The 100-plus heads of state gathered in New York this week for a historic climate summit will leave without solving climate change. This will be true the next time they get together, and the next time, and probably for a long time after that.
Economics explains why it’s such a hard problem to solve. So does your lawn.
Climate change is a classic example — some say, the greatest example — of what economists call a collective action problem. The more greenhouse gases humans pump into the atmosphere, the higher the odds we’ll experience an amount of warming, sea-level rise and extreme-weather increase that would complicate human existence as we know it. Everyone would benefit if the world slowed its greenhouse gas emissions dramatically and averted those nightmare scenarios. But also, every person has an incentive not to reduce his or her emissions — because, at the moment and for the foreseeable future, it’s cheaper and more convenient to drive gasoline-powered cars and burn fossil fuels for electricity than it is to adopt a zero-emission modern lifestyle.
When it’s in the overall best interests of a group (or planet) full of people to act one way, and in the best interests of individuals to act another way, you have the threat of what economists call free riders. This could be one person or an entire nation. If you can get everyone else to change their behavior for the common good, while you don’t change a thing, you ride free.
That’s a tough task, and economic inequality makes it tougher.
One way to stop free riders is to make everyone pay up, whether they like it or not. That’s why a lot of economists support a global tax on emissions, an idea that more than 70 countries and 1,000 companies endorsed this week in New York. It’s simple and economic efficient. If you raise the price of something enough, basic economic theory goes, then people will consume less of it. A large enough tax should reduce fossil-fuel consumption enough to slow warming. To the extent that those costs slow growth and global commerce, everyone should suffer together.
They probably won’t, though. Economic research suggests the world’s wealthiest people will be difficult to deter with a tax. In a recent paper, Casey Wichman of the University of Maryland and Laura Taylor and Roger von Haefen, both of North Carolina State University, analyzed water consumption in six North Carolina cities during a prolonged period of drought. Some of those cities raised water rates when water was scarce; the trio found lower-income homeowners were significantly more likely to water their lawns less when the rates went up. Higher-income households were barely fazed — and households with automatic sprinkler systems didn’t reduce their watering at all.
“People who have high incomes tend to have a high willingness to pay for water,” von Haefen said in an interview, “and when you raise the price, it’s still worth it for them to pay to use the water.”
The cities could have raised rates much more and found the price that changed rich users’ consumption. But that would have slammed lower-income users. What worked instead, in some cities, was a tactic economists generally dislike. The cities restricted water use to certain days, threatening fines or, in one case, a misdemeanor charge, for breaking the rules. In those cases, the higher-end users watered a lot less. “There’s a lot of social pressure,” to follow the rules, Wichman said. Water utilities, Taylor added, “talk about neighbors calling to turn in other neighbors.”
The result was a reduction in what the researchers call “non-essential” water consumption — the watering of large, lush lawns with sprinkler systems, basically. It’s an interesting parallel to greenhouse gas emissions. Every ton of emissions is the same to the atmosphere, but not to the people on the ground. You can make a good case that the world is better served by a ton of emissions spent on electricity in rural India, as opposed to the emissions spent ferrying a Manhattan vacationer on a private jet, and that policy should try to discourage one more than the other.
You should also know that University of Chicago economist Michael Greenstone estimates that the mortality effects of very hot days in India are nearly 20 times as great as they are in air-conditioned America. Think of that stat as a warning. If the world can’t find a way to collectively curb emissions by its largest users, rich countries — and rich people within those countries — will buy relief that the poorest among us cannot.