Wayne Winegarden (PhD), Shanker Singham, Daniel Hannan, Robert Armstrong, Diego Sanchez de la Cruz, Catherine McBride, Rod Richardson and Santiago Calvo
It’s one of the oldest problems in economics, the problem of thefreeloader. Why should a country, or a group of countries, undertake the hugely expensive transition to low or net zero carbon emissions when others are gaily building coal-fired power-stations and thereby wiping out any gain?
The question is far from academic. The UK Climate Change Act will, according to the government’s own figures, cost more in up-front investments than it saves in climate mitigation. The cost of new technology, especially in housing, energy infrastructure, energy production, agriculture and transportation, is unlike anything we have undertaken before. Optimistic estimates put it at £1.4 trillion by 2050[1]. And that does not include the costs of economic opportunities forgone, nor of the significantly higher bills that result.
But suppose that the UK did all this. Suppose that, by some mighty effort equivalent to that which went into winning the two world wars, we succeeded in reaching net carbon neutrality. What would be the impact on global CO2 levels? We all know the answer. They would fall by just one per cent.
Until now, policymakers have attempted to address this problem by building global bureaucracies. Countries are encouraged to agree to binding cuts, and some poorer nations are given handouts to incentivise them to comply. But the problem remains. Countries like the UK, which has already hugely reduced its CO2 output since the 1990s, will struggle to sell further cuts to their voters when those voters see middle- and lower-income states generating vastly more carbon.
The only way in which the heating of the planet can be kept to a manageable level is with massive investment in new technologies, especially in carbon capture. And the only source of that investment is the private sector.
In this paper, we set out concrete ways to encourage that investment. We also set out an international framework which offers key economic wins, including trade access, the reciprocal removal of carbon tariff border adjustments (CBAM), reciprocal supply side tax cuts, international capital flows for investment, and the removal of punishing tariff and non-tariff barriers. A happy side-effect is that, as well as facilitating the cross-border flow of green technology, we would be facilitating free trade more widely.
The principles that underlie our work are not new. We know that lower taxes, lighter regulations and freer trade encourage investment. We have known it since at least the time of Ibn Khaldūn, the fourteenth-century Tunisian sage. We know, too, that, other things being equal, firms will invest in cleaner tech, not because they all have a great social conscience, but because cleaner technologies tend to be cheaper. The challenge is to make that investment a global phenomenon and, thereby, to encourage the countries that have so far been the most hesitant when it comes to climate change to come on board with the process. The paradigm shift is applying these ancient truths to climate change policy.
“Think global, act local,” say the Greens. But their policies somehow seem always to involve cash transfers, supranational bureaucracies, the erosion of national sovereignty and, over time, less growth. Here is a way to act both globally and locally, by making tax investment vehicles international, and by giving every nation an incentive to participate.
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