We can fight climate change while staying economically prosperous — just ask the Spirit of Green

Every once in a while, you come across a book that makes you want to reread every other page just to make sure you get it all in. Spirit of Green is that book. In simple and approachable language, the book challenges some of the most complex topics around climate change and the economy, and it does so while being surprisingly optimistic. Spirit of Green is an awareness injection, a crash course on how to think about the environment and the economy.

William Nordhaus isn’t your average economist. It’s not just that he was awarded the Nobel Prize, it’s why he was awarded the prize. Nordhaus is the first economist to win a Nobel Prize for research on climate change, and in doing so, his work offered a lot of legitimacy and support for measures that address climate change.

Nordhaus argued that addressing climate change is more than just an environmental concern, it’s an economic one. His work in the field started in the early 1970s, when, alongside his Yale colleague James Tobin, he introduced the first measure of environmental accounting. When something affects the environment, the two argued, it also affects the economy — because the environment affects the economy. In the 1990s, Nordhaus also worked on a model assessing the interplay between the economy and the climate, attempting to quantify how different climate policies (like carbon taxes) will affect the economy.

Brick by Brick, Nordhaus and his peers laid the foundation of the economics of the environment. There’s a lot of arguing now in this field, particularly when it comes to numbers. Economists debate how big a carbon tax should be, how much pollution costs, and what are the most effective approaches to limit our emissions — but in the grand scheme of things, they generally agree with the principle of those things, they just argue about the specifics. Thanks to the work of pioneers like Nordhaus, economists are well aware of the importance of climate policies, although politicians may not like this.

In Spirit of Green, Nordhaus takes things one step further. For most people, calculations on how a carbon tax should work are hardly appealing, but understanding why such a tax is important and why it would be fair is a bit more interesting.

Think of it this way: if a company (say, a mining company) produces pollution as part of their daily activity, they’re causing a detriment to the local community — and thanks to environmental regulations, they have to pay for it. You could argue how much should be paid, but the principle of paying for imposing a cost on others is well embedded into modern society.

This is called an externality. Any time the effect of the production of goods and services imposes costs on others, we have a negative externality. Many negative externalities are related to environmental costs, and many of them aren’t covered by anyone, which often means that society ends up paying as a whole, instead of whoever is responsible. When activities produce greenhouse gases, for instance, they’re contributing to climate change, which has a very real, tangible cost, that we will all play. So wouldn’t it be fair that whoever is producing the greenhouse gases pays up to cover their own negative effects?

You can go even deeper. Burning fossil fuels has been shown to cause damage to crops, materials, and public health. So again, there are very tangible costs to burning fossil fuels, but these costs aren’t borne by those that produce or use the fossil fuels, they’re borne by others.

As Nordhaus explains, not only does this type of thinking help reduce environmental damage, but it can also help us achieve economic prosperity. When producers pay for things like negative externalities it doesn’t make the economy more rigid, it makes it more efficient by helping us value things at their fair price. A gallon of gasoline isn’t just what you pay at the pump — it’s what you pay at the pump plus the negative externalities.

Spirit of Green dives into a lot of topics like negative externalities, drawing conclusions and practical lessons that are essential for modern society. Nordhaus is not a man of ideology, he is a man of evidence. Effective climate policy is “a question of balance”, he says. Yet despite all its evident merits, the book (a decade in the works) seems just a touch unambitious.

It stops shy of addressing some of the key environmental challenges and, although surprisingly optimistic and upbeat, sometimes seems to hint at our society’s political inability. It sometimes feels that despite having access to the technological, scientific, and economic levees required to tackle environmental problems, we lack the resolve to pursue them. Perhaps this is why Spirit of Green (and presumably, Nordhaus himself) stops short of strong ambition: because the likelihood of achieving it in the current political climate seems unlikely, and focusing on goals within grasp is more reasonable. Whether this is one of the book’s strong points or its only weakness is hard to say.

This is not to say that the book lacks boldness entirely. Nordhaus doesn’t shy away from mentioning that markets alone won’t stop global warming, and state intervention is required; he challenges many “business as usual” scenarios head-on; and calls out the “brown” behavior of many companies.

Overall, Spirit of Green is a comprehensive, balanced, and important book. It’s better than most courses taught at universities. Whether you’re a policymaker, an economist, an activist, or just someone genuinely concerned about the current state of affairs, I genuinely recommend the book. Hopefully, some of Nordhaus’ optimism will rub off on the rest of us.

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