How Can State Governments Mitigate Climate Change?

By Wayne Winegarden, Senior Fellow, Business and Economics, Pacific Research Institute, and Charles Ray, Former U.S. Ambassador; Chair of the Africa Program, Foreign Policy Research Institute

Positive Innovation Incentives Can Mitigate Climate Change

By Wayne Winegarden – Sr. Fellow, Business and Economics, Pacific Research Institute

Global climate change is a critical problem. But that does not mean any given policy implemented in its name is effective or creates a net benefit for society. Priority number one for state and local governments is recognizing this reality.

The default response of many policymakers is to mandate outcomes regardless of their feasibility, costs, or whether they will meaningfully address global climate change. California’s mandate that all new cars sold by 2035 be electric vehicles exemplifies this faulty approach. Electric vehicle (EV) mandates are strong on symbolism but technologically questionable, economically costly, and environmentally unsound.

Are the Costs Associated With EVs Worth the Benefits?

Technologically, whether it is the shortage of the necessary rare earth elements, lack of charging infrastructure, or physical limitations, EVs are not ready to replace internal combustion engine (ICE) vehicles. Perhaps they will one day but perhaps never. Even if EVs were ready, the electric grid is not, and it is unreasonable to assume that the current infrastructure can generate sufficient electricity to meet future demand.

Economically, EVs are much more expensive than ICE vehicles. According to recent estimates, the average price of a new EV is $58,940, which is more expensive than the $48,008 average price of a new gas-powered car. Simply put, EVs are not an affordable option for most Americans.

Further, the claim that EVs are cheaper to operate is only correct if electricity is inexpensive. Accounting for other mandates, such as California’s requirement that electricity generation be 100% renewable (e.g., wind and solar power) by 2045, it is unlikely that electricity will remain affordable (or reliable). The EV mandate will, consequently, worsen the affordability problems already afflicting too many families. Then there are the environmental concerns. Building the lithium-ion batteries that power EVs requires mining for rare earth elements. This production emits more greenhouse gases (GHG) than the average gas-powered car. Coupled with the pollution created by rare earth mines, EVs are neither clean nor zero emission.

From a broader policy perspective, the EV example demonstrates that every policy involves trade-offs. EVs release zero emissions while being used. However, they discharge more emissions to build, cost more, have performance limitations, and their production and disposal create environmental issues. Are EV costs worth the benefits? The answer is still unclear. But mandating EVs forces this technology solution on society regardless of the answer.

Focus on Market-Driven Incentives and Innovation

Instead of focusing on unrealistic government mandates, priority number two for state and local governments should be to develop incentives. They should implement policies that incentivize entrepreneurs and businesses to develop the desired innovations that reduce GHG emissions when measured on a lifecycle basis. The government can encourage the development of these innovations by providing broad-based, technologically-neutral incentives for entrepreneurs and businesses that produce and sell verified low-emission technologies.

One potential incentive could be marginal tax rate reductions for qualified innovations. Consider New Jersey, which levies the country’s highest corporate income tax rate. Combined with the federal tax rate, corporate income taxes take 30% of New Jersey companies’ profits.

If the profits from the sales of qualified low-emission technologies were exempted from federal and state corporate income taxes, the potential return for entrepreneurs developing the qualifying low-emission innovations would increase by nearly 43%. Such a major improvement in potential returns would incentivize more people to develop the desired innovations that will lower GHG emissions in an economically viable manner. Innovators would only earn the income tax exemption if consumers purchased their products, which ensures that only low emission, market-valued innovations will benefit.

Mandates Are Not The GHG Solution

Potential incentives are not limited to corporate income taxes. Governments could offer property tax relief, regulatory preferences, and/or preferred capital expensing benefits. The policy goal should be to increase the relative returns of the desired innovations comparable to other investment options. This increase would create the necessary incentives to encourage innovation among entrepreneurs and businesses.

