At Project Syndicate, Czech President Vaclav Klaus looks at the strategies currently being adopted by Western governments to deal with the problem of global warming, and is puzzled:
I am amazed to see people going along with the currently fashionable political argument that policies like cap-and-trade, government mandates, and subsidies for renewable energy can actually benefit an economy. It is claimed that government, working together with business, will create “a new energy economy,” that the businesses involved will profit, and that everyone will be better off.
This is a fantasy. Cap-and-trade can only work by raising energy prices. Consumers who are forced to pay higher prices for energy will have less money to spend on other things. While the individual companies that provide the higher-priced “green” energy may do well, the net economic effect will be negative.
It is necessary to look at the bigger picture. Profits can be made when energy is rationed or subsidized, but only within an economy operating at lower, or even negative, growth rates. This means that over the longer term, everyone will be competing for a piece of a pie that is smaller than it would have been without energy rationing.
This does not augur well either for growth or for working our way out of today’s crisis.