Are depressions “green”?

Are depressions “green”?, by Marlo Lewis
Master Resource, March 16, 2009

Cambridge University economist Dr. Terry Barker told delegates at the recent Copenhagen climate conference that if the current economic downturn persists for several years, carbon dioxide (CO2) emissions worldwide could drop by 40% to 50%, the Irish Times reports.

Dr. Barker, who is director of the Cambridge Center for Climate Research, said the Great Depression of the 1930s reduced global emissions by 35% because so many factories shut down, especially in the United States. He adds:

The depression could be worse this time because of globalization. Emissions in the U.S. fell by 3 per cent last year and could fall by 10 to 20 per cent this year because the economy is dropping like a stone with up to 600,000 a month becoming unemployed.

The former Soviet Union provides additional proof of the emission-cutting power of economic collapse. In CO2 Emissions from Fuel Combustion Highlights (2005 Edition), the International Energy Agency reports the following emission reductions during 1990-2003: Bulgaria, 38%; Estonia, 35.3%, Latvia, 52.3%, Lithuania, 43.5%, Romania, 43.3%; Russia, 24.5%, Slovak Republic, 30.2%; and Ukraine, 50.1%.

So clearly, governments do have the power to achieve deep emission cuts in in a single decade or even in a few years. However, there’s not a shred of historical evidence that they can do this without first engineering severe economic contractions.

You might suppose Dr. Barker would worry that, if depressions produce deep emission cuts, then maybe mandating deep emission cuts would produce or prolong depressions, by making energy unaffordable.

But no, Barker reportedly views the current depression as a golden opportunity to launch a “Green New Deal.” He opines that, ”Even very stringent reductions in emissions can create a macroeconomic benefit, if governments go about it the right way.” This is but a green variant of the fatal conceit that elites know better than markets how to direct economic development. Government interventions in credit and housing markets are the root cause of the ongoing financial crisis. Yet instead of humbling would-be central planners, each policy disaster just seems to feed their hubris.

You hear Barker’s message all the time. The revenues from carbon permit auctions or carbon taxes will be used to lower taxes on capital and labor, and fund R&D, making us more prosperous and competitive.

But if taxes on labor and capital are too high (they are), that’s an argument for cutting those taxes, not for imposing new or higher taxes on energy. So-called green industries and jobs were bit players even when the economy was booming. That’s because even when credit markets were flush and fossil energy prices were high, green industries were relatively unproductive. For example, as my colleague Iain Murray estimates, one coal-industry job supports seven times as much electricity as one wind-industry job.

It strains credulity to claim that diverting capital and labor from, e.g., the coal industry to the wind industry will create a macroeconomic benefit, or that economy recovery can be built on jobs and industries that depended heavily on subsidies, tax preferences, and mandates even in prosperous times.