Upton on Environment

Simon Upton writes:

I am shortly to take up a position at the OECD leading its Environment Directorate. …

The OECD was established to help governments with their thinking. While its origins may have been in the reconstruction of Europe after 1945, it has become a genuinely global policy resource with new members (such as Chile) joining as rising living standards dissolve the boundaries of the old “developed” world.

The OECD is one of the more useful global bodies.

As an economics-based institution, the OECD is dedicated to using economic analysis to highlight the tradeoffs its members face. It is easily caricatured (like Treasuries) as an organisation that seeks to reduce everything to dollars and cents. Clearly, not everything can be reduced to monetary values. But many things can be, and to the extent that the costs of alternatives can be placed on a common footing, decision-making should be improved.

To provide one very simple example: work at the OECD has shown that the costs of alternative CO2 reduction policies can vary by several orders of magnitude. Subsidies to biofuels can, in some instances, mean spending hundreds or even thousands of dollars for each ton of CO2 avoided – way above the sorts of carbon taxes that have been discussed and discounted.

And biofuel subsidies or quotas have been shown to have devastating effect on food supply, as land is converted.

Countries may be able offer good reasons for such outcomes. But it is harder to do so when the costs of alternatives are made transparent. This may explain one of the conundrums surrounding much environmental policy analysis. Consistently, the advice is to place a price on scarce resources. If they carry a price, they need to be measured; if they’re measured, they get managed. We don’t tend to waste things we have to pay for.

And this is why I do support putting a price on carbon – either through a carbon tax, or an ETS. It’s the same reason I don’t like tertiary courses which are “free” to the user – you get huge wastage, and the moment people do have to pay for something, you do have an incentive not to waste it.

There is dispute over the indirect warming effects of greenhouse gas emissions, but there is basically no dispute over the direct warming effects. Hence for me the debate isn’t over whether one should have a price on carbon, to cover externalities, but what that price should be.