenhouse gas emissions come mainly in three categories: carbon tax, cap and trade, and green energy subsidies. The first policy proposes imposing a dollar tax per unit of pollutants such as carbon dioxide (CO2). As I mentioned. It has been controversial and has not made real progress.
Cap and trade allows companies that pollute less than the permitted amount to sell their remaining permits, while companies that pollute more than their permitted amount are allowed to buy these permits. There is a market for cap and trade in the European Union like our market for stocks, commodities, etc. In the US, the House of Representatives passed a bill for cap and trade, but the Senate rejected it.
Energy subsidies give an incentive to produce renewable energy that emits less carbon. This makes activity less expensive, in contrast to the tax policy. Tech companies have aided and abided by this policy. During the last decade, the cost of solar energy has dropped significantly, and is now equivalent to the cost of wind energy in terms of dollars per one million kiloWatt hours—lower than the cost of natural gas. Moreover, electric cars have become more acceptable as more charging stations are being built. This has helped renewable energy become more acceptable.
The impact of the third policy will become obvious as the Reduction Indication Act (IRA) of 2022, a $750 billion health care, tax and climate law, starts taking effect over time. We can conclude that, after all this time, the controversial Green New Deal in the U.S. has not died.
Shawkat Hammoudeh, Ph.D.
Professor of Economics and International Business