6 In Hot Water

IN 2019, IT IS IMPOSSIBLE to think about economic growth without confronting its most immediate implication.

We already know that over the next hundred years the earth will become warmer; the question is by just how much. The costs of climate change would be quite different if the planet got warmer by 1.5°C, or 2°C, or more. According to the Intergovernmental Panel on Climate Change (IPCC) October 2018 report, at 1.5°C, 70 percent of coral reefs would vanish. At 2°C, 99 percent.1 The number of people directly impacted by the rise in sea levels and the transformation of cultivable land into desert would also be quite different under the two scenarios.

The overwhelming scientific consensus is that human activity is responsible for climate change, and the only way to stay on a course to avoid catastrophe is to reduce carbon emissions.2 Under the 2015 Paris Agreement, nations set a target to limit warming to a limit of 2°C, with a more ambitious target of 1.5°C. Based on the scientific evidence, the IPCC report concludes that in order to limit warming to 2°C, CO2 equivalent (CO2e) emissions3 would need to be reduced by 25 percent by 2030 (compared to the 2010 level) and go to zero by 2070. To reach 1.5°C, CO2e emissions would need to go down by 45 percent by 2030 and to zero by 2050.

Climate change is massively inequitable. The lion’s share of CO2e emissions are being generated either in rich countries or to produce what people consume in rich countries. But the greatest share of the cost is, and will be, experienced in poor countries. Does it make it an intractable problem, given that those who must solve it have no strong impetus to do so? Or is there some hope?

The IPCC report details everything that would have to be done to cut emissions and limit warming to 1.5°C. Some steps could already be taken; switching to electric cars, constructing zero-emissions buildings, building more trains would all help. But the bottom line is that, even with technological improvements, and even if we could wean ourselves off coal entirely, without any movement toward more sustainable consumption, any future economic growth will have a large direct impact on climate change. This is because as consumption rises we need energy to produce all the things that are consumed. We generate CO2 emissions not only when we drive our cars, but also when we leave them in our garages, since energy was used in producing the car and the garage. That is true even for electric cars. There are many studies that attempt to look at the relationship between income and carbon emissions. The answer varies with climate, family size, and so on, but the two always track each other closely. The average estimate implies that when your income increases by 10 percent, your CO2 emissions increase by 9 percent.4

This implies that, although Europe and the United States are responsible for a large share of global emissions to date, today’s emerging economies (particularly China) are generating an ever-growing share of current emissions. In fact, China is the single largest emitter of carbon. This is, however, largely due to goods produced in China but consumed elsewhere in the world. If we attribute the emissions to where the consumption takes place, North Americans consume 22.5 tons of CO2e per year per person, Western Europeans 13.1, Chinese 6, and South Asians just 2.2.

Within developing countries, richer people also consume a lot more CO2 than the poor. The richest people in India and China belong to the select group of the top 10 percent of the most polluting people in the world (and contribute respectively 1 percent and 10 percent to the emissions of this group, or 0.45 percent and 4.5 percent of world emissions). In contrast, the poorest 7 percent of the population in India emit just 0.15 tons of CO2 per year per person. Overall, we get the 50-10 rule: 10 percent of the world’s population (the highest polluters) contribute roughly 50 percent of CO2 emissions, while the 50 percent who pollute the least contribute just over 10 percent.

The citizens of rich countries and, more generally, the rich worldwide bear an overwhelming responsibility for any future climate change.

On a June day sometime in the early 1990s, encouraged by his friend and fellow economist Jörgen Weibull, Abhijit went swimming in the Baltic. He leaped in and instantly jumped out—he claims that his teeth continued to chatter for the next three days. In 2018, also in June, we went to the Baltic in Stockholm, several hundred miles farther north than the previous encounter. This time it was literally child’s play; our children frolicked in the water.

Wherever we went in Sweden, the unusually warm weather was a topic of conversation. It was probably a portent of something everyone felt, but for the moment it was hard not to be quite delighted with the new opportunities for outdoor life it offered.

