Following a lawsuit brought by environmental groups, a court in The Hague (Netherlands) just ordered Shell to cut 45% of its carbon emissions by 2030 because the company “is partially responsible for climate change,” as the Wall Street Journal puts it (Sarah McFarlane, “Shell Ordered by Dutch Court to Cut Carbon Emissions,” May 26, 2021). The company will quite certainly appeal the ruling but, irrespective of the final result, it is interesting to ask what could have led to that and what are the implications.
If Shell may be bossed around by a court not because it did anything illegal but to force it to do in the future something considered good, what prevents a court from giving direct non-purchase or lower-purchase orders to its customers? Consumers are the ones whose market demand leads the company to produce whatever it produces? Moreover, targeting a single supplier looks arbitrary,
Governments have become addicted to the habit of preventing producers from satisfying consumers’ demand, probably because the coercion is thus less visible and more politically palatable. In America and in other countries, governments have long penalized and criminalized prostitutes but not their customers. Blame the prostitute! As the wind of political correctness has changed, prostitutes now tend to be viewed as victims and, in many places, their customers are now prosecuted. In the case of tobacco, alcohol, certain food, and books, government bans have targeted, and continue to hit, the producers and sellers in order to control the consumers and buyers.
As many other businesses, Shell is in the position of the old-style prostitute. But if it ever becomes politically or technologically easier to prevent ordinary consumers from buying too much gasoline or fuel oil—through ration cards, for example—what would prevent governments and courts to directly hit them?
In stark contrast with this approach, economists generally think that the seller is no more guilty than the buyer. Both (adult) parties exchange because they think it is in their mutual interest. The consumer benefits as much as the producer; on a free market, in fact, it is the former who determines what is produced. And except in mala per se markets (murder contracts, slave trade, and such), there is no sin and no reason for guilt.
It is tempting to think that, in the case of oil and gas, a special problem comes from so-called “externalities”: a free exchange relationship between Shell (or any other oil company) and its customers is said to impose climate spillovers to third parties. But this case is not that different from other cases of government discrimination against sellers. Just like carbon, alcohol (think of the Prohibition), tobacco, sugar, indecent or subversive books are viewed by third parties and busybodies as imposing harmful externalities. As is well known by experts in the field, externalities also attach to consumption and not only to production activities. The late E.J. Mishan, a famous welfare economist, acknowledged that a consumption externality can arise “from an awareness of what is happening to others” (emphasis in original). Sometimes, these consumption effects are as physical as carbon: a cross reflects photons to the eyes of militant atheists, generating photon pollution. (On the many problems of externalities, see my forthcoming article in the Fall issue of Regulation.)
Perhaps global warming will impose large costs on certain parts of mankind. (See my complacent review of Tyler Cowen’s Stubborn Attachments in the Spring 2029 issue of Regulation. Should it have been more critical?) Similarly, perhaps sinful behavior will endanger the eternal salvation of large parts of mankind if it doesn’t bring divine wrath on the whole species—consequences which, just from the “eternal” factor, represent infinitely higher costs than climate change. Externalities justify any control one might think of.
The environmentalists’ scaremongering of the 1960s and 1970s were big hoaxes in pursuit of an ideological and political agenda. The New Republic thought that world hunger would be “the single most important fact in the final third of the 20th Century.” “If I were a gambler,” Paul Erlich said, “I would take even money that England will not exist in the year 2000.” (See Paul Sabin, The Bet [Yale University Press, 2013].) Is it much different today?
A rational approach is required. Every individual is “partially responsible” for something that some other people don’t like and that (at least probabilistically) harms them to some degree. How to get out of that slippery imbroglio? I would suggest the following. To all extent possible, individuals should be allowed to make their own choices; collective choices should be minimized. A presumption of individual liberty should replace the presumption of the savior government’s coercive solutions. These principles are not necessarily a panacea but they are a good starting point for analyzing government action.
READER COMMENTS
David Seltzer
May 28 2021 at 12:34pm
Pierre, again clearly stated. Is the Hague saying Shell Oil is producing 45% of of total carbon emissions and therefore must reduce them by that amount? If Shell does internalize that externality, doesn’t the consumer also pay more for clean air? Does the cost of cleaner air to Shell’s customers exceed the benefit of cleaner air? Did the court consider those questions. I despair this risky political adventurism.
Pierre Lemieux
May 28 2021 at 8:06pm
David: (1) No to your first question: as per the WSJ‘s story, the 45% is the percentage by which the Paris Agreement and the U.N. say all carbon emissions must be reduced. Shell must reduce its own emissions by that average amount. It is of course an uneconomic implication that each and every emitter, including your neighbor’s cow, must reduce its own emissions by the same percentage.
