Can Market Forces Accomplish What a 'Green New Deal' Seeks?
On March 21, the U.S. Securities and Exchange Commission (SEC) announced a major regulatory initiative that calls for listed firms to provide detailed data on environmental risks, including the performance of the firm itself as well as indirect effects that could include its suppliers and ultimate disposal of waste. In a sense, the SEC is catching up with what’s already happening, and maybe going too far, as regulators tend to do. Thousands of firms are already reporting their environmental impact in response to investor demand.
More broadly, progressive politicians continue to call for green revolution. By way of subsidies, carbon taxes, and top-down, command-and-control regulation, they seek to eliminate coal-fired electricity production, finally sunset the use of fossil fuels, and energize a carbon-free economy by 2030. Embracing the objective but not the date, President Biden has called for zero carbon by 2050. But while green revolutionists anxiously hold forth, perhaps wondering if the world will heed their message in time to avoid pending environmental disaster, some of the world’s major carbon emitters have made remarkable progress.
The United States is one of them. Let’s take a closer look.
Yes, regulation surely matters, and yes, the relative costs of different fuels matter a lot also. But added to this is the powerful investor-communicated demand for cleaner production and environmental accountability. Many investors do not want to put their cash in polluting firms. Mutual funds that contain those firms, as well as many consumers, are steering their dollars in the direction of products provided by greener firms.
For more than a decade now, Presbyterian College economist Jody Lipford and I have tracked carbon emissions for the United States and 12 of the world’s other largest economies. In 2021, we examined data for the years 1950 through 2019 and found that U.S. carbon emissions peaked in 2005 at 6,132 million metric tons before falling to 5,285 by 2019.
The peaking and decline, which would seem to be good news for those seeking a Green New Deal, came largely as a result of cheaper natural gas, which displaced coal as a dominant fuel for producing electricity, along with the sharply falling cost of solar energy.
We also found total carbon emissions had peaked and are declining for France, Italy, Japan, and the United Kingdom, and that there was a strong movement in that direction for Canada. This is not the case, however, for China, Brazil, India, Mexico, and South Africa.
There are of course a multitude of policy actions that have been taken by countries and smaller political units worldwide in an effort to bring down carbon emissions. These include subsidizing production of electric vehicles, implementing cap-and-trade programs that require major emitters to offset emission growth, and placing taxes on carbon emissions. These efforts and growing investor demand for reduced carbon emissions have led to large growth in what are termed ESG (environmental, social, governance) mutual funds that attempt to place strict standards on the environmental performance of firms they include.
ESG asset flows are expected to reach $41 trillion by the end of 2022, with U.S. investors taking the lead. BlackRock, the world’s largest fund manager, has reported some $7 trillion in various environmentally sensitive holdings, which include the shares of firms that have embraced zero carbon goals.
Efforts by institutional as well as individual investors to assess the environmental record of corporations listed on major exchanges have led, in turn, to more new regulatory actions intended to set standards for and improve the quality of information reported by firms.
But let us not kill the goose that lays the golden eggs. Instead of burdening firms with heavier regulatory reporting, government should encourage the emergence of private credentialing, like Standard & Poor’s or Moody’s, that would rate corporations on their environmental performance. Already, it seems, the world is outrunning the politicians.
Demand for environmental quality is real, and it is bringing carbon reductions, along with new technologies for monitoring and measuring environmental use and a growing industry that specializes in providing carbon emission offsets. In short, the market process may actually be delivering its own version of Green New Deal. Maybe we should be paying closer attention.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