It is in the poor countries that there is no such ambivalence. If the earth warms a degree centigrade or two, residents of North Dakota will mostly feel perfectly happy about it. Residents of Dallas, perhaps a bit less. Residents of Delhi and Dhaka will experience more days that are unbearably hot. As just one example, between 1957 and 2000, India experienced on average five days per year with an average daily temperature above 35°C.5 Without a global climate policy, it is projected to have seventy-five such days by the end of the century. The typical US resident will experience just twenty-six. The problem is that poorer countries tend to be closer to the equator and that is where the real pain will be felt.

To make matters worse, the residents of poor countries are less equipped to protect themselves against the potential bad effects of hot temperatures. They lack air conditioning (because they are poor) and they work in agriculture, on construction sites, or on brick kilns where air conditioning is not really an option.

What are the likely impacts of the temperature increases that are going to come with climate change on life in these countries? We cannot just compare warmer and colder places to answer this, since these places are also different in a hundred other ways. What allows us to say something about the potential impact of temperature change is that the temperature at a particular location fluctuates, on a given calendar day, from year to year. There are years with especially hot summers, years with particularly cold winters, and nice years when both winters and summers are temperate. The environmental economist Michael Greenstone pioneered the idea of using these year-to-year weather fluctuations to get some understanding of the impact of future climate change. For example, if it was especially hot in one district in India in a particular year, was agricultural production lower in that year compared to the same district in other years, or to other districts where it was not so hot?

There are various reasons to not trust this particular approach blindly. Permanent climate differences will surely spur innovations to limit their impact. We won’t pick these up in the effects of year-to-year changes, because innovation takes time. On the other hand, permanent changes may have other costs that don’t occur when the change is temporary, such as the draining of the water table. In other words, those estimates could be too small or too large. But as long as the bias in the estimate is the same for rich and poor countries, it is still useful to compare the predictions we get. The general conclusion is that the damage from climate change will be much more serious in poor countries. There will be losses in US agriculture, but the losses in India, Mexico, and Africa will be much larger. In some parts of Europe, such as in the vineyards of the Moselle Valley, there will be more sun warming the vines, and both the quality and quantity of Moselle wine are predicted to increase.6

The effect of hot weather on productivity is not limited to agriculture. People are less productive when it is hot, particularly if they have to work outside. For example, evidence from the United States suggests that at temperatures over 38ºC, labor supply in outdoor jobs drops by as much as one hour per day, compared to temperatures in the 24ºC–26ºC range.7 There are no statistically detectable effects in industries that are not exposed to climate (for example, nonmanufacturing indoor activities). Children have lower test scores at the end of particularly hot school years. These effects are absent where schools have air conditioning, so they affect poorer children the most.8

In India, few factories have air conditioning. In a garment factory in India, a study looked at how labor productivity varied with temperature.9 For temperatures below 27ºC–28ºC, temperature had a very small impact on efficiency. But for mean daily temperatures above this cut-off (about one quarter of production days), efficiency went down by 2 percent for every one degree Celsius increase in temperature.

Putting everything together, across the entire world, a study finds that it being 1°C warmer in a given year reduces per capita income by 1.4 percent, but only in poor countries.10

And, of course, the consequences of a warmer climate are not limited to income. Numerous studies emphasize the danger of hot temperatures for health. In the United States, an additional day of extreme heat (exceeding 32ºC) relative to a moderately cool day (10ºC–15ºC) raises the annual age-adjusted mortality rate by about 0.11 percent.11 In India, the effect is twenty-five times larger.12

The United States experience also illustrates how being richer and more technologically advanced can help mitigate temperature risks. In the United States, the estimates of the mortality impacts of high temperatures in the 1920s and 1930s were six times larger than the estimates for the current period.The difference may be entirely due to the much greater access to air conditioning, a key mechanism through which residents of rich countries adapt to higher temperatures.13 This explains why in hot years energy demand goes up massively in rich countries. In poor countries, where air conditioning is still rare (in 2011, 87 percent of households in the United States had air conditioning, but only 5 percent of Indians did14), we see larger reductions in productivity, and increases in mortality when temperatures go up. In these places, air conditioning could be a critical adaptation tool. It should not be a luxury, but it is.

