- - Wednesday, November 4, 2015

ANALYSIS/OPINION:

Countries such as the United States and Britain (where I am from) like to think that we operate a free-market system, but do we really? We’ve gotten used to avoiding the full price of many of the things we buy and allowing others to pick up the leftover costs. Nowhere in our society is this more apparent than with the price of energy and the economic costs of dealing with global warming.

In 2006, British academic and former World Bank Chief Economist Nicholas Stern famously published his Stern Review on the Economics of Climate Change for the British government, stating that the costs of inaction would far exceed the costs of action on global warming. He identified climate change as “a result of the greatest market failure the world has seen,” yet now, nearly 10 years later, we have still not yet adequately corrected that market failure.

Ironically, when it comes to this issue, conservatives who most fervently extol the importance of market forces have been the least willing to take a market approach to the problems of environmental pollution and climate change. So the polluter still doesn’t pay for the damage caused by the release of heat-trapping gases and, as a result, economies are damaged, lives and livelihoods are ruined and ecosystems destroyed.

It is because I am a conservative — not despite being one — that I believe that this market failure is so unacceptable.

Conservatives should find the notion of polluting free-riders particularly galling: We believe that free markets deliver improvements in human well-being far more effectively and efficiently than governments. We’re also savvy enough to know that these markets can be manipulated.

The idea of a pure free market is very rarely worked through in practice. To a greater or lesser extent, most markets are interfered with by governments that feel compelled to step in.

It’s not surprising that energy in particular gets this uncovenanted boost. Almost every country feels obliged to help coal, gas and oil to market. The excuses are often the same: national security, provision for the poorest, security of supply and fear of blackouts. Each one is based on the proposition that really important things cannot be left to the market.

With that kind of entrenched advantage, it is not surprising that renewable energy technologies have often failed to compete. Historically, these technologies are comparatively expensive as the pollution costs are not dumped on society. Often, the support renewables have received from governments is characterized as wasteful subsidy — sometimes not unfairly. But the more substantial, almost universal and widely untargeted support for fossil fuels is hardly noticed.

There is clearly a great need for those who are fundamentally of a conservative and market liberal persuasion to insist upon a properly functioning market in greenhouse gas pollution.

We need polluters to internalize the true cost of their activities, rather than dumping it on our health budgets, aid budgets and disaster relief funds. That means the introduction of a mechanism that internalizes the true cost, be it through a cap-and-trade scheme or a carbon tax.

The customer then pays properly for their energy, and innovators are able to compete on a level playing field.

Cleaner technologies can then achieve price parity with their nominally cheaper — yet polluting — competitors. All this will drive market transformation on the scale the world needs if we are to transfer to a global low-carbon economy.

This, of course, must be done in careful steps. What we need is an international determination to make that shift in the ways most suitable for each economy. The mechanisms need not be the same, but the outcome must ultimately be universal.

We should not pretend that this will come without a price: Lord Stern’s latest view is that it will cost 2 percent of global gross domestic product to effectively tackle climate change. But we must consider this against the costs of doing nothing, which Lord Stern argues will be far greater. A recent Citigroup report assessed the cost of inaction as $1.8 trillion more to the global economy than the cost of action.

We would, in effect, be taking out an insurance premium on the future of our planet. And the price of this insurance policy should be paid by those most responsible for causing the damage, rather than those least responsible — the world’s poorest — being the first to pick up the real costs of a dangerously destabilized climate.

Business and investors are working to make these shifts. Through efforts such as the U.N. Global Compact business leadership criteria on carbon pricing, the private sector is setting measures to value carbon internally, advocate for national policies, and publicly disclose progress made.

The world is clearly willing a positive outcome to this challenge. U.N. Secretary-General Ban Ki-moon has played an important role in advocating progress toward securing an international climate agreement at the U.N. climate negotiations in Paris in December. It is within our grasp. Politicians everywhere — and conservatives in particular — should give the process our support.

The Right Honorable John Gummer, Lord Deben, is a former United Kingdom environment secretary and is a special adviser to the United Nations Global Compact on climate change.

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