Current GHG mandates are merely symbolic gestures. What we truly need to address global climate change is innovation. The belief that policymakers in state capitols know which innovations will sustainably remake the entire U.S. energy infrastructure or that policymakers can mandate a desired technological revolution by casting a vote is wrongheaded. State and local governments can best address the problem of global climate change by empowering the ingenuity of millions of Americans to develop the necessary climate change advances.

Mitigating Climate Change Requires a Holistic Approach

By Charles Ray – Former U.S. Ambassador; Chair of the Africa Program, Foreign Policy Research Institute

Climate change is an existential threat with the potential to have catastrophic effects on the habitability of the planet. Continued inaction in addressing the factors driving climate change, such as greenhouse gas emissions, risks triggering tipping points that will irreversibly changes in the planet’s climate. Some tipping points, such as sea-level rise, will become permanent even if all emissions are ended. Researchers are already seeing disturbing changes, such as the rate at which Greenland’s ice sheet is melting and the amount of carbon emitted from the Amazon’s deforestation is occurring well before the predicted 1.5 degree Celsius increase in average global temperature is reached.

There is no one action or law that can effectively address the mitigation of climate change. Instead, we need to take a creative and holistic approach to the problem, recognizing that crossing a tipping point threshold in one part of the climate system can very well impact another tipping element.

Long-Term Savings Of EVs Outweigh Internal Combustion Vehicles

The California case offers an example of the need to approach the issue holistically. In 2022, the California Air Resources Board (CARB) approved a roadmap that all new cars and light trucks sold in the state will be zero-emission vehicles by 2035, including plug-in hybrid electric vehicles (EVs). Other states have also established targets to phase out internal combustion engine (ICE) vehicles. However, California’s law, which is under review by the EPA, is the most aggressive to date.

Not surprisingly, pushback to the ICE phase-out is expected from the fossil fuel energy industry. The big hurdle to its effective implementation, though, will come from consumers. In a 2022 report, CARB reported that many people opposed EVs because of the high costs, limited charging stations, and lack of familiarity with the technology.

Overcoming these potential hurdles will require federal and state governments to implement broad public information campaigns about the benefits of moving from ICE to EV. As Mr. Winegarden notes, EV initial purchase costs are higher than ICE. However, as the manufacture and sales of EVs increase, the average price is likely to decrease. Volkswagen predicts EV prices will reach parity with ICE by 2025. BloombergNEF’s head of advanced transport thinks they could be cheaper by 2026.

The purchase price, however, is not the only cost of owning a vehicle that consumers must be concerned with. The costs for fuel and maintenance, for example, can be significant over time. According to Car and Driver, “The EPA estimates that the electric Kia EV6, for instance, would cost $550 to fuel over a year while the gas-powered Kia K5 would cost $1,950 to fuel… based on driving 15,000 miles per year and current fuel and electricity prices.” This data assumes that all charging happens at home, which is substantially cheaper. If all charging occurs at public fast-charging facilities (an unlikely scenario), the EV fuel cost will increase to $1,850 per year, almost equal to gas-powered ICE, assuming no increases in gas prices. Because electric motors require less routine care than gasoline engines, the cost to maintain an EV over five years is around one third of the cost to maintain an equivalent gas-powered car.

While rare-earth mining to obtain the elements for the production of EVs does have a negative climate impact, so does fossil fuel extraction. Regardless of the substance being mined for, companies must be required to take action to minimize environmental degradation. More government oversight of the mining process can also reduce environmental harm.

A Multifaceted Approach Is Required

As far as consumer demand is concerned, in the short term, there’s probably little that federal or state governments can do in a car-centered culture like the United States. Expanding public transportation in urban and rural areas and lowering the cost of individual EVs in the short term might dampen the use of personal vehicles. There will be objections to ICE bans, but the availability of public transport can help address opposition. Since transportation accounts for 37% of global carbon emissions, increased public transportation could help reduce emissions. Government can also help the transportation sector transition to producing cleaner, more environmentally friendly means of transportation.