As poor countries become richer, they will be able to afford more air conditioning. Between 1995 and 2009, the ratio of air-conditioning units to homes in urban China went from 8 percent to over 100 percent (meaning there was more than one AC unit per urban household).15 But air conditioning itself aggravates global warming. The hydrofluorocarbon (HFC) gases used in standard air-conditioning appliances have particularly deleterious impacts on the climate; they are much more dangerous than CO2. This puts us in a rather difficult situation. The very technology that can help to protect people from climate change also accelerates the rate of climate change. Newly available air conditioners that do not use HFC pollute less, but at the moment they are much more expensive. A country like India, which is on the cusp of being able to afford the cheaper air-conditioning appliances, thus faces a particularly ghastly trade-off: saving lives today, or moderating climate change to save lives in the future.

An agreement reached in Kigali, Rwanda, in October 2016, after years of negotiation, illustrates how the world navigates this trade-off (when it does manage to navigate it). The Kigali agreement created three tracks: rich countries, including the United States, Japan, and Europe, will start phasing out synthetic HFCs in 2019; China and a hundred other developing countries in 2024; and a small group of countries, including India, Pakistan, and some Gulf States, will postpone the start date until 2028. While realizing its citizens are both the victims and the cause of global warming, the Indian government took the stance that they prefer to save lives today rather than tackle the problem right now. They are probably banking on the fact that economic growth in the intervening years will put them in a position to afford the more expensive devices (which may also have become cheaper in the meantime) by 2028. But during those ten years, there could be a very rapid spread of old-style appliances in India, especially since the makers of the HFC-based machines will want an outlet for their products, and these will stay operational and continue to pollute for years after 2028. This delay could turn out to be quite costly for the planet.

The air-conditioning conundrum is a particularly heart-wrenching illustration of the trade-off India feels it is facing, between the present and the future. More generally, until the Paris Agreement in 2015, India had simply refused to contemplate limits on its own emissions, arguing that it could not afford to hinder its own economic growth and rich countries should bear the brunt of the adjustment. The position evolved when India ratified the Paris Agreement and came up with a concrete commitment, asking in exchange for some serious financial aid to afford the energy transition, to be financed from an international fund paid for by the rich countries. Although Indian emissions are not a large fraction of world emissions today, India will be a key player moving forward, as its growing middle class consumes more and more. And unlike the United States, a large part of its population will also be directly and severely affected by climate change, so it should be in a good place to understand the costs of today’s choices. Its reluctance to act is thus deeply concerning, not only because it has direct impacts, but because it illustrates the dominance of short-term thinking among politicians.

The key question is whether the trade-off is as stark as the Indians (or the Americans, for that matter) seem to believe it is. Do we really have to give up something today? Perhaps we can have our cake and eat it too, if we develop and switch to better technologies that will allow us to curb warming without giving up much by way of our lifestyles. After all, just a few years ago energy experts were sternly telling us that renewable energy sources (solar and wind) were simply too expensive, and it was foolish to invest in them as an alternative to fossil fuel. They are considerably cheaper today, notably due to technological progress in those sectors. Energy efficiency has also considerably improved and could improve more. In 2006, the UK government commissioned the former chief economist of the World Bank, Lord Nicholas Stern, to prepare a report on the economic implications of climate change. The Stern Review16 optimistically concludes:

Amen to this. Still, it would not quite be free. The Stern report concludes that, assuming a rate of technological progress in the “green sector” based on extrapolating from recent history, it would cost about 1 percent of world GDP annually to stabilize emissions at the level necessary to stave off global warming. But that seems a modest cost to avoid endangering the future of the world as we know it.

