When Karl Hess retired from speech-writing, he took up welding. In his Playboy interview, he was asked what his customers in West Virginia thought of his political philosophy. Hess, who drafted the infamous lines delivered by Barry Goldwater in San Francisco’s Cow Palace in 1964 “extremism in defense of liberty is no vice, moderation in the pursuit of justice is no virtue,” said his customers didn’t mind his political philosophy, as long as his spot held. Rex Tillerson, who was trained as an engineer, revealed his own pragmatic, scientific thinking at his confirmation hearing for Secretary of State. As a result, his nomination is said to be in trouble.
On Climate Change, Tillerson indicated that the issue is serious enough for us to take action. This is not the same as saying he accepts the basic argument of anthropomorphic global warming, that man-made emissions of greenhouse gases is responsible for the observed warming of the world since the end of the Little Ice Age and that continued warming would be catastrophic. That spot doesn’t hold. More precisely, the predictions of the models don’t correlate with what we observe. Still, the stakes are so enormous, he says, that we should take the theory seriously; and, as the world’s largest economy, we have an interest in being involved in international negotiations.
In terms of approaching Climate Change, he prefers a market-based approach to a top-down, command and control approach. Specifically, he would prefer a carbon tax made revenue neutral by reductions in other taxes such as the payroll tax.
As an economist, I’ll say that the hesitation of the Climate Change community to accept a market-based approach is revealing. We economists have no problem with scarce resources when these have been brought into private ownership. Resource owners, to include the owners of depletable resources, have a self-interest in balancing both present and future consumption. Basically, if the price today is low relative to the price expected in the future, owners of depletable resources will keep the resource in the ground, rather than bring the resource to market.
The problem of “running out” of resources is when they are treated as a commons, available for free to anyone. The name “commons” comes from the tendency of the village commons (a pasture) to be over-grazed. (Nowadays, with pasteurization and refrigeration, townies don’t have to keep milk cows.) Tillerson, who has worked in the oil industry all his life, knows full well the different incentives when depletable resources that have been brought into private ownership are involved, versus when a commons is involved. Our atmosphere and the great oceans of the world are commons, and are at risk.
The majority of the European countries and Japan are, today, importers of fossil fuels. Independent of Climate Change, they have an interest in keeping the demand for, and price of fossil fuels low. It is therefore easy for them advocate “on behalf of” the planet. Their self-interest coincides with the interests of all of us a inhabitants of planet Earth under the AGW theory. We, Canada, Australia and Norway, on the other hand, are conflicted. As energy producers, policies designed to reduce the emission of greenhouses gases could be very expensive for us.
Under Kyoto, the so-called developing nations of the world were subject to no restrictions at all on emissions. That agreement was a complete and utter farce. Even under Paris, the developing nations are subject to only the most nominal restrictions on their increases in emissions. Under the Paris guidelines, their increases in emissions will more then off-set our reductions in emissions. Total greenhouse emissions will continue to increase. So, those who actually believe in the AGW theory must feel that the Paris Agreement is going to lead to catastrophic consequences. President Obama has justified the Paris Agreement merely as a step to some further agreement that will actually save the planet. As an economist, I have no particular expertise in wishful thinking.
On the issue of Climate Change, Tillerson represents a significant improvement over the status quo. A scientifically-trained mind focused on the real world, and aware of the complexities that are involved. This makes him a good prescription.