More than markets needed to curb climate change, economist says

Aggressive government policies probably will be necessary to move consumers away from fossil fuels to alternative and renewable energy sources because markets appear unable to the job alone, a University of Chicago economist said.

Markets can respond to supply and demand changes, but those actions likely won’t be enough to make government regulation unnecessary if addressing global climate change continues to grow as a worldwide priority, Thomas R. Covert, an assistant professor at the U of C’s Booth School of Business noted during a Mar. 21 presentation at the US Energy Association.

“Many scientists, engineers, regulators, entrepreneurs, and executives believe fossil fuel consumption will need to be reduced significantly,” he said. “Can market forces solve the problem by themselves? With the possible exception of coal in North America, the answer seems to be no.”

Covert presented information from “Will We Ever Stop Using Fossil Fuels?,” a paper he co-wrote with Michael Greenstone, who directs the U of C’s Energy Policy Institute at Chicago (EPIC), and Christopher R. Knittel, co-director of the Center for Energy and Environmental Policy and Research at the Massachusetts Institute of Technology. Their work was published in the American Economic Association’s Winter 2016 Journal of Economic Perspectives.

It said that fossil-fuel supplies historically have increased consistently over time while their price advantage over lower-carbon energy sources has not declined significantly. “Without robust efforts to correct the market failures around greenhouse gases, relying on supply and demand forces to limit greenhouse gas emissions is relying heavily on hope,” it observed.

Environmental regulations began domestically in the 1970s and grew the following decade as costs from smog and acid rain grew intolerable, Covert said. Fuel-switching and passage of the federal Clean Air Act reduced particulate matter, sulfur dioxide, and nitrogen oxides with locally effective actions in places like the Los Angeles basin, he said.

“Solving the problem will be harder this time,” Covert said. “Carbon dioxide’s problem is in quantity, not quality, of consumption. Earlier problems could be solved locally. These can’t.”

Government incentives can influence decisions consumers make for years to come, but it’s hard to determine which techniques are most economically effective and efficient, he said. “The fossil fuel industry is pretty good at what it does,” Covert added. “It would take something pretty significant to get it to pull back from what it’s doing.”

Contact Nick Snow at

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