One hope is that research and development efforts might respond to incentives.17 R&D expenditures are strongly influenced by the size of the market for the new innovations they are seeking to finance.18 So a temporary inducement to research clean alternatives to dirty technologies (in the form of a carbon tax that would make it more expensive to use the old technologies and/or direct subsidies to research clean technologies) could have a snowball effect by creating a demand. The clean technology would become cheaper and therefore more attractive, which would increase the demand for it and hence the returns to research. Eventually, the clean sector would be attractive enough to root out the dirty sector and we would be home free. Our little economic engine could be back on its balanced path with the same growth as before, fueled by wind, water, and the sun. We could even stop all taxes and subsidies to encourage clean energy after a while.

It is easy to see how it could work. It is also frighteningly easy to see how it could not work. After all, the dirty technology would still be there. If fewer people used coal and oil, the prices of these inputs would plummet. This would make it very tempting to go back to using them. It is true that because coal and oil are not renewable means their prices will tend to go up over time (as the supplies run down), but there is probably enough coal and oil under the ground to take us to Armageddon. It is hard to be entirely sanguine.

What the optimists are hoping for is that ultimately there will be a free lunch. Firms and people will save money by adopting the cleaner technologies because research will have made them so much cheaper. Adopting clean technologies would be a win for individuals and a win for the planet. The prospect of a free lunch is always enticing. In fact, it is so enticing that it tends to dominate the climate change conversation. Detailed engineering estimates routinely predict investments that enhance energy efficiency, and pay for themselves in the form of a smaller energy bill. A 2009 McKinsey report, “Unlocking Energy Efficiency in the U.S. Economy,” attracted a lot of attention.19 The report estimated that a “holistic approach” of investment in energy efficiency would “yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures.” In 2013, the International Energy Administration calculated that energy efficiency measures alone could give us 49 percent of the reduction in CO2e emissions we need, without any other change.20

If that is the case, then perhaps we have a relatively easy problem to solve; all we need to do is to bridge this “energy efficiency gap.” We need to identify the barriers preventing consumers (and corporations) from undertaking these investments. Perhaps they don’t know, perhaps they cannot get a loan to finance the upfront costs, perhaps they are myopic, or perhaps they suffer from inertia.

Unfortunately, when one looks at the on-the-ground performance of those supposedly low hanging fruits rather than predictions of engineering models, there is less good news. The federal Weatherization Assistance Program (WAP) is the largest energy-efficiency program for home users in the United States; it has covered 7 million households in the US since its inception in 1976. Michael Greenstone and a team of economists got a chance to allocate an offer to participate in the program to about seventy-five hundred households, randomly chosen out of thirty thousand in Michigan.21 The winners were offered over $5,000 in weatherization investments (insulation, window replacements, etc.) at no out-of-pocket cost. The researchers then collected data on winners and losers. The RCT produced three main findings. First, the demand for the program was really low. Despite an aggressive and costly encouragement campaign, only 6 percent of households in the treatment group eventually took up the offer. Second, the energy-use gains were real (the energy bill went down by 10–20 percent for those who took the program up), but were only a third of what was predicted by the engineering estimates, and much lower than the upfront costs. Third, this is not because households reacted to the prospect of a lower energy bill by heating their houses more (the so-called rebound effect); they found no increase in home temperatures. The engineering estimates apparently did not fully apply to real houses in real places; they were much too optimistic.

