The wrong way to deal with climate change

A suggestion here for what should be done about climate change:

Ministers should consider launching tax breaks for companies investing in green technology, according to EY’s former UK boss Steve Varley.

The UK will host COP26, the UK’s climate change conference, in November and has pledged to support green and sustainable investment as part of its economic strategy.

The Bank of England plans to launch its first green bond this year while the Government has made a legally binding commitment to end the UK’s contribution to global warming by 2050.

Mr Varley said taxation could play a role in the Government’s efforts to achieve that aim.

He said: “In the past the UK... had incentives for research and development innovation. I think exploring those and reintroducing those at a greater scale to spur on green investments and green technology would be a really smart avenue for the Treasury.”

No, that’s the wrong way. This however:

A carbon tax could play a role in the UK’s fiscal policy over the next three to five years,

That’s also wrong. It should read “A carbon tax will play the role”.

As to the reason why Donald Rumsfeld’s known unknowns idea aids in explanation. There are things we know, known knowns. Things we know we don’t, known unknowns. Things we don’t know we know, unknown knowns and things we don’t know, unknown unknowns.

Assume, just for the moment, that those future terrors of climate change are in fact true. We thus want to mobilise all the things we can in order to solve that problem. That requires all of those things, all four of them, known and unknown.

By definition a tax break can only deal with things we know about. Because we must be able to identify that thing in order to craft the tax break itself. But we want to mobilise all those things we don’t know we know as well as all those things we don’t know as yet.

Therefore our incentive structure has to be the other way around. Instead of a break for anything that we know about we want to make the ill-activity more expensive for everyone so as to uncover all of those things we don’t. That is, instead of lower prices based upon current knowledge we want higher prices to encourage those unknowns.

Yes, obviously, this does depend upon accepting the existence of the terrors in the first place.

It also insists that politicians don’t get to do any picking and choosing. One simple rule, set once, then leave it alone, allow prices and the economy in general to chew through the problem. Given the propensity of politicians to fiddle this is exactly why the one, pure, solution to climate change, that carbon tax, never has been instituted anywhere properly. After all, where’s the fun of power if a problem actually gets solved?