A Successful Green New Deal Will Need Private Partners

by Scott Minerd of Guggenheim Investments, 3/26/21

The Green New Deal has been called a lot of names, but unambitious is not among them. In pursuing a laudable goal of nationwide carbon neutrality, the Green New Deal would do nothing less than reinvent vast swaths of the U.S. economy, potentially wiping out entire industries, companies and jobs.

It is that last element that has created the most blowback, as thousands of skilled workers—supported by their unions—are understandably concerned about how exactly they’re supposed to transition from well-paid employment in the oil patch to building solar farms or windmill blades.

Economic transformations always have winners and losers, or “creative destruction” as described by Austrian economist Joseph Schumpeter. I have witnessed the decline of the western Pennsylvania steel and coal industry and the pain of workers who had to struggle to put food on the table. But I’ve also seen the rebirth of my hometown Pittsburgh into a regional economic engine based on healthcare, higher education and technology through a combination of government and private sector cooperation.

A Green New Deal should not be viewed through the traditional lens of a big government program, like President Franklin D. Roosevelt’s New Deal. Instead, its goals can be achieved through private sector incentives with a “helping hand” from government in the form of incentives that favor clean energy while leveling the playing field with fossil fuels.

One example is the Arctic Investment Protocol, a set of objectives to guide infrastructure projects and clean energy development in the Arctic. (I lead my investment firm’s participation in helping design the goals.) The aim is to avoid a free-for-all that would carve up the region without regard for the environment or Indigenous people. The Arctic Investment Protocol, put forward by the World Economic Forum, calls for public-private partnerships, with an emphasis on responsible infrastructure development and renewable energy.

We have found from our work in the Arctic that market incentives to reduce greenhouse gas emissions are effective and have been around long enough to significantly reduce carbon output where they’re used. Imposing a carbon tax while eliminating federal subsidies to producers of fossil fuels would be a great first step.

The problem is that free market incentives are still dwarfed by subsidies. Direct government subsidies to the fossil fuel industry are around $20 billion per year, not a lot when you compare it with the $46.3 billion the government paid out in agriculture subsidies in 2020. But it’s the $649 billion in so-called unpriced externalities that are staggering. These are the indirect costs in air pollution, traffic congestion, medical treatment and other expenses that are borne by society, rather than the fossil fuel producers and users, which makes them an unpaid form of subsidies.