Hug Them While They Last

The first bill in U.S. history meant to address the threat of climate change was passed by the House of Representatives in June. The legislation creates a “cap-and-trade” regime where firms that emit large amounts of carbon dioxide must buy permits to do so, driving companies to reduce greenhouse output and allowing firms to trade permits. While it faces an uncertain future in the Senate, the American Clean Energy and Security Act (ACESA) did secure some mainstream praise for Obama’s administration. Prominent economist Paul Krugman described it as a “remarkable achievement” while the editors of the New York Times called it “an important beginning,” although both criticized the bill’s limitations (NYT, 6/29 and 6/26/09). Obama himself called it “a historic piece of legislation” that would “finally create a set of incentives that will spark a clean energy transformation in our economy.” The goal, in other words, was to harness the power of the market to fight the threat of catastrophic climate change, “incentivizing” private investment in the development of alternative energy.

But, in fact, the whole problem of human-produced climate change shows the inherent limitations of modern capitalism and the market system. The climate menace is an expression of what economists call “market failure” of two major types: the presence of both externalities and public goods. To see this vividly, we can consider a concrete example—across the world, trees are dying and migrating uphill in ever-greater numbers. It turns out that the neoliberal consensus is missing the forest for the bleached stumps it has turned into.


Deadwood Rising


The climate bill passed by only seven votes in the House, the opposition being lead by the GOP, including Paul Broun (R-GA), who claimed that “scientists all over this world say that the idea of human-induced global climate change is one of the greatest hoaxes perpetrated out of the scientific community…. There is no scientific consensus.”

And yet actual scientists tell another story. In January the prestigious journal Science published a study of tree death in the western U.S. Analyzing old-growth forest stands with trees averaging 450 years old, the scientists found tree mortality to be growing rapidly across many tree types, including different species, at different altitudes, and at various locations across the American west. Since mortality growth was “synchronous” across tree categories, other possibilities were eliminated, leading the scientists to find that “regional warming may be the dominant contributor to the increases in tree mortality rates… by increasing water deficits and thus drought stress on trees” and by “enhancing the growth and reproduction of insects and pathogens that attack trees.”

Elsewhere, the Proceedings of the National Academy of the Sciences recently featured research on tree migration in the west (PNAS 8/19/08). Controlling for other factors, their findings showed dramatic tree migration upslope—that is, up hills and mountain ranges to higher elevations—due to warming climate and resulting water stress. Elsewhere, a Swedish study published in the May Journal of Ecology documented scientists’ discovery that Scandinavian forests have risen about a meter a year for the past 85 years, in response to climate pressures.

As long as science is coming up with baldness cures and sex performance drugs for obese Americans, no problem arises, but telling us to rationally invest in new energy forms is sure to be called a “hoax”—even if it comes from the Intergovernmental Panel on Climate Change, the biggest scientific research endeavor in world history (see “Climate Change 2007: The Physical Science Basis, Fourth Assessment Report of the IPCC,” 2007). The political market for science is conclusion-specific. But this isn’t the only failing market to consider. The very existence of anthropogenic climate change is the result of the market’s weaknesses, one of which is the presence of negative externalities.


Natural Collateral Damage


Externalities are unintended side-effects of the market economy—impacts of commercial transactions that fall outside the two parties to the transaction. When a consumer buys, for example, gardening tools and materials, a positive externality is experienced by others in the community as the consumer uses the tools to make an attractive garden, which everyone in the community can enjoy and benefit from. On the other hand, if a consumer hires a contractor to cut down the trees on his or her property in order to park an extra car, the community experiences a negative externality as the scenic beauty, animal habitat, and fresh air provided by the trees are lost.

Externalities can be positive or negative, but for the companies that organize the production of goods and services in the capitalist economy, they are to be ignored. Since externalities do not directly affect the responsible parties, profitability is by definition not affected by them. This institutional behavior has lead to some enormous economic impacts, such as deindustrialization. The outsourcing of American mass production has had massive external effects, including the decline of large urban regions due to depressed demand, a resulting increase in crime, and rising family strain and domestic abuse. These are clearly “external” side-effects of corporate investment strategies, but since they don’t directly hurt earnings, American capital has pushed forward.

