A recent facebook debate (yes, I’m one of those people) about global warming got me thinking about how it applies to the free market. Or, rather how does the free market apply to global warming. I’ve always considered this topic to contain two completely different sub-topics warranting totally different debates: Is global warming man-made, and assuming it is, what do we do about it? For the sake of this post, let’s just assume it is indeed man-made. Everyone knows that the center of the theory is that carbon dioxide absorbs heat in the atmosphere, which leads to increased temperatures, which is also called the greenhouse effect, yada yada. And supposedly, we humans have created so much carbon dioxide in the past few decades that now it’s a threat to humanity (even though 4 decades ago everyone was worried about global cooling, and even though cows release more greenhouse gases than all the cars of the world) By the way, it’s carbon dioxide, NOT carbon! Carbon is elemental. It’s usually a solid. It’s what forms when you burn a burger. It is not what we exhale nor is it what plants produce. Please stop calling it carbon, it’s carbon dioxide. But I digress.
Assuming global warming is man-made, what is the correct way to approach this problem? I’ve heard two different approaches: through the free market or through government coercion. I would like to advocate for the first approach, that relying on the ingenuity, innovation, and desire for profit (am I allowed to say that word?) that results from the free market is the best way to reduce the amount of carbon dioxide we emit into the atmosphere.
The free market responds to consumer demand. Entrepreneurs create and companies produce based on what consumers want. If enough people have a desire to curb CO2 emissions, companies begin to tailor toward such desire. Would an environmentally-consious person order a coffee from a coffee-shop that sells cups from recycled paper or cups from non-recycled paper? Or plastic? I’m willing to bet that most coffee-shops that do indeed sell cups with recycled paper don’t really care about the environment; they are doing it to sell more coffee. But does it really matter anyway? How about oil refiners? Some have started capturing CO2 from waste gas, sending the CO2 through pipelines, and selling it to oil producers who can use it in Enhanced Oil Recovery to recover more oil out of the ground. I guarantee it’s profit they’re after, not environmentalism. But again, does it matter? The recent hydraulic fracturing revolution has made it more economical for power companies to switch from coal-fired power plants to gas-fired power plants. This alone has reduced CO2 emissions more than all the solar panels and wind turbines currently in the world. Finally, look at Toyota, who started the hybrid car craze to capitalize on people’s desire for more environmentally-friendly cars. Toyota just wanted to sell more cars.
Another way the free market helps is by capitalizing on consumer sentiment. For example, an environmentally-consious person is more willing to purchase something from a company that uses renewable energy to produce its products than a company that does not. When enough people want to buy from environmentally-friendly companies, more companies become environmentally-friendly. Take Apple. They recently built a massive solar farm to power their latest server bank. Starbucks has implemented a “Climate Change Strategy” since 2004. FedEx implemented a global warming plan to reduce emissions from FedEx vehicles and aircrafts by 20% by 2020. I guarantee this is all a result of the desire for more profit, but that to me is just fine, and even admirable. What’s wrong with reducing CO2 emissions through the means of the free market?
Just for kicks, I decided to estimate how much CO2 I have reduced by purchasing my 2013 VW Jetta TDI. My estimate came out to be almost 4,000 lb/yr reduction in CO2 emissions. According to the EPA, that’s equivalent to a single-family household using no electricity for 3 months. Not bad, eh? The dirty little secret, however, is that I had absolutely no inkling of a thought about global warming when I purchased the car. All I was concerned about was how much money am I going to save in gas (which I calculated to be almost $800/yr). Different motivation, but same result.
The alternative is government coercion. Government forcing me to purchase a more efficient car, or forcing me to purchase renewable, more expensive energy, or taxing a company for every pound of CO2 released into the air. Besides the obvious lack of freedom, government coercion almost always results in politicians and well-connected businessmen getting rich, leaving the rest of us to foot the bill. Look at Solyndra, who got millions of tax-payer dollars then went bankrupt. Or GE, who is nice and friendly with the whitehouse, and coincidentally didn’t have to pay any taxes in 2010.
To the person who believes global warming is man-made, I say no problem. Embrace the free market to tackle that problem. Demand more environmentally-friendly products. Demand that companies be more environmentally-friendly. Educate others so that demand increases. If demand is there, companies will come. Advocate for free market solutions, not government coercion.