The government needs to make mass transit more convenient and available and incentivize its use. And it must incentivize the power generation and transportation sectors to reduce their carbon footprints and create a plan to remove legacy ICE from use. The business sector must devote more resources to the transition to green energy and focus less on profit maximization. Individuals need to take action to reduce carbon-emitting consumption in our households and lifestyles. This is especially true of the 1% richest of the global population which accounts for more greenhouse gas emissions than the poorest 50%.

The use of fossil fuels causes over 75% of greenhouse gas emissions and nearly 90% of carbon dioxide emissions. Efforts to mitigate the dangers of climate change and global warming must be multifaceted and innovative. Emissions come from power generation, manufacturing, deforestation, transportation, food production, and individual consumption. Each of these areas has to be addressed if we’re to have effective mitigation.

No single piece of legislation will do, nor can a single agency or institution achieve the level of mitigation that would make a difference. This is not to argue that legislation, including the current California legislation, is unnecessary. It’s just that more is required from government, the corporate sector, and private individuals. Mitigating climate change is key to human survival, and it is incumbent on everyone to do their part.

Addressing Climate Change Requires Creative Thinking

By Wayne Winegarden – Sr. Fellow, Business and Economics, Pacific Research Institute

We agree that creative thinking is the sine qua non for addressing global climate change. However, Mr. Ray’s approach is unable to cultivate the necessary creativity. Mandates and subsidies discourage the innovation and free thinking required to usher in a more sustainable and prosperous future.

Government education campaigns that tout the supposed benefits of alternative energy are the antithesis of creativity. They’re akin to an education campaign touting the benefits of a BlackBerry device prior to the introduction of the iPhone. EVs and the technologies behind wind and solar power are remarkable. But like BlackBerrys, they have limitations. The difference is that the limitations of alternative energies can harm people and the environment.

Locating solar power generation in the desert where sufficient electricity can be generated often kills wildlife and damages the environment. Offshore wind turbines, the most efficient but highest-cost wind technology, harm coastal marine ecosystems. Both technologies require hundreds of billions of dollars of new infrastructure investments to generate, transmit, and distribute electricity.

More disconcerting, by forcing consumers to purchase the figurative BlackBerry devices of the alternative energy industry, the mandates discourage the creation of alternative energy’s version of the far superior smartphone technology. These innovations, which don’t yet exist, are necessary to address climate change without impoverishing millions of American families.

Governments cannot mandate technologies that haven’t yet been invented into existence. But requiring that consumers use more expensive, less reliable energy systems can stymie the creativity necessary to sustainably address global climate change.

Creative Approaches Require Positive Thinking

By Charles Ray – Former U.S. Ambassador; Chair of the Africa Program, Foreign Policy Research Institute

I find myself agreeing in large part with Mr. Winegarden’s position, but I’m not totally convinced. He is right in his assertion, for instance, that solar installations and offshore wind turbines can cause environmental harm. But he fails to mention the damage to the environment resulting from the production of fossil fuels, such as the air and water pollution from fracking and the destruction of ecosystems from coal mining. There is also the damage to marine ecosystems from oil spills. In 2010, the oil drilling rig Deepwater Horizon exploded and sank in the Gulf of Mexico. Eleven workers died and 4 million barrels of oil spilled from the damaged well before it was capped. Rare earth mining, like any other mining, can harm the environment. Yet, some harm can be mitigated with effort and government urging.

The government’s public education programs relating to climate are sometimes less than effective. Rather than ignore or abandon them, state and federal governments need to work on improvements to counter the decades of anti-climate change messaging from the fossil fuel industry. This communication has moved from outright denial of climate change to efforts to confuse the public about the climate crisis and its solutions. Mitigating climate change requires not just creative thinking but also positive thinking. It’s not a problem that will be solved overnight, but negativity can cause us to dither and delay until it’s too late.

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