Sunday, July 27, 2008

Climate change: the heresy of pragmatism

The Visible Hand takes me to task over my recent post on what a regulatory solution to climate change might look like. They argue that a market-based mechanism such as the ETS is preferable to a regulatory one because it will be more effective, and that the problem with the ETS isn't too much of the free market, but too little. They then accuse me of "anti-market bias" for even contemplating the thought of a regulatory solution. Hardly. As should be clear from my previous posts on the subject, I largely agree with TVH on the strengths of market mechanisms. They find reductions policymakers haven't thought of, they're extremely flexible, they allow targets to be progressively reduced over time, and they instantiate the inherently fair "polluter pays" principle". I disagree with TVH's ideological claim that market mechanisms are always superior to regulation (IMHO that's an empirical question to be decided between the specific policy alternatives on offer - this market mechanism vs that regulatory scheme) - but that doesn't matter. I'm happy to accept that regulation is an imperfect solution for the sake of argument. Because at the end of the day, this isn't about whether regulation is better than the ETS - it's whether regulation is better than nothing at all.

The government is struggling to get the numbers to pass the ETS, and there is a real chance that it will fail. If it fails, then the government will almost certainly try and make it "fifth time lucky" with a market mechanism. but in the meantime, we'll be left with no policy. And on that front, we have two choices: we can repeat the strategy of doing nothing in the meantime - a strategy which has been a disaster; or we can implement a quick and dirty regulatory regime to control emissions from their most obvious sources while we work towards something better (and which incidentally provides some insulation against further failure).

IMHO the choice is obvious. An imperfect policy which is actually implemented is better than a perfect policy which never happens. And if such pragmatic thinking is heresy (or "anti-market bias") to economists, then so much the worse for them.