(2) I don’t know. If carbon emissions also “pollute” clean air, the reduction of the former would also reduce the cost (price) of the latter. But if the process of reducing carbon emission requires the production of other polluting particulates, “clean air” could cost more.
(3) I don’t know and I don’t think these costs and benefits can be calculated by bureaucrats with computers.
(4) I haven’t seen the actual ruling, which was not linked to by the WSJ and is probably in Dutch.
David Seltzer
May 28 2021 at 9:11pm
Thank you Pierre. BTW. My academic training is in applied math and finance. My professional life; market-maker and hedge fund risk manager. Your comments help me think more like an economist. My early experience, it’s a demanding undertaking.
Pierre Lemieux
May 28 2021 at 10:16pm
David: Your questions are useful. Come back again.
Thomas Lee Hutcheson
May 29 2021 at 9:02am
I agree. Pierre is great at bringing economics to bear on real life issues.
Jens
May 28 2021 at 5:04pm
This recent ruling, by the German constitutional court, from the series “Crazy Environmental Judgments of European Courts” is also very funny:
https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2021/bvg21-031.html
The German constitution has contained the following interesting article since 1994 – even in a fairly central position:
Not bad, isn’t it ?
Pierre Lemieux
May 28 2021 at 8:28pm
Jens: Interesting case, indeed. You’re not allowed to protect “fundamental rights” before 2030 if you don’t protect them after 2030. And, I suppose, you are not allowed to forecast to 3000 if you don’t also forecast after 3000. Or better, you are not permitted to make trade-offs between human life and animal (or plant) life between this week and next week if you don’t also make them between year 3000 and year 4000. Is my rendering good?
Jens
May 29 2021 at 6:48pm
Yes, my first impulse was to ask myself if I would really appreciate it if the Pharaoh tried to think of (or for) me. But on the other hand, I have a car and the pharaoh didn’t even know what it was. And some people who are already alive will still see the year 2100. But they are small and few. Btw: Plants don’t have a nervous system. That could make a difference. But i have an open mind on that one. And what is a beaver without a tree. So i suppose it is all about making trade-offs. The addressee of this judgment is not a private person or company directly, but the legislature (which, of course, indirectly affects a lot of entities). The whole judgment is more or less a treatise that the legislature is not allowed to neglect trade-offs, even if the current majority so wishes. It’s a modern use-case of madisonian democracy.
Thomas Lee Hutcheson
May 29 2021 at 8:57am
I agree that viewed as policy to reduce net emissions of CO2 the court decision is pretty silly. [Did you see The Nation’s paean? Hilarious!] It is not clear to me what bringing it’s own emissions into line with the Paris Agreement even means and less how the company can affect its customers’ behavior.
I think I disagree with your disagreement in principle of the court to ordering the company to “do something.” If the company can at low cost reduce the harm it is doing, ordering it do so is OK by me and looks consistent with the idea that your right to swing your fist ends where it intersects my nose.
If there is a silver lining to this sort of decision it would be to encourage fossil fuels producers to shift their political position and support low cost measures like a tax on net emissions. Such as shift would also make it easier for a subset of supporters of measures to slow and reverse CO2 accumulation to get out of the moralizing, “people vs the big corporations” mode of policy advocacy.
Thomas Lee Hutcheson
May 29 2021 at 11:53am
I think your final paragraph is a perfectly good starting point for discussing issues of externalities and public goods. [The two shade into each other, but I think about the first as avoiding injustice — rising sea levels caused by CO2 emissions to encroach on a Bangladeshi farmer’s land — and the later as “nice things” — looking for life on Enceladus — that can be procured jointly but to which people do not have a right.] I just do not agree that it ought to be the end point.
I’d like to see how Libertarians/Coasians/Public Choice theorists apply their insights to a really tough externality problem like CO2 emissions to see if they arrive at a “peace, easy taxes, and a tolerable administration of justice” solution and exactly what that means in the case.
Cobey Williamson
May 29 2021 at 12:22pm
And when individual choices made under the auspices of achieving specific outcomes are based on imperfect information that conflicts with scientifically factual reality? What then?
Reversing the logic renders the individual choice position untenable.
Jon Murphy
May 29 2021 at 12:34pm
Imperfect information is a fact of life. One of the glorious things about the market as an institution is that it incentivizes people to seek out and solve imperfect information problems. Politics, on the other hand, provides no such incentive.
Comments are closed.