Podcast Summary

Podcast: LSE: Public Lectures and Events
Episode: Confronting Climate Change: Economics, Fairness and Political Feasibility
Speaker: Professor Lawrence Goulder, Stanford University
Host: LSE Film and Audio Team
Date: October 20, 2014

Episode Overview

This public lecture by Professor Larry Goulder addresses not only the economic rationale for confronting climate change, but also explores questions of fairness and political feasibility. Drawing on his expertise in environmental and resource economics, Professor Goulder discusses why, despite clear scientific consensus and compelling economic arguments, meaningful climate policy has been slow to materialize. He explores the effectiveness of emissions pricing (carbon taxes and cap-and-trade), fairness in the distribution of costs, managing opposition from special interests, and the environmental impact of local versus global action, before turning to the persistent gap between scientific consensus and public perception.

Key Discussion Points & Insights

1. Climate Change as an Economic Issue

Timestamp: 02:00–10:00

• Three common arguments against confronting climate change:
  • It isn't happening (widely disproven by overwhelming scientific evidence)
  • It's not anthropogenic (science shows strong evidence of human fingerprint)
  • Taking action would cost more than the damage avoided (the core domain of economics)
• Economic consensus: Economists, regardless of ideology, agree in principle that it is possible to design climate policies whose benefits outweigh their costs.
• Externalities and Market Failure: Climate change is a textbook case of negative externality—production and consumption of fossil fuels impose costs on society not paid by producers or consumers (the classic “area A” welfare loss).
• Quote:

  "In the simplest economic textbooks... If you set the prices right, you curb demand or curb supply and demand, you're actually gaining something."
  (Prof. Goulder, 09:15)

2. Emissions Pricing: Carbon Taxes and Cap-and-Trade

Timestamp: 10:00–25:00

• Emissions Pricing as Most Effective: Directly targets the externality, incentivizes innovation, and ensures reductions are made where they’re cheapest.
• Comparison of Policies:
  • Fuel-efficiency standards are far less cost-effective than direct gasoline/carbon taxes due to "rebound effects" (more efficient cars = more driving).
  • Cap-and-trade and carbon taxes equalize the marginal cost of abatement, driving down costs and motivating continuous improvement.
• Quote:

  "Emissions pricing actually discourages extra driving as opposed to encouraging it. And that's one reason the cost per ton are much less under emissions pricing. It's better targeted."
  (Prof. Goulder, 18:40)

3. Why Isn’t Enough Being Done? Four Roadblocks

Timestamp: 25:00–54:00

Prof. Goulder outlines four key reasons for policy inaction and explores solutions for each:

a. Public Perception and Awareness

• Public often unaware of economic analyses that show net benefits from climate action.
• Deep partisan divide on climate belief, particularly in the US (Pew Research: only 44% believe in human-caused warming).
• The UK and US lag behind other countries in perceiving climate change as a major threat.

b. Fairness and Distributional Impact

• Carbon taxes are regressive: disproportionately affect low-income households (who spend more of their income on carbon-intensive goods).
• Revenue Recycling: Using tax revenue to reduce regressive impacts, e.g. lowering payroll taxes for the poorest deciles.
• British Columbia Example: A mix of lump-sum rebates and marginal tax cuts most effectively balances equity and efficiency.
• Quote:

  "You can offset a lot of these adverse distributional impacts and deal with the unfairness issue, at least mitigate that problem."
  (Prof. Goulder, 41:20)

c. Special Interests & Industry Opposition

• Fossil fuel industries would bear large profit losses under simple policies.
• Political Feasibility through Free Allowances: Granting a tranche of permits for free under cap-and-trade (or equivalent infra-marginal exemptions in a carbon tax) neutralizes opposition by protecting incumbent profits.
• Empirical evidence (EU ETS): Full free allocation creates windfalls—partial allocation sufficient to prevent losses, freeing up most revenue for public use (e.g. California's system).
• Quote:

