Climate Change: Choosing Scylla over Charybdis

With a long, exhausting journey already behind them, Odysseus and crew faced a horrifying new prospect. To get home, they had to sail through a two-pronged obstacle. Straight ahead was a whirlpool that swallowed all who approached while the safe portion of the sea near the shore held cliffs with a six-headed monster occupying the summit. The monster was a hydra called Scylla and the whirlpool was called Charybdis. Odysseus knew two things: if he sailed into Charybdis, there was a near certainty of death for everyone aboard and hugging the coast ensured the death of six, who would be swallowed by Scylla. Understanding the reality of the situation he faced, Odysseus elected the certain death of six over the likely death of all. It’s a story you are familiar with if you have read The Odyssey and it still holds lessons for today. It is, in fact, a perfect allegory to the climate issue.

Emotional appeals from the ends of the spectrum on the left and the right are creating squabbles while the ship is headed for Charybdis. The US is uniquely positioned to lead – to steer the ship to Scylla and a necessary sacrifice to accomplish a sustainable future. Climate change deniers will oppose any action while moderates will be repulsed by anything that causes undue hardship. Since we live in a world populated by people of disparate interests, we must use that information when developing solutions.

Real repercussions of proposed cutbacks need to be understood before we can earnestly talk about them. Sacrifices demanded will likely prove unacceptable. The best we can do is accept the situation and foster innovation that may improve it. By acknowledging where we are, we can map our way forward rather than blindly stumbling through.

To illustrate the scope of the problem and what we need to cut, it helps to know what cutbacks would need to look like were we to make them all right now. Agriculture would need to change and meat consumption would need to be cut back, but that entire industry makes up only 11% of overall emissions and a drastic change in diet will still not completely eliminate it. Electricity and heat account for the largest portion (33%) of global emissions, which would require significantly more adjustment in everyone’s life for any measurable progress – and that’s before accounting for the fact that we would have to permanently mire those in lower-income countries in poverty. Transportation makes up 15%; we’d need to completely rebuild our infrastructure. Even if everyone switched to electric, we would need to ensure powerplants were eco-friendly. What all of this would constitute is a massive increase in costs which in turn would be passed on to consumers. In layman’s terms, everyone would have to cut back on consumption and accept a lower standard of living. These hardships would disproportionately fall on the poor (who consume nearly all of their income). Sound good? It also reduces competitiveness of American firms, so it would mean further contractions in the manufacturing industry while countries like China with less restrictive policies rush to fill the void. Now we would have exacerbated the problem. Extreme protectionism is the only way to guarantee we aren’t creating those emissions. Now what? The only possible measure that would reverse such movement would be war. Many (most) countries won’t be voluntarily cutting back on a scale anywhere near that which is required, so some show of force would need to come into play. Now we have some serious loss of life on our hands. Even if they did agree to those cutbacks, many emerging markets would be starving their citizenry. But wait, there’s more! Per unit of GDP, Western countries emit at far lower rates than undeveloped nations in Africa, Asia, or South America. Without forcefully preventing their development, our cutbacks would lead to larger emerging market emissions and larger overall emissions. Many of those countries are still investing heavily in coal power. We could continue to pull at threads, but the point is that the situation is more multifaceted than those like Greta Thunberg would like to admit.

Despite this daunting complexity, there is some reason for optimism if (and this is no small thing) we can understand that no actor – democratic nation or autocratic ruler – will accept those sacrifices. With a framework for pragmatic thought, we can propose solutions that, while not perfect, will vastly improve our situation. The first point is ensuring there is some cost to carbon, regardless from whence it comes. The second is investing in infrastructure that eases the transition from greenhouse gas emitting energy and industry. Perhaps most important, though, for a project of such scale, is leveraging federal dollars into local concessions building on climate-friendly policy.

