An Economist's Green New Deal

While Nordhaus agrees in principle that there are many possible mechanisms for dealing with environmental externalities, he is skeptical about the efficacy of many of them. He recognizes that liability laws can discourage pollution in some cases but argues that these laws have serious limitations when property rights are not well defined, such as with air pollution. "Command and control" measures, such as auto emissions standards, may have played a positive role in the past, but they are rather crude tools that generally do not accurately reflect the costs and benefits of pollution abatement. He argues that cap and trade policies have had problems in practice, pointing to the case of sulfur dioxide, where U.S. emissions caps were set so high that the market price of emissions permits eventually declined to the point where "emissions were essentially free."

Nordhaus is highly critical of the Green New Deal resolution proposed by Rep. Alexandria Ocasio-Cortez (D.-N.Y.) and Sen Edward Markey (D.-Mass.) in February 2019, largely due to its lack of grounding in cost-benefit analysis and its absence of market-based approaches. He regards its goals as arbitrary and unrealistic — particularly the proposal to attain zero net global greenhouse gas emissions by 2050.

According to Nordhaus, the Green New Deal "avoided the inconvenient truth that climate-change policies ... would require aggressive price-raising measures, probably through carbon taxes." Moreover, he criticizes the Green New Deal for making no mention of international coordination. According to Nordhaus, a global climate compact is needed — with penalties for nonparticipants — to overcome the "free rider" problems associated with carbon abatement.

The Spirit of Green covers a great breadth of additional topics, including green national accounting and the ethical responsibilities of individuals and corporations. Yet Nordhaus' exposition may have benefited from more elaboration in one specific area: the methodology used by economists to estimate the marginal external cost of carbon emissions — and hence the appropriate rate for a global carbon tax. This is a crucial estimate for policy purposes, and Nordhaus' prominent role in developing the models underlying it puts him in a great position to discuss their mechanisms. But that omission is understandable in a book aimed primarily at nonspecialists.