Worried About Climate Change? Promote Free Markets!

Every day more and more Americans are growing skeptical of the climate change doomsday claims and plans to ration energy through cap-and-trade type proposals. Despite this, many environmentalists still claim that far-reaching government intervention is needed to achieve greater energy efficiency and lower greenhouse gas emissions to reduce the threat of global warming. Although there has been no statistically significant global warming since at least 1995, the same groups often claim economic growth and lack of comprehensive environmental regulations have created a society that wastes energy and pays no regard to greenhouse gas emissions. But what if less energy use and lower greenhouse gas emissions are a byproduct of limited government and economic freedom? What if environmentalists’ goals can be reached by freer markets and prosperity? Recent Cascade Policy Institute research shows that very phenomenon.

Cascade Policy Institute has found that economic freedom and limited government lead to greater energy efficiency and lesser amounts of emissions. What’s more, advocating for more government control of the economy very well may lead to a less efficient and more greenhouse gas intense economy.

Cascade Policy Institute has found that economic freedom and limited government lead to greater energy efficiency and lesser amounts of emissions. What’s more, advocating for more government control of the economy very well may lead to a less efficient and more greenhouse gas intense economy.

Economic freedom is known to have a profound effect on the efficient allocation of resources. Without subsidies, tariffs, and other government interventions, economic activity operates in the most efficient manner because of competitive pressures to produce more with fewer inputs. This means that energy use per unit of production is decreased with the presence of free markets. Although there is no intrinsic profit incentive for decreasing greenhouse gas emissions, the push to lower energy costs leads to lower amounts of greenhouse gas emissions per dollar of gross domestic product. This is because of the close relationship between energy intensity and greenhouse gas intensity.

Cascade Policy Institute’s (CPI) study reveals an interesting relationship between greenhouse gas emissions, energy efficiency and economic freedom.

Beginning in 1995, The Wall Street Journal and the Heritage Foundation have tracked economic freedom of countries around the world. The index contains ten benchmarks that gauge economic freedoms of countries across the world along with an overall freedom score, which represents the average. Benchmarks are graded on a 0-100 scale with 100 being the most free and 0 being the least free.

When this data was combined with other economic and energy variables, some remarkable relationships were discovered. Analyzing 165 countries over a ten-year period (1995-2004), CPI found that higher levels of economic freedom lead to higher levels of energy efficiency and lower levels of greenhouse gas emissions per dollar of gross domestic product.

In addition to having lower energy and greenhouse gas intensity overall, the more economically free countries have experienced declines in carbon and energy intensity over time, while countries with less economic freedom actually increased their carbon and energy intensity levels over the ten-year range (graph 1 and 2). Also, the analysis found that one additional freedom score point would increase a country’s energy efficiency by 0.82%. With regard to greenhouse gases, one additional freedom score point would decrease the country’s greenhouse gases per dollar of GDP by 1.01%

Thus, a country’s level of economic freedom is a significant and negative factor in determining the amount of energy used and the amount of emissions produced per dollar of GDP. This conclusion contradicts the perceived notion that top-down government regulation is the only way to foster energy efficiency and lower greenhouse gas intensity. Therefore, by advocating for more government intervention into various aspects of the economy, one is essentially advocating for a less energy efficient and more greenhouse gas intense economy.

At the same time most Americans are realizing that the alarmist climate change rhetoric is exaggerated nonsense, overly anxious environmentalists need to take a second look at the merits of free markets and economic prosperity as a potential no-regrets strategy for reducing carbon emissions and energy use.

Click here for graphs related to this Commentary.

Todd Wynn is Vice President at Cascade Policy Institute, Oregon’s free market public policy research center. He received his bachelor’s degree in Business Economics from California State University Long Beach and his masters in International and Developmental Economics from University of San Francisco.