Climate change is an external effect of burning fossil fuels for energy. When you buy and drive a car, the carbon emissions affect everyone through their contribution to greenhouse climate forcing. Likewise, when a consumer turns on the lights in a state powered by coal-fired plants, he’s unlikely to think of the external climate impacts of burning coal that keeps the lights on. Yet auto exhaust and coal combustion are the two leading contributors to the elevated levels of carbon dioxide that the allegedly nonexistent scientific consensus says are heating and destabilizing the climate.

This means the rising tree mortality is not only an externality, but a second-order externality. If producers and consumers of energy can’t normally be expected to include the costs of climate warming in their affairs, there’s not much chance they’ll include the effects of climate warming on everything else. This includes the increased variability of the water cycle and the heavier melts of mountain snow that leave trees with a longer summer drought and more water stress. If few consumers are fully including global warming in their decisions about how much to drive, fewer still are thinking of secondary consequences. Furthermore, the resulting loss of forest space constitutes a loss of habitat to forest-dwelling species of plants and animals. This species decline represents a third-order externality of the market. It’s hard to see how the market includes these ripple effects in its immediate pricing.

So the dying trees of the American Rockies are evidence of a fundamental problem with the market economy. Market apologists, especially of the von Mises school, point to the market’s ability to process information as one of its compelling merits. Markets allegedly communicate information about the scarcity and value of products by allowing supply and demand to adapt to each other, requiring no bloated public structure to gather information and make production/consumption decisions. Regrettably, what the whole climate forcing phenomenon suggests is that the market, in fact, does not process and deliver information efficiently. It delivers short-term, limited information about the immediate commercial value of goods to individuals and nothing about the long-term external impacts on other people, future generations, or the natural systems. Rational social planning organized along democratic lines, requiring broad public participation, is the hoped-for socialist alternative.

Externalities are destroying the great outdoors. But bad as it seems, this inability to account for externalities is only part of the failure of markets illustrated by rising tree deaths and altitudes. The other has to do with a category of goods and services that benefit everyone—”public goods.”

Public goods are those that are available for everyone to consume, whether they have paid or not, like fireworks shows and sewer systems. The nature of these public goods allows people to “free ride,” or enjoy without kicking in. For this reason public goods and services are typically provided by the government, since they are by definition not profitable—consider public education or public works projects like bridges and dams. However, another category of public goods is not provided by the state, but by nature.

Growing plants absorb carbon dioxide and incorporate it into their tissues, using energy from sunlight. In a world where carbon emissions are becoming commodities with dollar values, this “carbon sequestration” becomes a public good. We all benefit from trees and other photosynthetic organisms pulling carbon out of the air, as it limits greenhouse warming. Climatologists call growing forests “carbon sinks,” since they absorb carbon dioxide. But when trees die, they decay and release their carbon back into the atmosphere, acting as “carbon sources.” Now that trees are dying in rising numbers, carbon sinks are decaying into harmful carbon sources.

These dying and retreating trees represent the transformation of a public good into a public bad—a negative development that affects everyone regardless of involvement. Just as with rainforests burned for agriculture, once-beautiful and ecologically valuable trees are now self-reinforcing contributors to the overheating of the earth’s surface. What this points to is a major market weakness, the snowballing of neglected external impacts and lost public goods, which may aggregate into massive problems.


Wilted Hopes


Obama’s climate bill is emblematic of his Administration’s neoliberal contours. While the bill does mandate that carbon emission rights must be purchased, the “cap-and-trade” legislation bends over backwards to avoid actually costing polluters anything. This is clear first in the actual cap, which is quite high relative to that required by the international Kyoto Protocol. The ACESA requires reductions of 17 percent in total emissions from 2005 by 2020. Kyoto, which is itself considered by climate scientists to be light in its requirements, demands a 5.2 percent reduction over 1990 levels by 2012. The first indication the current bill lacks real teeth is that the “ceiling” to be imposed on greenhouse emissions is a very high one.

But even more telling is the “auction” issue, a major sticking point during the drafting process. The question is whether the permits that energy companies must buy to emit carbon should be free or auctioned off at some price. While Obama’s budget originally planned on several million dollars in emission permit auction revenues, capital and the right wing campaigned strongly against having to pay to emit. In the end, the bill gives away a full 85 percent of the permits, the practice to continue for an unspecified transition period (Washington Post, 6/29/09). Thus, the Democrats have agreed that it will be some time before polluters pay a dime for the climate impacts of their emissions.

