News flash from the op-ed pages of the Wall Street Journal: we must stop climate change legislation. Why? Because big business wants to make money.

Among the climate naysayers, Bjorn Lomborg occupies a special niche. He is the rational man’s naysayer. He does not deny that climate change is occurring or that greenhouse gases are the cause. He just denies that society should do anything substantive about it.

I have no doubt that the events of the past few months have folks like Lomborg nervous: a pro-environment president, a Congress getting serious about climate legislation, and corporations like General Electric and DuPont actively advocating for a U.S. cap-and-trade system to rein in greenhouse gas emissions. (More here.)

Earlier this year, the opponents of climate legislation adopted what some consider to be a “poison pill” ploy. They argued for the imposition of a carbon tax instead of a cap-and-trade system. It was a surprising turn of events, especially since some of the "proponents" of a carbon tax staunchly oppose taxes in any other guise. Some have speculated that these folks weren’t actually for a carbon tax, but were advocating for one in the belief that they could kill climate legislation by building false momentum for something that would not be politically viable (see here and here). Who knows? That might not have been the case.

But time marches, Congress continues to move forward on a cap-and-trade bill, and things have gotten stranger and stranger. Perhaps the strangest to date is Lomborg's Wall Street Journal op-ed (“The Climate-Industrial Complex,” May 22, 2009). The piece repeats a number of Lomborg’s usual, facile arguments (see here for a critique of some of them). But there was a new one. The movement toward climate change legislation, Lomborg claims, is a ploy by evil businesses to do something really beyond the pale — make money. He warns of “companies using public policy to line their own pockets.”

The mind boggles. I just hadn't expected the WSJ's editorial pages to point to the alleged evils of our capitalist system's profit motive as a reason for not doing something. So if the journal’s going to attack the profit-motive, I guess I'll have to come to its defense.

Whence the Profit Motive

No doubt because of being brainwashed by capitalist papers like the Wall Street Journal, I thought the profit motive was a good thing. After all, isn't bringing home the bacon our economy's bread and butter, to mix a couple of money metaphors? The profit motive … well, motivates. It motivates people to work hard, entrepreneurs to invest, and inventors to innovate. All because of the promise of a payoff, a profit. The bacon.

Sure, there are winners and losers — some make the right investments; others do not. But that is the price we all agree to exact for the progress that capitalism brings.

Climate Problem

So we have a problem. Greenhouse gas emissions are causing global warming and we need to retool our energy infrastructure in the direction of low-carbon technology. Even Lomborg agrees. How best to do that?

Government command and control. One way is a top-down, government-in-your-face approach where specific technological changes are mandated. Most economists will tell you that is a bad idea. It’s inefficient and because technologies are prescribed, it can stifle rather than spark innovation.

Subsidies. Another way is through government subsidies. In this case, the government takes a big pot of money and doles it out to the companies and industries of its choice in the hope that they will come up with the next big thing. I am not enamored of this approach because I doubt the government’s ability to pick the right targets to subsidize (corn, anyone?).

And talk about a cozy, conflicted relationship between government and business. Businesses don’t have to do anything. They don’t have to turn a profit; they just have to feed at the government trough. Ironically, this is the approach that Lomborg, who warns against a cozy, government-backed "climate-industrial complex," favors over all others.

The marketplace. A third approach, and one often favored by economists, is market-based. In this approach, the government does not get to choose how to do things or who gets to do them. The marketplace does. The government’s role is to adjust the rules of the market so that individuals and companies are incentivized to innovate and invest, and to ensure that those rules are followed.

One market-based approach for climate change is a carbon tax. Another is a cap and trade. I find pluses and minuses in both, but tend to favor the cap and trade because it’s the only one that mandates a decline in emissions.

The cap-and-trade approach worked for acid rain. Why? The profit motive had a lot to do with it. With a price on the emissions of acid-rain-causing sulfur oxide emissions, power companies found ways to improve their profit margins through innovation. Emissions decreased at costs well below the initial projections. The desire to turn a profit was not a bad thing; it is what helped make the whole thing work.

The fact that corporations recognize that a carbon-constrained world represents an economic opportunity is not a sign that there is anything wrong with it. It’s a sign that the system would work.