The Climate Conundrum: Can Outright Bans Work?
When economists face the threat of climate change, the green policies favoured by economists can seem convoluted. Carbon prices, beloved of wonks, require governments to estimate the social cost of carbon emissions, a concept that isn’t possible to quantify accurately. Green subsidies put politicians in the position of picking promising innovators and praying that bets with taxpayers’ money pay off. Faced with these fiddly alternatives, you might ask, would simply banning the offending technologies be so bad? In fact a growing number of governments beginning to adhere to this concept. More than a dozen countries say they will prohibit sales of petrol-fuelled cars by a certain date. On September 23rd Gavin Newsom, California’s governor, pledged to end sales of non-electric cars by 2035. Such bans may look like empty promises and that could yet prove to be the case. But, if applied well, this may well be the most effective way of stopping climate change.
It is easy to see why politicians are attracted to prospective bans. They sound tough and neither impose immediate hardship on consumers, as a carbon price would, nor drain the treasury, as subsidies do. It is just as easy to see why economists might disapprove. Carbon prices and green subsidies aim to redress markets’ failure to take account of the global costs of climate change while preserving choice for consumers. Bans are a far blunter instrument and in the absence of good substitutes for the banned technology — can lead to economic losses, potentially offsetting the benefits of reduced emissions.
But a ban could also accomplish too little, if a government’s commitment does not seem credible. In an article by the economist they state ‘manufacturers who suspect that future politicians may renege on a pledge will not bother to make the investments needed to comply.’ A mandate introduced by Californian regulators in 1990, specifying that zero-emission vehicles should account for 2% of annual sales by 1998, rising to 10% by 2003, was revised substantially in 1996 when it became clear that the cost and performance of batteries were not improving fast enough to meet the targets.
From this, we can clearly see the success of outright bans, is determined by the availability of substitutes. If electric vehicles were in every way satisfactory as an alternative to petrol, it would take little or no policy incentive to flip the market from petrol-powered cars to electric ones. If, on the other hand, electric cars were not a good substitute at all, the cost of pushing consumers towards battery-powered vehicles would not be worth the savings from reduced emissions. Somewhere in between those extremes, both electric and petrol-powered cars may continue to be produced in the absence of any emissions-reducing policy even though it would be preferable, given the costs of climate change, for the market to flip entirely from the old technology to the new.
Without policy guidance, the market might shift into equilibrium. The economist states ‘Shanjun Li and Lang Tong of Cornell University, Jianwei Xing, now of Peking University, and Yiyi Zhou of Stony Brook University estimate that a 10% rise in the availability of charging stations boosts sales of electric vehicles by 8%, and a 10% increase in the number of electric cars on the roads raises the construction of new charging points by 6%’. A promise to ban sales of petrol-powered cars at a certain date stands to accelerate this process and reduce its cost by co-ordinating the expectations of firms and consumers. Both firms and households would be less likely to waste money on capital goods the lifespan of which may be unexpectedly shortened by the disappearance of complementary technologies. Other scale economies might be realised: carmakers may feel more comfortable shifting the bulk of their r&d spending towards electric vehicles, for instance, and mechanics might start preparing to service electric cars. Meanwhile, the investment in services linked to petrol-powered vehicles would shrink rapidly.
My conclusion, outright bans can definitely work, and we can already see governments trying to implement such policies, as the UK government has moved to ban diesel cars in London. So to answer the overarching question of this series, bans are economically possible, especially when it comes to cars one of the largest pollutants, as a ban will force the market to shift towards electric cars at a rapid rate. The speed at which bans force a response from the market is increasingly beneficial as the wave of problems climate change brings moves ever closers towards humanity’s shores. However, it would be irresponsible to employ this tactic unsparingly, as the economic damage done to industries without proper technological substitutes would be irreparable. For example there are currently no viable replacements for airplane fuel, so banning this is simply not economically viable. Ultimately, governments must keep in mind how effective bans will be in forcing a rapid change in the market, something that may be necessary if climate change nears the point of no return; and this will likely be addressed at the next major global climate conference in London.
