Governor Gavin Newsom signed an executive order this week requiring all new vehicles sold in California to be zero-emission by 2035. That seems like a perfect opportunity to go over what markets should actually be doing from a public policy perspective. Governor Newsom saw a statistic that showed a large portion of the state’s carbon emissions coming from transportation and thought this would be a good way to reduce that number, but he paid no mind to where the energy might come from to actually put a charge on the batteries those cars will be using. As a result, imported (from other states) coal power plant owners will have a heyday at the expense of automobile manufacturers of internal combustion engines (who have been rapidly increasing fuel efficiency over the past 10 or so years to comply with CAFE standards). If anything, the net carbon footprint of the transportation might actually increase. If, instead of maximizing the number of zero emission vehicles on the road, the governor tried to maximize the amount of energy squeezed out per pound of carbon emitted, he might actually get results. Alas, he has made an ineffective substitute because it is more politically expedient than a cap and trade system.
Governor Newsom is far from the first person to make that mistake. Indeed, President Trump has been guilty of market manipulations on a level not really seen since President Franklin Roosevelt’s attempts to solve the Great Depression. Far from struggling with a depression, though, Trump inherited the longest uninterrupted expansion in American history and decided returning to the technology of the 1950s was the only way forward, so he started pushing subsidies for coal (an industry that employs a total of fewer than 65 thousand people). He has also tried retroactively refunding taxes and fees to noncompliant polluters. This is not removing the costs of pollution: it’s pushing them onto the residents of an area. It goes further than removing costs, though; coal has been heavily subsidized under Trump. It would not be competitive with cleaner forms of energy without that subsidy.
On the other side, some have found innovative ways to utilize markets in new ways. Maryland, for example, has created a healthcare system that encourages more preventive care by paying hospital systems per patient in their system rather than per procedure. Our current system creates perverse incentives for healthcare providers to perform as many procedures and/or tests as possible as that is how they get paid. This is not a panacea; it does not solve the problem of spiraling drug costs and creates a different problem by potentially changing the incentive to instead underdiagnose. They are doing something that is not done nearly enough in public policy, though, and that is to tell markets what they want optimized. The healthcare industry will be better for it.