The European Union Re-examines the Clean Energy/Economic Growth Tradeoff — So Should the Media

The progressive media often promote specious opinions on environmental policy that are in direct opposition to the very evidence they use to support their criticisms. Case in point is an article in The New York Times by Stephen Castle. He writes that, “Europe seems to be hitting its environmental limits,” as high energy costs and declining industrial competitiveness have sparked fears of faltering economic growth among the senior administrators of the European Commission (EC), which is the Brussels-based executive arm of the European Union (EU). As a result, the EC is proposing to reduce its national targets for renewable energy production after the year 2020, to promote cleaner energy production and conserve fossil fuels. The EC is also reversing its push for new laws on environmental damage stemming from fracking, the extraction of shale gas by a controversial new drilling technology.

Castle reports that these new EC proposals are perceived by environmental groups as a “substantial backtrack” and “evidence that economic factors were starting to influence the climate debate in ways they previously had not in Europe.” He notes that the growth vs climate debate is playing out across Europe and “reflects similar trade-offs being made around the world on mending economic problems today or addressing the environmental problems of tomorrow.” This is a good economic insight: there is a real opportunity cost of lower growth stemming from naively optimistic and overly restrictive environmental regulation.

Unfortunately, Castle then appears to side with these EC critics and laments that what environmental progress has been made, stating that this:

Political and policy response to climate change has failed to keep pace with increasingly dire warnings from scientists about the cascading effects of increasing concentrations of carbon dioxide and other global warming pollutants in the atmosphere…has come largely from cost efficiencies adopted by businesses and consumers primarily for financial reasons — the switch from coal to cheaper natural gas for electricity generation in the United States, for example, and the cumulative effect of years of increasing efficiency in buildings, vehicles, appliances and manufacturing around the globe.

Just when he was making such good headway in applying sound economic reasoning, Castle then trips up badly. We might all feel more hopeful about trusting in the hypothetical improvements in environmental quality that might arise from the promises and policies made by well-meaning, selfless politicians. We might even feel smug when discounting any tangible environmental enhancements arising from individuals employing their baser instincts, like pursuing individual self-interest and seeking profits in a competitive marketplace. But this hypocritical and fallacious perspective becomes quite self-evident when the very same story is read with the economic way of thinking.

Consider the irony: On the one hand, the EC politicians are backtracking on their noble (and supposedly reliable) commitment to greater energy sustainability by conserving existing fossil fuel supplies and a cleaner environment through increase fracking regulations. Yet this about-face is justified by concerns over the faltering economic growth of the EU and its stubborn unemployment rates. On the other hand, actual reductions in fossil fuel use are arising from consumers who are driving more fuel efficient cars (just to selfishly stretch their limited household budgets), by entrepreneurs who are innovating new energy extraction techniques like fracking to increase the available stock of cleaner burning energy sources (just to create opportunities to pursue new profits), and by factory owners who are employing more energy-efficient manufacturing technologies (just to lower costs and protect existing profits). Yet, because these latter examples of a more sustainable energy future for the EU arise from the uncontrolled transactions of the marketplace, they should all be discounted because this future was merely a fortuitous and unreliable outcome, arising from economic growth that was, after all, produced in a less-regulated economy.

Clearly, we economists have failed to effectively teach people about the insights that can be revealed from employing careful economic thinking… especially to reporters.

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