The gap between the rosy engineering estimates and the truth does not just apply to households. A researcher teamed up with the department of climate change in the government of Gujarat (one of the most industrialized and most polluted states in India) to provide small and medium firms with high-quality energy-efficiency consulting.22 A random sample of firms received a free energy audit, which gave each firm a list of approved energy-efficiency-enhancing investments the state could heavily subsidize (under a preexisting program). Then a random subset of the firms that got the audits received regular visits from energy consultants to facilitate the adoption. The audits on their own had a limited impact on the adoption of the new technologies. The consulting led to more adoption, but it also changed what firms were doing: they started producing more, which increased their energy demand. Overall, there was no effect on energy consumption, this time because of the rebound effect. Again, the engineers who calculated the potential emission gains from technologies that saved energy were too optimistic in their predictions.

Our sense is that there may not be that many free lunches. Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars, or no cars at all.

This is not what our colleagues in economics like to hear. First, because of economists’ ongoing love affair with material consumption as a marker of well-being, and second because they are suspicious of attempts to change behavior, especially when changing preferences is involved. Many economists have a philosophical objection to manipulating preferences.

The reason for this reluctance is the economists’ long-standing belief that there is something “true” about people’s preferences, and that their actions reflect deep-seated desires. Any attempt to convince people to do something different (such as consume less or consume differently) would then encroach on those preferences. But as we saw in chapter 4, there are really no such things as true well-defined preferences. If people don’t know how they feel about something as quotidian as a box of chocolates or a bottle of wine, why do we expect them to have clear preferences about climate change? Or what kind of world their grandchildren should live in? Or whether the people of the Maldives deserve to have their islands washed away by a rising sea? And to know how much are they willing to alter their own lifestyles to prevent those disasters?

Economists typically assume most people would not voluntarily sacrifice anything to affect the lives of unborn people or those who live very far away. But this is probably not true, for example, of you, the reader (or you would have shut this book a long time ago). Or for that matter of most economists themselves. Many of us probably do care about a whole range of outcomes that don’t affect us directly, even if we have a hard time assigning money values to them.

The reason this is important is that it changes the way we should think about policy interventions. If everyone has well-defined preferences and acts on them (for example, they don’t care at all about the damage to other people), the ideal environmental policy is one that sets a price for damaging the environment but otherwise lets the market do its job. This is the idea behind the carbon tax, which is something most economists, including us, have now embraced. It was key to the work of William Nordhaus, who was rewarded with the Nobel Prize in 2018. Having to pay an explicit price for polluting is certainly something firms take seriously. Allowing firms to buy the right to pollute from other firms that are actually actively reducing pollution, the idea of tradable carbon credits, may also be a good idea because it creates incentives for nonpolluting firms to find ways to actively “unpollute,” say, by planting trees. And the revenues from taxes on polluters is useful because we need to pay for new environment-friendly technologies.

But there is a strong case for going beyond carbon credits. Take someone who thinks of themselves as having a strong commitment to fighting climate change but ends up never buying energy-efficient LED lightbulbs. The reason could be that he does not know about LEDs, or that he forgets to buy them when he goes to the shop, or that he cannot make up his mind about just how much a premium he is willing to pay for the LEDs because he has a hard time putting a number on how much he really cares about preventing climate change. Would such a person be better or worse off if the government banned non-LED bulbs?

Or if bans seem too extreme, the government could “nudge” people gently toward choices that are better for the environment. For example, smart meters now afford the possibility of charging higher prices for electricity during peak hours, compensated by lower prices the rest of the time; this would be better for the environment. A recent study in Sacramento, California, found that only 20 percent of users actively chose such plans when they were made available.23 And yet when a plan like this was made the default for (randomly chosen) users who then had the option of switching back to the traditional plan, 90 percent of them stayed on it, and those who stayed indeed used less energy. What did they truly prefer then, the option they actively chose or the one they did not choose but were willing to stick to? A government may decide that since there is no clear answer to this question, it may as well go with the one better for the environment.