Pricing carbon can be done in one of two ways: a carbon tax, whereby the government sets a price for carbon emissions and those who emit are then taxed at that price, and a cap-and-trade system whereby the government sets the acceptable amount of carbon emissions, auctions off licenses to emit, and allows those licenses to be traded freely, so the market sets the price of carbon. While carbon taxation does disincentivize emissions, price is most effective as a tool for setting a value on scarce resources when dictated by market forces. Cap-and-trade allows us to dictate how much we are willing to emit and then allows the market to dictate how valuable the ability to emit is under that constraint. That number could be tightened over time in well-telegraphed ways which allows firms to invest and adjust. Carbon capture could be easily captured in this system as captured, metered emissions could then be sold as licenses to firms that wished to emit more (notably, this would not have to be localized to where the emissions took place). Expanding on that a little bit, we would essentially be saying that we do not care how emissions are brought down to a given level, only that it happens. The market would then dictate the best, most efficient way to reduce those emissions. If that means windmills and electric cars, great! If it means coal-fired power paying for some new carbon capture technology, that’s ok, too (author’s note: it probably won’t be coal). This doesn’t come without caveats: most obviously, we would have to closely monitor emissions to prevent cheating and monitoring can be costly.

Key to the overall effectiveness of any carbon pricing scheme, though, is including importers in it. If American producers must account for carbon emissions while their Chinese counterparts are free to emit as much as they wish, this will simply reduce American competitiveness. Both production emissions and shipping emissions must be accounted for. Measuring all this is, again, quite the undertaking and ensuring compliance is infinitely more difficult when outside of US borders. However, the US is uniquely positioned among all nations as the world’s largest consumer market.

With the implementation of a powerful new market structure, America could set a path for global shifts that would incomprehensible for anyone else. As the world’s largest consumer market, we are in a position of unparalleled leverage in that exporters across the world must cater to American peculiarities. After restrictions on emissions for all goods begin to incentivize investment in renewable energy sources, companies that make those investments will likely start by exclusively sending those products to the US. However, renewable energy has reached a critical point in that it is now cheaper over a long enough time horizon. This will, in turn, help companies abroad who have invested in renewable energy and production to outcompete their dirtier rivals. We can help this process along by using foreign aid and tax incentivizing foreign direct investment (private investment from the US abroad) in clean power. A clean power fund in conjunction with a carbon pricing scheme would both project soft power and strengthen the American institutional brand while cutting global emissions.

The catch is that this effectively serves as a potentially large new tax on American consumption. While regressive in that the lower-income population uses a much large portion of their income on consumption, it is progressive in that the wealthy tend to lead far more carbon-intensive lifestyles. Also problematic is the restriction on economic growth inherent in consumption taxes. To compensate for lost demand, we could implement stimulative measures such as investment in new infrastructure, green retooling of old infrastructure, and direct cash transfers (particularly important for the well-being of the poor who are impacted by carbon pricing). Ideally, sufficient funds could be raised to pay for the changes in infrastructure we would need to accommodate greener technology. Additionally, some of the capital could be allocated into a sovereign wealth fund focused on technology and green infrastructure functioning much like a venture capital fund.

Further, federal money flowing into states could be made contingent on approval for infrastructure projects and denser housing. NIMBYism enriches property owners while increasing carbon footprints and harming lower income families. A progressive plan without addressing that problem would be inherently regressive. Forcing sprawl via restrictive zoning adds to emissions from the automotive sector while increasing both time and cost for transportation and ballooning housing costs. It makes up a significant portion of the budget for lower income families in particular as they dedicate a larger portion of their incomes to necessities. Additionally, raising carbon prices will hit them even harder if we do not also push municipalities to be more liberal in their zoning, allowing people to live closer to where they work and giving them better access to public transportation. As a side benefit, more people will be able to access urban amenities their tax dollars are helping to fund.

Bringing it back to our opening story, a comprehensive cap-and-trade system in conjunction with public investment has the potential to completely change the global economic landscape, but it does not completely halt climate change. Much like Odysseus, we will have to make hard choices. A price for carbon comes from making it a scarce resource, and competition for that resource will spark a new wave of innovation. All of human history is a progression of doing more with less. It’s time to unleash that ingenuity.

I’ll leave you with this slightly more optimistic graph: