William Nordhaus on Subsidies

From Nordhaus’s A Question of Balance (pp. 21-22):

Because of the political unpopularity of taxes it is tempting to use subsidies for “clean” or “green” technologies as a substitute for raising the price of carbon emissions. This is an economic and environmental snare to be avoided. The fundamental problem is that there are too many clean activities to subsidize. Virtually everything from market bicycles to nonmarket walking has a low carbon intensity relative to driving. There are simply insufficient resources to subsidize all activities that are low emitters. Even if the resources were available, the calculation of an appropriate subsidy for a particular activity would be a horrendously complicated task. An additional problem is that the existence of subsidies encourages a pell-mell [?] race for benefits an environmental form of rent-seeking activity. Ethanol subsidies in the United States, which are rapidly turning into an economic nightmare by diverting precious agricultural resources to the inefficient production of energy, are a case study in the folly of subsidies. To some extent, subsidies are simply the attempt of those who have the responsibility to clean up their activites by reducing emissions to place the fiscal burden elsewhere. Finally, subsidies have the public-finance problem of requiring revenues, which would involve raising the inefficiency of the tax system.


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One Response to “William Nordhaus on Subsidies”

  1. A Question of Balance by William Nordhaus « Kvams Says:

    […] I went into summer mode, I finished William Nordhaus’s book A Question of Balance (read short excerpt). The book’s subtitle is Weighing the Options on Global Warming Policies. The book is […]

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