Executive Summary

• Canadian wildfires spread smoke from the Midwest to the Mid-Atlantic United States last week, prompting some policymakers to renew calls for massive climate change initiatives such as the Green New Deal.  
• The Green New Deal, the Inflation Reduction Act, and other similar initiatives impose massive costs and institute inefficient programs for mitigating climate change.  
• Efficient solutions to climate change, such as a carbon tax, would address environmental concerns without requiring large up-front investments to reach near-term goals.  

Introduction

Last week, Canadian wildfires greyed American skies and worsened air quality in cities stretching from the Midwest to the Mid-Atlantic. Environmental agencies warned Americans to avoid strenuous outdoor activities, many outdoor events were canceled, and even the dreaded mask made a reappearance.  

While blues skies returned, the wildfires brought climate change to the forefront of policy discussions as the United States prepares for its own wildfire season. As smoke descended over New York City, Representative Alexandria Ocasio-Cortez (D-NY) took to Twitter, warning of vulnerability to harmful climate change effects and calling for the enactment of the Green New Deal (GND), which Ocasio-Cortez and Senator Edward J. Markey (D-MA) reintroduced in April 2023.  

The GND was originally introduced in 2019, and the Biden Administration, since its beginning, has signaled its intent to combat climate change with the largest federal investment to date in environmental policy as part of the Inflation Reduction Act (IRA). Some legislators hail the IRA as an opportunity to promote and realize the goals of the GND, which unlike the IRA, has not been enacted into law. While the GND is an ambitious bill intended to mitigate climate change effects and prevent further environmental damage by establishing 100 percent renewable energy by 2030, the bill, as well as the IRA, is still deeply flawed. Specifically, The GND and IRA act as wish list legislation that tack on climate initiatives to larger policy goals, failing to efficiently target climate issues in a cost-effective way.

Green New Deal and Current Policy Flaws

As the American Action Forum (AAF) concluded four years ago, the scope and scale of the GND prove to be too broad, making the bill void of targeted efforts and altogether too expensive. The GND would attempt to reduce carbon emissions as a means to slow climate change in conjunction with other efforts, such as food and housing security, job guarantees, and universal healthcare. Attempting to achieve so much, the bill complicates the principal policy issue of reducing carbon emissions and creates an extensive tab for the federal government. In fact, AAF analysts conservatively estimated the GND to cost a minimum of $51 trillion or $369,000 per household. The combination of an expensive price tag with broad policy makes the GND extremely difficult to enact.  

While the GND has little chance of becoming law, the IRA was passed in August 2022 and embodies many of the same flaws as the GND by attaching myriad other policy goals to its climate initiatives. Further, the IRA exacerbates anticompetitive trade policies and expensive prices for “clean” and “green” products. This is exemplified by the IRA’s attempt to use a tax credit to incentivize electric vehicles (EVs) in conjunction with promoting domestic union labor. In another finding by AAF, EVs were found to be generally more expensive than gas-fueled and hybrid vehicles, despite tax credits for qualifying EVs. Under the IRA, automakers must adhere to regional content requirements to produce tax credit qualifying vehicles, and by incentivizing domestic-made vehicles, the IRA severely limits automakers’ options for competitively priced input sources. Limited trade opportunities result in higher priced goods. Qualifying EVs must fall under price ceilings, but higher input costs combined with higher base prices for EVs in comparison to gas and hybrid vehicles limits consumers’ ability to save money, further reducing their likelihood of taking advantage of the incentives to make consumption choices that limit carbon emissions. The administration’s attempt to combine domestic labor promotion with environmental policy has created such regulatory complexity that many automakers are choosing not to produce electric vehicles that comply with the provisions of the credits.  

Forgoing IRA policy and instead upholding free trade within green markets would foster competitive prices, promote manufacturing, and encourage consumption that coincides with environmental goals. 

Effective Solutions

The Green New Deal is certainly not the first climate change initiative to be introduced. But to avoid the flaws of the GND in future policy, there needs to be a focus on effective and efficient solutions. AAF President Douglas Holtz-Eakin has stressed that, based on the current federal spending, the GND is infeasible; the federal government does not have the funds required by the GND due to its other immense spending commitments. To combat climate change, efficient solutions must be explored instead of attempting to create near-term solutions that come with unworkably large price tags.   

The GND and the IRA accomplish environmental goals through other policy initiatives, such as promoting both union labor and electric vehicles, but instead, policymakers should focus on efficient, as well as effective, means to accomplish environmental goals. MIT Sloan finance professor Deborah Lucas and Barclays Researcher Jeff Meli explain that, among economists, a carbon tax is often considered the most cost-effective tool for mitigating climate change. A carbon tax—a fee for carbon emissions—requires individuals to internalize costs for negative environmental impacts in a certain, transparent, and enforceable manner. The pain of a carbon tax is offset by reducing costs of carbon alternatives and providing incentives for industries to move away from fossil fuels and toward more renewable energy sources. It would also generate revenue, allowing policymakers to offset the impacts of carbon emissions.  

A carbon tax would not be the be-all end-all combatant to climate change, but it would provide a targeted, efficient solution that employs market incentives without further straining the federal budget.

Conclusion

Last week’s smoke show serves as a reminder that climate change is a pressing issue that should elicit a response, but it requires one that is realistic and efficient. To combat climate change, policymakers should focus on targeted efforts that will create desired change without breaking the federal budget. In addition to accepting that efforts such as the Green New Deal are both fiscally irresponsible and unattainable for long-term overall economic stability, policymakers must also realize that climate change solutions will not be immediate, but rather deliberate efforts that will require time to have their intended effect.