After years of failing to pass a carbon tax, climate hawks are now rallying behind a bold new proposal for tackling global warming. Known as the Green New Deal, this economic stimulus package for the planet promises to dramatically cut carbon emissions through government spending on clean energy jobs, technologies, and infrastructure. The main selling point of the Green New Deal has been its politics. While carbon pricing has long been touted as the most cost effective policy for reducing emissions, it has struggled to gain legislative traction. By contrast, advocates of the Green New Deal believe their proposal can build a winning coalition by reframing climate policy as a story of economic growth and opportunity.

A Green New Deal is not just good politics. It is good economics. Society can combat climate change by using existing clean technologies to cut emissions today or by innovating new clean technologies to cut emissions in the future. We need both strategies to address global warming. Every second that we delay in reducing our carbon footprint imposes costs on ourselves and on countless future generations. If we want to avoid climate catastrophe, we need to make deep cuts in emissions soon. On the other hand, the challenges and costs of relying solely on current technologies to address climate change are prohibitively high. We need investments in clean innovation to make it cheaper to reduce emissions in the future.

ADVERTISEMENT

We could achieve the twin goals of slashing emissions and spurring innovation by putting a very high price on greenhouse gases. Carbon taxes can encourage industries to both reduce their footprints and develop cheaper clean technologies. However, carbon pricing by itself is not the most efficient climate policy. As we explain in a recent paper, the cheaper and faster approach for our society is to combine a moderately sized carbon tax with significant federal spending on the development and deployment of clean technologies. While carbon pricing is the most cost effective way to reduce emissions today, government subsidies are the most cost effective way to advance clean technologies tomorrow.

The intuition behind all this is simple. Policies work best when they are narrowly tailored to the behavior that they seek to alter. Thus, if we want markets to produce more clean innovation, we should reward innovators rather than penalize polluters in the hopes that doing so will indirectly induce them to produce innovation. The benefits of directly encouraging clean innovation are striking. Economists have estimated our society can save more than $1.4 trillion a year if governments used a combination of taxes and subsidies, rather than taxes only, to address climate change.

In short, good economics calls for the type of broad federal spending on clean innovation that the Green New Deal promises to deliver. Of course, the effectiveness of the proposal at spurring innovation will depend on its design, the exact details of which have yet to be ironed out. The package should increase funding for early stage clean energy research, as this kind of basic science is usually too risky to attract private investors. The Green New Deal should also include subsidies for the adoption and deployment of clean technologies, such as tax credits for clean energy investment and manufacturing. These types of policies that help emerging technologies scale up and mature can be powerful drivers of clean energy innovation.

Critics will undoubtedly argue that we cannot afford the Green New Deal. This line of attack, however, ignores the costs of inaction. While the Green New Deal will not be cheap, its price pales in comparison to the damage that unchecked climate change will inflict on the economy. This argument also ignores the savings that will result from the push toward clean energy innovation under the Green New Deal. The development of cheaper clean technologies should more than offset the costs of the stimulus package.

Opponents will also claim that the government is a bad venture capitalist, and that a Green New Deal will pour taxpayer dollars into clean energy boondoggles. While concerns about government waste are certainly real, they can be avoided through smart policy design. The government can encourage innovation without favoring particular clean technologies or companies by enacting neutral research and development tax credits.

The ideal economic climate policy does include carbon pricing. But we cannot let the perfect be the enemy of the good. Even if the government cannot enact the best policy for cutting emissions today, it can still use the best policy for advancing clean innovation tomorrow. The Green New Deal pushes climate policy into uncharted political waters, but it does so based on sound economic theories. If we want to save the planet for the least amount of money, we need the Green New Deal, and we need it now.

Quentin Karpilow is a law clerk in the federal judiciary. Zachary Liscow is an economist and a professor at Yale Law School who has served on the staff of the White House Council of Economic Advisors. The views are their own.