After a recent article in the Herald (ungated version here) I received the following email:

I realise that your objective is to advance a right wing agenda rather than provide factual information, but I was sufficiently annoyed by your article that I have provided media with the attached more informative article, to help people understand the real issues.

The article from my correspondent (I will not name him) was mostly about how EVs are good and will become great in the near future. I suspect he is right.

But that completely misses the point of my Herald piece.

My point is that having capped emissions with the Emissions Trading Scheme (ETS), to then tax or subsidise vehicles or anything else already covered by the cap will make no difference to total emissions.

This has nothing to do with the merits of EVs. Of course EVs can reduce emissions. But the emissions benefits of EV subsidies must be zero under a binding emissions cap.

The question I want to consider here is why an argument against ineffective emissions policies should lead somebody who is worried about climate change to feel angry.

I do not know my correspondent. I assume he was not the only person annoyed by my article. For the purposes of this post, I will assume people who feel angry reading my article:

1. Are worried about the climate change.
2. Believe greenhouse gas emissions cause climate change, and
3. Support policies and actions which lower emissions.

What could lead someone who holds those views to object to an argument that we should oppose emissions policies which do not lower emissions?

Before I try to answer this question, let me first say I do not usually spend time thinking about peoples’ motivations on policy matters. My focus is on the merits of policy. Here I make an exception because I want to reach people who are concerned about climate and who see me as an opponent. If I can understand why people get mad, I have a better chance of communicating effectively and, ultimately, helping.

So let the speculation on where the anger is coming from begin.

First, the objective (lower emissions) is bundled with specific actions. Support for action on climate is support for more EVs, more renewables, less coal and petrol. These actions go with the goal of lower emissions like peas and carrots. EVs always mean lower emissions. Coal always means higher emissions. And more is always better when it comes to favoured technologies; for disfavoured technologies, less. No exceptions.

This view does not fit well with reality. It is probably not obvious, for example, that using coal and natural gas plausibly makes it easier to reduce emissions, or that further investment in renewables beyond some unseen limit in our electricity system will make it harder to achieve our emissions targets. See the ICCC final report on electricity.

For anyone who sees action on climate and getting more EVs on roads as the same thing, any argument against EV subsidies is going to look a lot like an argument against cutting emissions per se.

Second, the only alternative to taxes, subsidies and regulations to lower emissions is to do nothing. Here is James Shaw (at 43:00) saying exactly that to Parliament’s Environment Committee at a recent appearance, for example, after being challenged on the effectiveness of policies.

Such a conclusion is surely natural for anyone who has not heard of the ETS, or who does not know that it caps emissions, or who does not see the cap as credible, or who does not understand how a cap will generally neutralise other policies.

Shaw is in none of those categories, by the way – it is his cap! He introduced the legislation which gave the ETS its hard emissions cap. The bill passed last year.

I suspect another driver of this “alternative is doing nothing” view may have something to do with the idea that human agency is a necessary part of lowering emissions. Sure, the ETS will have some effect, the thinking might go. Profit-maximising corporates will always respond to the incentives of a carbon price. But we will not succeed, the thinking may go, unless somebody decides how and where emissions come down. Many seem to believe prices alone cannot bite hard enough to shift behaviours; we need more than incentives to overcome consumers’ myopia.

Third, I wonder if people are quick to suspect trickery lies behind any question of emissions policies? Sure, this person says he wants lower emissions, but perhaps there is a hidden agenda, either a political agenda or opposition to action on climate.

Another possibility is that the response to my article is a “rally behind the flag” effect. The classic example of rallying behind the flag is America’s response to the attack on Pearl Harbour by Japan in 1941. Political accountability for the catastrophe was put to one side. The focus was squarely on the forward-looking question of winning the war.

I do not think flag-rallying explains much in climate. Bad emissions policies are not in the past – they are not sunk, as it were. Policies are very much in the here and now, or in the future. They can be changed. Those policies will determine success or failure in the war on emissions.

If anything, rallying behind the flag should encourage not deter (constructive) skepticism of policies. Yet many people do not welcome questions about whether emissions policies work. If rallying behind the flag means overlooking past mistakes to focus on the mission at hand, climate policies are not a good fit.

Whatever explains the anger towards my article, it probably does not help that I am one of the only people saying emissions policies should work. It is striking how, out of all the people who demand action on climate, almost nobody has any apparent interest in the performance of the government’s emissions policies.

