Carbon taxes and mental health

The beautiful thing about mid-term elections in the USA is that apart from the “main elections” for senators, congresspersons and governors, there were also votes on “auxiliary issues” – referenda, basically, on issues such as legalisation of marijuana.

One such issue that went to the polls was in Washington State, where there was a proposal for imposition of carbon taxes, which sought to tax carbon dioxide emissions at $15 a tonne. The voters rejected the proposal, with the proposal getting only 44% of the polled votes in favour.

The defeat meant that another attempt at pricing in environmental costs, which could have offered significant benefits to ordinary people in terms of superior mental health, went down the drain.

Chapter 11 of Jordan Peterson’s 12 Rules for Life is both the best and the worst chapter of the book. It is the best for the reasons I’ve mentioned in this blog post earlier – about its discussions of risk, and about relationships and marriage in the United States. It is the worst because Peterson unnecessarily lengthens the chapter by using it to put forward his own views on several controversial issues – such as political correctness and masculinity – issues which only have a tenuous relationship with the meat of the chapter, and which only give an opportunity for Peterson’s zillion critics to downplay the book.

Among all these unnecessary digressions in Chapter Eleven, one stood out, possibly because of the strength of the argument and my own relationship with it – Peterson bullshits climate change and environmentalism, claiming that it only seeks to worsen the mental health of ordinary people. As a clinical psychologist, he can be trusted to tell us what affects people’s mental health. However, dismissing something just because it affects people negatively is wrong.

The reason environmentalism and climate change play a negative impact on people’s mental health, in my opinion, is that there is no market based pricing in these aspects. From childhood, we are told that we should “not waste water” or “not cut trees”, because activities like this will have an adverse effect on the environment.

Such arguments are always moral, about telling people to think of their descendants and the impact it will have. The reason these arguments are hard to make is because they need to persuade people to act contrary to their self-interest. For example, one may ask me to forego my self-interest of the enjoyment in bursting fireworks in favour of better air quality (which I may not necessarily care about). Someone else might ask me to forego my self-interest of a long shower, because of “water shortages”.

And this imposition of moral arguments that make us undertake activities that violate our self-interset is what imposes a mental cost. We are fundamentally selfish creatures, only indulging in activities that benefit us (either immediately or much later). And when people force us to think outside this self-interest, it comes with the cost of increased mental strain, which is reason enough for Jordan Peterson to bullshit environmentalism itself.

If you think about this, the reason we need to use moral arguments and make people act against their self-interest for environmental causes is because the market system fails in these cases. If we were able to put a price on environmental costs of activities, and make entities that indulge in such activities pay these costs, then the moral argument could be replaced by a price argument, and our natural self-interest maximising selves would get aligned with what is good for the world.

And while narrowly concerned with the issue of climate change and global warming, carbon taxes are one way to internalise the externality of environmental damage of our activities. And by putting a price on it, it means that we don’t need to think in terms of our everyday activities and thus saves us a “mental cost”. And this can lead to superior overall mental health.

In that sense, the rejection of the carbon tax proposal in Washington State is a regressive move.

Environmentalism and the Discount Rate

Alex Epstein, in his new book “The Moral Case for Fossil Fuels” has a fantastic quote (HT: Bryan Caplan). Epstein writes:

It is only thanks to cheap, plentiful, reliable energy that we live in an environment where the water we drink and the food we eat will not make us sick and where we can cope with the often hostile climate of Mother Nature. Energy is what we need to build sturdy homes, to purify water, to produce huge amounts of fresh food, to generate heat and air-conditioning, to irrigate deserts, to dry malaria-infested swamps, to build hospitals, and to manufacture pharmaceuticals, among many other things. And those of us who enjoy exploring the rest of nature should never forget that energy is what enables us to explore to our heart’s content, which preindustrial people didn’t have the time, wealth, energy, or technology to do.

Or, as Caplan puts it in his annotation,

Epstein’s second key claim is normative: Human well-being is the one fundamentally¬†morally valuable thing.¬† Unspoiled nature is only great insofar as mankind enjoys it:

This allows us to characterise environmentalism and other conservationist movements through one simple factor – the Discount Rate. Let me explain.

Essentially, let us assume that we are optimising for aggregate human well-being. So we are optimising for the aggregate of the well-being of all humans today, all humans tomorrow, 10 years from now, 100 years from now and so forth. Now, if we try to optimise for short term well-being beyond a point (extracting too much oil, for example, or burning too much fossil fuel or cutting down too many trees), the well-being of future generations gets affected in a negative manner. If we are more conservative (and conservationist) now, future generations will get to enjoy greater well-being.

So, looking at the problem from the assumption that we want to “maximise aggregate human well-being”, the problem boils down to one “simple” tradeoff between well-being of human beings today and well-being of human beings at a later point in time. And it is precisely for answering questions on such inter-temporal tradeoffs that the world of economics and finance introduced the concept of a “discount rate”!

Finance assumes that rational human beings like to consume today compared to tomorrow, but only up to a point – you don’t want to consume so much today that there is nothing left to consume tomorrow. This leads us to indifference curves between today’s and tomorrow’s consumption, and if we add to this the resource constraint, we get the “discount rate” (the actual derivation is beyond the scope of this blog post).

The discount rate essentially gives us a tool to compare consumption today to consumption at a point of time in the future and make a decision on which one is more valuable. The higher the discount rate, the greater importance we give today’s consumption vis-a-vis tomorrow’s. A lower discount rate gives greater weight to tomorrow’s consumption compared to today’s.

So coming back to conservationism, the question finally boils down to “what is our discount rate”, or to track back one step “how do we value today’s well-being vis-a-vis well being at a point of time in the future”. If you assume a high discount rate, that means you give more importance to today’s well-being. A discount rate of zero gives equal importance of well-being today compared to well-being a few generations down the line. The discount rate in this case can even be negative – where you give greater importance to the well-being of humans of a future generation than to current well-being!

So the debate on fossil fuel consumption and carbon emissions and suchlike can be characterised by this one factor – what is our discount rate? And it is a disagreement on this that leads to most debates on this topic. Conservationists usually have a very low (or even negative discount rate), and they tend to play up the risks to well-being of future generation humans. The opposite side works with a much higher discount rate and argues that we should not ignore the well-being of current generations vis-a-vis the future. And the battle rages on.