Jeb Bush, who is sitting at second place in the Republican primary race, recently endorsed a fairly unusual policy proposal for a conservative: abolishing subsidies for fossil fuels. At a meeting with New Hampshire voters recorded by the environmentalist group 350 Action, Bush said he would abolish all subsidies for all energy sources, be they renewables, oil, or coal.
Sacrificing renewable subsidies to abolish the ones for fossil fuel probably wouldn't be a great trade (though it might be in a few years, when renewables are cheap enough). But this counts as relative progress for conservatives, who are typically joined at the hip with the oil industry. Bush couched it in the usual conservative rhetoric about not picking "winners and losers," but that still represents a departure from the typical conservative approach to this issue (read: rank hypocrisy). No doubt he is getting angry calls from the Koch brothers at this very moment.
But by his own lights, Bush shouldn't stop there. The most orthodox free market dogma demands that fossil fuels be heavily taxed. Industrial emissions of carbon dioxide are, after all, an infringement of property rights that requires government action against trespass.
The basic argument goes like this. Markets work best when the production of goods and services doesn't interfere with other people. But it is not always possible to maintain that ideal. Suppose, for example, I live next to a school of adorable preschoolers, and I have a machine that produces many gigawatts of electricity very cheaply. The catch is the machine produces a fine powder composed of polonium 210, which vents out of my machine and lands all over the preschool, where the children breathe some in.
I'm making mega-profits because I'm able to undercut all other electricity generators, but all the adorable children are dying slowly and horribly. Clearly, in this instance, markets are leaving something out!
That is an exaggerated version of an externality, in which the market relations between two people affect a third. Conservative luminary and economist Milton Friedman once proposed a solution: Rescue the price mechanism with a big, fat tax!
[T]here is a case for the government protecting third parties, protecting people who have not voluntarily agreed to enter... But the question is what’s the best way to do it? And the best way to do it is not to have bureaucrats in Washington write rules and regulations saying a car has to carry this that or the other. The way to do it is to impose a tax on the cost of the pollutants emitted by a car and make an incentive for car manufacturers and for consumers to keep down the amount of pollution. [Forbes]
Fail to impose the tax, and you are effectively subsidizing the polluter, since he is profiting from trespassing on others' property. (My polonium generator would clearly get an enormous tax that would put me out of business immediately.)
Friedrich von Hayek, author of the conservative tome The Road to Serfdom (Glenn Beck once pushed it to the top of the bestseller list), went further than this, endorsing the EPA-style government regulations that Friedman disavowed.
That brings me back to Bush. The problem with fossil fuels, obviously, is that carbon dioxide traps heat and causes climate change, which damages the environment and society. For example, if this alarming, not yet peer-reviewed paper on sea level rise is correct, coastal cities have only a few decades before they must begin building seawalls or be swamped. (If it is not, then that only delays the day of reckoning.) Overall, every ton of CO2 released into the atmosphere causes about $220 in eventual economic damage, according to a recent Stanford study.
Climate change is an undeniable example of the third-party effects Friedman was referring to above — except in this case, the third party is the entire world. Classical free-market dogma insists that the government institute a large carbon tax, to keep markets and prices functioning smoothly. What say ye, Jeb?