A larger open question is the extent to which energy consumption is a matter of habit. A particular way of consuming could become almost like an addiction simply because this is what people are used to. At the Paris School of Economics, the new “green” building provides very little heating. When we worked there, we were always cold in the winter and spring, and complained regularly about it. But somehow the simple tactic of leaving a thick sweater in the office eluded us for many months. Yet it was really not so difficult. We just were suffering from many years of overheated American offices. And once we had managed to transport the sweater, we did not feel worse off than we would have had the building been warmer. The moral brownie points from doing our bit to save the planet was enough compensation.

Many of the behaviors that influence energy consumption are repeated and habitual: taking the train rather than the car, turning off the lights when leaving a room, and so on. For such behaviors, doing what we have always done in the past is easiest. Changes are costly, but once we switch it is easy to keep going. Even more mechanically, if we buy a thermostat we can set it up once and for all to heat more in the morning and at night and less when we are away. This means today’s energy choices also affect future energy consumption. Indeed, there is direct evidence that energy choices are persistent. In an RCT, some randomly chosen households received regular energy reports telling them how much energy they were using relative to their neighbors. The report recipients began to consume less energy than the households that never got them, even after the reports stopped. And this seems largely a result of changes in their habits.24

If energy consumption is a bit like an addiction, in that using a lot of energy today makes us use a lot in the future, then the appropriate response is high taxes, like those on cigarettes. High taxes would discourage the behavior initially, and then once the proper behavior was learned the taxes could continue to be high without really hurting anyone, since everyone had changed their habits in order to avoid them.

Of course, our energy consumption is not only caused by how we heat, cool, or transport ourselves. Everything we purchase contributes to it. There again, tastes probably do not fall from the sky. Economists have begun to recognize the role of “habits” in our preferences: what we grew up consuming forms our tastes today. Migrants continue to eat what they grew up eating, even when the food that was cheap in their home country is expensive in their new country.25 Habits mean it is painful, in the short run, to change your behavior. But they can be changed. People even seem willing to modify their behavior in order to get ready for some future change.26 Thus announcing a future tax hike on goods gobbling up energy could be an easier way for people to get used to the idea.

Rich countries have the enormous advantage in that much of the energy consumption they need to sacrifice is inessential (driving to the supermarket when you could walk, sticking to your old bulbs instead of switching to LEDs, etc.). Where the rubber really hits the road is in the developing world. In the last two decades, coal consumption has trebled in India and quadrupled in China while declining slightly in the United States and other developed countries. In the decades to come, growth in energy consumption is forecast to be four times higher outside the OECD than within.

But for most Indians, additional consumption and additional energy consumption in particular is not a luxury. The very low energy consumption in rural India today is due to a mode of existence that is often unpleasant and dangerous. They cannot possibly use less, and ought to have a right to use more. In that case, is there a rationale for poor countries to stay completely outside of the climate conversation? Or, at a minimum, to limit any sacrifice to their richest citizens, who have the lifestyles and the emissions of rich Americans?

It is hard to say no. There is certainly something deeply unfair about the world’s poor paying for the past and present indulgence of the world’s rich. Unfortunately, there are two problems with taking this position. The first, which we already discussed, is that the consequences of a temporary let-off for the developing world may encourage many years of life for the world’s most polluting technologies. The temporary let-off may not be that temporary. Most victims will be in the developing world, so people in the developed world may be all too happy to go along with that.

But, second, the real crux of the issue is whether the developing world can afford to continue at its current pollution levels (or grow them), even without the threat of global warming. CO2e emissions are strongly correlated with something else that directly affects their citizens today: air pollution. The environment in China and India has degraded so fast that pollution has become a massive and urgent public health hazard, and it is also becoming worse in other emerging economies.

This pollution kills. In China, coal-fired indoor heating is subsidized on the north side of the river Huai but not on the south, on the grounds that it is colder in the north. One can see a precipitous drop in the quality of the air when crossing the river from south to north. Correspondingly, there is a similar drop in life expectancy.27 Estimates imply that moving China to the worldwide standard for the concentration of particulate matter in the air would save the equivalent of 3.7 billion years of life.