A final neoliberal element of the bill can be seen in Obama’s own reaction to it. While apparently satisfied, there is an element in the House’s version of the bill he hopes the Senate will strip—namely the imposition of tariffs on imports from countries that fail to limit or price carbon dioxide emissions. This is especially telling because the proposed tariffs would not take effect until 2020, giving developing countries a full decade to ease into local carbon-reduction schemes. However, the neoliberal orientation of Obama’s economic staff is not about to countenance trade barriers that fail to benefit U.S. corporations invested in overseas export platforms.


Climate of Opinion


The spectrum of debate on the climate bill is as limited as we’ve come to expect from the commercial press. The right wing of the debate is suggested by Representative Broun above, as scientific conspiracy theories make the rounds on talk radio. As for the liberal extreme, we find Paul Krugman and the New York Times editorial board dissenting from Obama’s bill on the grounds of its limitations, mainly for giving away permits without charge. However, there is little mention of the fact that the ceiling on emissions is significantly higher than the Kyoto target and far higher than the amount proposed by scientists if we are to avoid real climate disruption.

The Times editorial also has a line that is an especially charming instance of devotion to power—the bill “would show that the United States is ready to lead and would pressure other countries to follow.” As anyone who follows climate policy will know, that’s a real howler. The U.S. has yet to ratify Kyoto, although the rest of the developed nations and even Russia have signed on. The U.S. is ready to lead from behind, as always.

Of course, the Times editors and other liberals are right that the bill has some value just for establishing the principle that a price will be attached to carbon emissions. And we might wonder what has allowed this issue to become a national political priority. The answer is provided by the Wall Street Journal, which informs us that this issue has satisfied the real-world criterion for political importance: the business elite now have diverging opinions on the subject. As the Journal puts it, “Business factions split on the measure. The Edison Electric Institute, which represents investor-owned utilities, backs it. Other companies—particularly those with big investments in alternatives to fossil fuels—praised the vote” while “The US Chamber of Commerce and the National Association of Manufacturers lobbied against passage” along with “Groups that represent airlines, oil producers and mining companies” (WSJ, 6/27/09).

This development is very similar to health care, which has also recently been allowed to become a prominent national issue requiring public action. Again, the change is due to the “external” costs of a particular industry piling up to the point that other industries’ earnings are impacted. In the case of health care, the preposterously high costs of private insurance and treatment in the U.S. have seriously harmed large segments of U.S. capital and have even become a factor in driving investment overseas—the auto industry has publicly noted its huge potential savings in merely moving to Canada, where unit health expenses are about one-tenth the U.S. level (NYT, “GM and Canadian Union Reach a Deal,” 9/28/05). So some factions of capital are moved to demand lower system-wide health costs, possibly meaning some form of public provision.

Climate change likewise. As its costs have become clearer and larger, more elements of U.S. capital favor regulation and reduction of total emissions, as the Journal describes. Of course, public opinion is quite past all this and has favored public action for some time, including ratification of international treaties with binding emissions reduction targets (see, “McCain and Obama Supporters Largely Agree on Approaches to Energy, Climate Change,” 9/23/08). The situation is again similar to health care, where some type of national health program has been popular for many years. What has moved these subjects onto the current government’s agenda hasn’t been public opinion, but the inability of an industry to continue externalizing its costs relentlessly.


The Stump of Life


Many peoples have considered trees to be symbolic of natural orders. The Mesoamericans of central Mexico and the Lakota Sioux of the northern Great Plains revered a Sacred Tree or a Tree of Life, thought to represent the interconnectedness and rhythms of life. Now the trees in the same regions are parched from second-order effects of the market economy. Stricter parameters for American “cap-and-trade” would reduce this, but clearly the externalizing machine we call capitalism would be best replaced by rational social planning on a participatory, democratic basis.

As the right wing cries “communism” at even the mildest centrist reforms, that replacement seems far off. But the longer we wait, the more our life-nurturing forests will wither in the drought of market irrationality.




Rob Larson could use a drink himself. He  is an assistant professor of economics at Ivy Tech Community College in Bloomington, Indiana and has published articles in Dollars & Sense and the Humanist and on Alternet, Counterpunch,, and the Bloomington Alternative.