Anyway, these are my guesses about the psychology behind the interesting conundrum of why well-meaning, intelligent people who want action to reduce emissions feel genuinely angry when they see someone pointing out where emissions policies might not work.

This anger has consequences. It will, and almost certainly has, suppressed questions at the government on the performance of its policies.

We now stand at a precipice. In the next few months the government could commit to policies that will cost percentages of GDP but will not lower emissions, not by a single tonne. If the current track continues, we will end up materially poorer while doing nothing to help future generations on climate.

Surely, there no political constituency for that outcome? Yet that is the path we are on. Almost nobody is asking the government this most basic question: how does your emissions strategy cut emissions?

That question helps protect future generations. So don’t be angry at the person asking it. Be angry about the answer.

John Cochrane may be grumpy but he is possibly my favourite living economist.

In this article he makes a number of great points about climate financial risk. Here are two:

The idea that climate change poses a threat to the financial system is absurd, not least because everyone already knows that global warming is happening

…

Climate regulatory risk is slightly more plausible. Environmental regulators could turn out to be so incompetent that they damage the economy to the point of creating a systemic run.

One hopes that officials working on climate financial regulation in New Zealand understand the significance of knowing what has already been priced, and that regulation has costs and risk and if sufficiently-poorly designed could be a greater threat than the underlying problem. Officials seem to find market failure in a lot of places; regulatory failure less so.

Cochrane concludes:

Climate change and financial stability are pressing problems. They require coherent, intelligent, scientifically valid policy responses, and promptly. But climate financial regulation will not help the climate, will further politicize central banks, and will destroy their precious independence, while forcing financial companies to devise absurdly fictitious climate-risk assessments will ruin financial regulation. The next crisis will come from some other source. And our climate-obsessed regulators will once again fail utterly to anticipate it – just as a decade’s worth of stress testers never considered the possibility of a pandemic.

Read the whole thing.

HT Jim Rose.

Tim Hazeldine writes ($) in the Herald today on how the Climate Change Commission has gone so far off-target. It is hard to excerpt, the whole article is excellent.

Our climate change policy should be solely about climate change. “You can’t kill two birds with one stone” is a cliche but it is not trite. It is true and important in almost every policy context. Yet the Commission considers it should in future “consider broader well-being factors, like eradicating poverty, safeguarding food security and addressing other environmental outcomes”. Wrong, wrong, wrong and wrong.

Exactly. It is not that those other outcomes are undesirable. But insisting emissions policies also solve those other problems puts our emissions targets at risk. Allowing other objectives into the decision making carries a huge emissions penalty. Second-best emissions policies have roughly no effect on emissions.

It is farmers, other businesses, entrepreneurs, innovators, inventors, scientists, workers, and, not least, households – the whole team of five million – who will get the job done, and at the lowest cost, so long as the overall cap set by the Emissions Trading Scheme (or through a carbon tax) is secure.

Also mostly pointless, are the multitude of policy recommendations that pour forth from the report. If the real decision-makers in the economy (i.e. all those listed above) are getting the correct price signal from the ETS, then there is generally no justification for further government intervention. What should be done will be done… The main exception will be in the provision of what economists call “public goods” – in particular research results

A binding ETS cap does not mean doing nothing else. It means being smarter about where to point other policies, targeting then in places the ETS does not reach or might not reach adequately. Where possible, use cost-benefit analysis to check policies are cutting emissions at a high-enough rate to justify their cost, taking proper account of the effects of the ETS. I say “where possible” because research is something that cost-benefit analysis may not be much help. But fill your boots on feebate and harbour crossings.

Just one of the [Commission’s] 1000 technical references is a well-published economics article. This, by the way, rates subsidising electric vehicles as the highest-cost of all known climate policies.

An indictment of the Commission. Naturally, having shown EVs underperform other technologies with the one piece of economic evidence they cite, the Commission recommends accelerating the uptake of EVs.

So, what to do? The Climate Change Commission has, in just a few months, seriously outgrown its boots. The Government should step in, and with polite thanks for their efforts, de-commission the commission. It should then persuade a super-smart mid-career research-grade Kiwi economist – tough-minded but humble (they do exist) – to take the reins of a slimmed-down secretariat.

This is a pretty robust conclusion. However, the Climate Change Commission arguably exceeded its legislated mandate in its first report, and its emissions reduction plan threatens our emissions targets. Those two problems are serious enough to fully justify Hazeldine’s conclusion.