China’s skies are, however, positively pristine compared to those of many big Indian cities. Several Indian cities, including the capital New Delhi, top the list of most air polluted cities on earth.28 In November 2017, the chief minister of Delhi compared the city to a gas chamber. According to the US embassy’s measurements, at that time the air in New Delhi reached pollution levels forty-eight times the guideline value established by the World Health Organization. As in China, this level of pollution is undoubtedly deadly.29 Admissions to hospitals surge every November when pollution skyrockets. Globally, the Lancet Commission on pollution and health estimates that 9 million premature deaths were caused by air pollution in 2015.30 More than 2.5 million of those deaths were in India, the most in any single country.31

Pollution in Delhi in the winter is due to a combination of several factors (including pure geographical bad luck), but some of it is due to behaviors that could be changed. One important pollutant comes from burning the stubble left after crop-cutting in states neighboring Delhi. The smoke from the burning outside the city is then mixed with various pollutants produced inside the city: dust from construction, exhaust from vehicles, residue from the burning of trash and the open fires the poor use to cook and keep warm in winter.

The smog in Delhi is so bad there is a clear impetus to act immediately. There is no trade-off between the quality of life today and in the future, since people are dying now. The only trade-off is between consuming less or choking. And even this trade-off may be mostly illusory. Two different studies, one involving workers in a textile manufacturing firm in India32 and one on travel agents in China have shown that on days when ambient pollution is high, productivity is low. So more pollution may mean less consumption.33

Delhi is a relatively rich city. City dwellers can easily afford to pay the farmers not to burn their crops, and to instead use machines to bury them and ready the soil for the next planting. The government could ban open fires in the city and create heated rooms where the poor could gather on cold nights. It could replace trash-burning with a more modern trash collection and treatment system. It could ban old cars (or in fact ban diesel-fueled cars altogether) and introduce congestion pricing or another form of congestion management.34 It could enforce more vigorously the tough industrial pollution standards on the books but not typically respected. It could improve the public transportation system. It could shut down or upgrade the large thermal plants operating within the city. Perhaps none of these would be sufficient individually, but combined they would surely improve the situation.

None of this is out of reach. For example, a “friends of the court” brief submitted to India’s supreme court suggested that a subsidy of Rs 20 billion (about $300 million) would be enough for the farmers of Punjab and Haryana to purchase the equipment needed to prepare their fields. This is only approximately Rs 1,000 ($14 at the current exchange rate, a little over $70 at PPP) per inhabitant of greater Delhi. Surprisingly (and frustratingly), despite the urgency of the bad air, the political demand for such a response is not overwhelming. Part of the problem may be that curbing pollution would require a lot of people to cooperate. But there is also a lack of awareness that air pollution is a health issue. A recent Lancet study found that a large part of the deaths due to outdoor air pollution can be attributed to the burning of biomass (leaves, wood, etc.).35 But a significant part of this biomass is burnt on indoor stoves, which also generate a tremendous amount of indoor air pollution. It would therefore seem there would be a strong private demand for better cooking devices, which would improve both indoor and outdoor air. But there appears to be no such demand. Study after study finds that the demand for cleaner stoves is very low.36 Even when an NGO distributed cleaner stoves for free, people were not interested enough to get them fixed when they broke.37 Low demand for clean air may come from a failure of many of the poorest households to connect clean air to a healthy, happy, and productive life.

This may change. Slum dwellers asked to compare the conditions of life in the city to what they had experienced in their villages mostly reported they preferred Delhi.38 The only thing they really complained about was the environment and, in particular, the air. In the winter of 2017–2018, there was finally some outrage in Delhi. Schoolchildren took to the streets when their schools were shut down due to the dangerously high pollution levels. Even in China, which is not a democracy, the pressure of public opinion is said to have contributed to the government’s desire to do something about pollution. In India, it may soon become enough of a public issue to lead to some change. The priority should then be to enact policies that will lead to cleaner consumption patterns, even if they come at some cost. The costs may not be very large. In many cases, India would be able to leapfrog to the cleaner technology (e.g., when the poor finally get electricity, they get LED bulbs). In some cases, the new technology may be more expensive than the old (e.g., clean cars may be more expensive than dirty cars). This means the poor will need to be compensated. But the total cost of this is small, and could easily be borne by the elite if the political will was there.