  "If we want to protect or at least prevent a profit loss... a way to do it is to have a cap and trade system with free allowances, because that's going to create rents that more than offset the loss of producer surplus."
  (Prof. Goulder, 51:22)

d. Local vs. Global Action/Leakage

• Addressing emissions locally can lead to “leakage,” where emissions (and jobs) shift elsewhere, nullifying environmental benefits.
• Border Adjustments and Including Imports: California example—includes imported electricity in cap-and-trade cap.
• Co-Benefits as Motivation: Even if a region captures little climate benefit, it often enjoys substantial local health co-benefits (e.g., cleaner air in China).
• International Incentives: Lenient allocations of emissions rights (under cap-and-trade) can nudge developing nations to join global policies—allowing net financial gain while reducing emissions.
• Quote:

  "When the word gets out on that, it can be a real impetus to deal with this as another form of leakage... it's enough to make it worthwhile."
  (Prof. Goulder, 85:00)

4. The Limits of Pricing: The Need for Innovation Policy

Timestamp: 91:00–96:00

• Climate change involves two market failures: (1) emissions externality, and (2) under-provision of clean technology innovation due to "knowledge spillovers."
• Both emissions pricing and direct R&D subsidies are needed for optimal policy—together, they cut costs dramatically compared to either used alone.

5. The Persistent Gap: Science, Media, and Public Understanding

Timestamp: 96:00–end

• Scientific consensus is overwhelming (97%+ of climate scientists believe anthropogenic warming is real), yet media and partisan divides sow public confusion.

• The proliferation of information sources enables selective exposure ("echo chambers") and undercuts consensus messaging.

• Quote:

  "Any individual with a given view can always select for whatever channel will tend to reinforce his or her opinion. And I think that makes it harder for people to be informed..."
  (Prof. Goulder, 102:44)

• Goulder stresses the lack of public understanding as perhaps the most serious barrier to action—no quick solution, but raising awareness remains paramount.

Notable Quotes & Memorable Moments

• On the need for pricing emissions:

  "The basic idea is to price the externality, in this case the damages associated with emissions of greenhouse gases. And you can do it two ways ... a carbon tax, where the tax is the price. Or cap and trade, where the price emerges from the market." (14:40)

• On fairness in climate policy:

  "This does for many, this would say it's unfair, it's a regressive impact. ... But one thing you can do with a carbon tax is you can return the revenues or recycle the revenues in a way that's targeted especially toward lower income households." (43:30)

• On free allocation in cap-and-trade:

  "Under free allocation, coal suppliers actually do better than if there was no cap and trade system at all. ... In general, it's going to look like this." (52:40)

• On international climate agreements:

  "If you join the party, join the climate policy party, we're going to give you emissions allowances ... you can become a net seller and it will more than pay for its abatement costs. So that's one way to do it." (89:15)

• On the challenge of changing public perception:

  "There's a clear rift between what the scientists tell us in academic journals and the public perception." (97:50)

Key Timestamps

• 02:00 – Framing the science and economic arguments for confronting climate change
• 14:00 – The case for emissions pricing
• 18:40 – Fuel efficiency standards vs. carbon pricing
• 25:00 – Introduction to policy roadblocks
• 32:00 – Public awareness & polling data
• 41:20 – Distributional impacts and fairness: US and British Columbia examples
• 51:22 – Special interests and free allocation under cap-and-trade
• 66:00 – Leakage, co-benefits, and international coordination
• 91:00 – Market failures: why innovation ("R&D push") needs policy support
• 97:50 – Media, echo chambers, and the public-science gap
• 102:44 – Concluding thoughts: public opinion as the biggest barrier

Final Reflections

Professor Goulder closes on a sober note: while economics provides clear guidance on how to build fair, efficient, and politically feasible climate policy, these solutions stumble on public perception and political will. Bridging the public-science gap remains the major hurdle for transformative policy, even as the economic and environmental stakes become ever more urgent.