The road to hell is paved with good intentions. A couple of examples from environmentalist attempts to mitigate climate change.
The first relates to ethanol. In its infinite wisdom, in 2010 Congress mandated the use of renewable fuels with lower CO2 content than corn ethanol to meet the renewable fuel standard it created in 2005. Sugar ethanol from Brazil fits the bill. But given the blend wall and other limits on ethanol usage, this created an excess of corn ethanol in the US, and created an incentive to export excess corn ethanol from the US to Brazil, and import sugar ethanol from Brazil.
The problem being, of course that all the fuel burned to ship ethanol from the US to Brazil, and from Brazil to the US, pours CO2 into the atmosphere. And the net result: more CO2 emissions than would have occurred absent the mandate to meet the renewable fuel standards with low CO2 producing fuels:
As a result, since the start of 2011, the United States and Brazil have shipped over 1 billion gallons of ethanol back and forth – more than 500 million gallons each way. The emissions generated by the shipping have worsened the carbon footprint of both fuels.
Thomson Reuters Foundation found that this overseas trade has produced more than 312,000 tonnes of carbon dioxide (CO2) since the start of 2011, based on an industry method used to calculate greenhouse gas emissions from shipping. This equals a ratio of one tonne of CO2 emitted for every 10 tonnes of ethanol transported between the two countries.
Not to mention its just wasteful and stupid to expend real resources-fuel, labor, capital-to swap ethanol between hemispheres.
Not to mention that corn-based ethanol is a monstrosity.
The second example: electric cars. Yes: No noxious fumes or CO2 come out of the (nonexistent tailpipe) of an electric vehicle. But if you take into account emissions over the lifetime of the vehicle-including the CO2 emitted to generate the electricity that charges the batteries of electric cars-and the other environmental impacts of their construction-including battery disposal and the environmental costs of mining rare earth metals, etc.-it’s likely that electric cars have as bad or worse environmental effects as fossil-fuel powered ones.
Government policies have substantially encouraged the use of renewable fuels, and the development of electric cars, for the purpose of improving the environment. But the actual effects of these policies often fall far short of the intended effects, and quite frequently have the exact opposite effect, or unintended consequences that are more costly than the intended environmental benefits.
This illustrates several points. First, policies frequently create perverse incentives that induce market participants to undertake actions contrary to the intent of the policy: this is what is going on in the ethanol trade. Second, we live in a second best world. The theory of the second best implies that when there are multiple “market failures” (i.e., multiple unpriced harms), mitigating one of them (e.g., reducing CO2 emissions) is not necessarily a good thing, because it can exacerbate the other market failures. That’s the lesson in the case of electric vehicles.
It’s my sense that these problems are most likely to occur when legislators and regulators attempt to dictate technologies, rather than affect incentives through taxes on harms (e.g., CO2 taxes). That seems to be particularly true of the first problem. It’s less clear that’s true of the second problem. For instance, a monomaniacal focus on CO2, whether implemented through taxes or cap and trade or dictating technology, tends to have substantial perverse effects because there are other unpriced harms and benefits. The encouragement of wind power, for example, results in environmental damage in the form of massive bird kills and abandoned wind turbines.
Economics is sometimes called the dismal science, originally because of the Malthusian connection. But the name has stuck long after economists have left Malthus far behind. And for good reason. We’re killjoys, with a habit of pointing out that things people do with the best of intentions often fail to realize those goals, or worse, are actually counterproductive.