With the Green New Deal, the talk of the town in the winter of 2018–2019, Democratic politicians in the United States were trying to link the fight against climate change with an agenda for economic justice and redistribution. They had an uphill political battle in front of them. From Paris to West Virginia and Delhi, fighting climate change is often presented as a luxury for the elites, funded by taxes on the less privileged.

To take an example we encountered firsthand, at the end of 2018 the agitation of the “Yellow Vests” protesting a planned increase in the tax on gasoline closed down the streets of Paris every Saturday, putting the French government under severe strain. Eventually, the tax increase had to be postponed. The argument the Yellow Vest protesters were making was that the increase in the gasoline tax was a way for rich Parisians (who can take the subway to work) to buy themselves a conscience at the cost of people from the suburbs and countryside who had no choice but to drive their cars. They did have a point, given that the same government had removed the wealth tax. In the United States, the specter of a “war on coal” became the rallying cry against the liberal elite, a symbol of their lack of empathy for the poor. And, of course, politicians in the developing world routinely (and rightly) rail against having to pay for previous choices made by rich countries.

The Green New Deal is an attempt to bridge precisely this divide, by emphasizing the fact that building new green infrastructure (solar panels, high-speed railroads, etc.) will both create jobs and help in the fight against climate change. It de-emphasizes the idea of a carbon tax, viewed by many on the left as being too reliant on market mechanisms and, as in France, just another way to make the poor pay.

We understand that a carbon tax is not an easy sell (taxes that hit most people never are), but our view is that it should be possible to make it politically acceptable by making it absolutely explicit that the carbon tax is not a way to raise revenues. The government should structure the carbon tax in a revenue-neutral way, such that tax revenues would be handed back as a compensation: a lump sum to all those at the lower end of the income scale, who would therefore come out ahead. This would preserve the incentive to conserve energy, drive less or drive electric cars, but make it very clear that the less wealthy would not pay for it. Given that energy consumption is a matter of habit, the tax should also be announced well in advance to give people time to get ready for it.

More generally, we are quite aware that it will cost money to prevent climate change and to adapt to the part already on its way. There will have to be investments in infrastructure, and meaningful redistribution to those whose livelihoods are affected. In poor countries, money could help the average citizen achieve a higher quality of life in a way less threatening to the future of the world. (Think of the air-conditioning debate, for example; why doesn’t the world simply pay India to leapfrog to the better technology?) Given that the poor do not consume very much, it would not take a lot to help the world’s poor consume a bit more, but also get better air and produce less emissions. The richest countries in the world are so rich they can easily pay for it.

The question is to frame the debate in a way that does not pitch the poor in poor countries against the poor in rich countries. A combination of taxes and regulations to curb emissions in rich countries and pay for a clean transition in poor countries may well reduce economic growth in the rich country, though of course we don’t know for sure, since we don’t know what causes growth. But if much of the cost is borne by the richest in the rich countries and the planet benefits, we see no reason to shy away.

In Delhi and Washington and Beijing, it is in the name of growth that policy makers drag their feet when called upon to enact or enforce pollution regulations. Who benefits from this GDP growth remains an afterthought.

Economists deserve their fair share of the blame for stoking this rhetoric. Nothing in either our theory or the data proves the highest GDP per capita is generally desirable. Yet because we fundamentally believe resources can and will be redistributed, we fall into the trap of always trying to make the overall pie as big as possible. This flies directly in the face of what we have learned over the past decades. The evidence is clear—inequality has risen dramatically in recent years, with searing consequences for societies across the world.