The Extraordinary Hidden Costs of the Climate-Change Transition By Edwin T. Burton
How climate policy will weaken the West
T o achieve per capita economic growth, an economy must either produce goods and services that were not previously produced or produce the existing goods and services in a more efficient way. If an economy continues to produce the old goods and services but replaces the inputs with a more costly set of inputs, per capita growth will be negative. Such an economy would become poorer over time and less wealthy in per capita terms. This is the likely future of the U.S. and Europe as they stumble their way toward an effort to transition their economies to a different, more expensive, set of energy sources.
If, as a homeowner, you were suddenly told that you needed to rebuild your home with a whole new set of more costly materials, you would not be pleased. But if the goal of this costly rebuilding were saving the planet, you might tolerate the transition.
Hoping to spare you and your neighbors the harmful effects of your current building materials, you begin the transition. The fact that there is a target date for this transition will, of course, dramatically increase the costs of this transition, which will be considerable in any event. When the transition is complete, you will have less wealth than you would have had, had there been no such transition. But you say to yourself, at least I am doing some future good for me and my neighbors. Saving the planet seems like a worthwhile goal.
Looking down the block you see multiple new homes being constructed utilizing the exact same materials that you are being asked to remove from your house. These materials are much cheaper than those used in the project on which you embarked, and thus your neighbors, constructing their new homes, will likely be prospering by producing their homes, identical to yours in most respects, by using the cheaper building materials.
Your transition to the new building materials simply means you will become, over time, much poorer than these neighbors using the older materials, and the problems that you were doing your bit to combat when you began this entire transition will, in fact, be much worse, because of your “evil” neighbors. Your transition really won’t have mattered in the grand scheme of things, other than making you relatively poorer and your “evil” neighbors significantly richer.
The U.S. is much like our fictional homeowner, attempting a transition in inputs. The final outputs — cars, home heating, etc. — are not changing. Only the inputs are changing, but not for everyone. As China and India expand their use of fossil fuels for energy, it really isn’t going to matter much what the U.S. and Europe do. It’s not hard to predict what is going to happen. The U.S. and Europe will fade as economic powers as other countries, especially China, gain economic ascendance. Ironically, the reduction of American and European economic strength will not have involved any hostile external actors. All it will have taken is a lack of understanding (or a willingness to ignore) what will happen to their economies while in transition.
It would be different if the new energy sources were economically more efficient, but they are not. The new building materials to which our homeowner is transitioning are much more costly. That’s why the neighbors down the block are using the old, not the new, materials.
In time, the amount of old materials in use will continue to grow as more of your “evil” neighbors continue to use the old building materials. Such is the case of the use of fossil fuel–based energy. It will grow. Europe and the U.S. may succeed in reducing their own carbon footprints and feel good about themselves. Meanwhile, China and others will take advantage of the existing energy sources.
To return to my analogy, whatever problems the old building materials were going to cause will continue to do so in the future. And so, the main impact of the energy transition in the U.S. and Europe will be that the West will lose its role in the world as the dominant economic power, ceding ascendancy to China and those others who expand their use of fossil-fuel energy. Later, when China and others outgrow the West, they will be in a strong economic position to deal with whatever harmful impacts might arise from a changing climate. A weakened West will, however, be far less able to deal with those challenges, particularly if some of the bleaker predictions of the consequences of climate change come to pass.
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