NRPLUS MEMBER ARTICLE W ith the EPA’s recent proposed rules promoting electric vehicles, climate policy continues to impose burdens on the poor to cure pollution mainly generated by the rich. This is because many countries focus on displacing cheaper conventional energy sources with more expensive green ones. The poor spend a much larger share of their income on energy than the rich and thereby suffer more from the higher green-energy prices such displacement implies. A more sensible policy would focus on green-energy innovation that will lower, rather than raise, energy prices and thereby help the poor the most. As the rich pollute far more than the poor on a per-capita basis, the regressive nature of current climate policy is particularly troublesome.

Broadly speaking, there are two major alternative policy routes toward reduced greenhouse-gas emissions. The first is costly substitution, the second is green-energy innovation. Costly substitution replaces existing conventional energy technologies, such as fossil fuels, with more expensive greener ones, such as solar or wind. If green energy was cheaper, markets would transition quickly and there would be no need for public intervention. The higher costs of green energy partly stems from it lower reliability. When it costs as much as conventional energy when working, but is only available part of the time, its quality-adjusted price is higher, and that doesn’t even account for other harms such as loss of life in cold winters.

Costly substitution is the preferred approach of the Biden administration and many other Western countries. For example, in the Inflation Reduction Act (IRA), 77.6 percent of new spending involved large-scale subsidies for such substitution, compared to 1.7 percent set aside for innovation areas such as energy demonstrations, National Laboratory infrastructure, and uranium fuel availability. In addition, the American Rescue Plan Act involved only costly substitution without anything set aside for innovation.

Arguing that government subsidies for green energy necessarily lower energy prices is deceptive after factoring in the cost to the taxpayer of funding those subsidies. There is no free lunch — IRA just pays the higher cost of green energy through the taxes needed for the subsidies. In addition, the president’s claim that IRA subsidies are valuable because they create green “new jobs” is as misleading as making the same claim about a public typewriter subsidy program replacing computers. Both programs would lower productivity by having more people produce less, whereas economic growth is based on fewer people producing more.

Instead of costly substitution, a second strategy would involve a much greater focus on green-energy innovation. This would ultimately bring down prices below those of conventional alternatives, thus lowering energy prices as opposed to raising them. An Operation Warp Speed-like public-private partnership focused on innovation would have the additional benefit of compensating for the fact that the “green” aspect of energy innovation tends not to be adequately rewarded by private markets. This is because self-interested parties are not much affected by their own contribution to climate change, which is why energy prices and not environmental quality drive free-market adoption of a particular energy source. Put differently, 82 percent of world primary energy consumption is based on cheaper fossil fuels despite greener alternatives. Naturally, the costly substitution subsidies expand the market size for green-energy innovation but appear far more expensive than R&D stimuli.

These two emission-control strategies differ greatly in how much they advance the lives of the poor. On average, poor people in the U.S. spend about three times as much of their income on energy than the rest of the population, at 8.6 percent and 3 percent respectively. Because the energy burden is larger for the poor, and their burden increases more than the rich from the same price hikes, they are hurt relatively more by the price increases induced by costly substitution. For the same reason, the poor would benefit relatively more from price reductions made possible by bringing down green-energy prices below those of fossil fuels through innovation.

Put simply, costly substitution is regressive while green-energy innovation is progressive. On top of it, costly substitution is often implemented in a regressive way by mandates that hit the poor. The new EPA rules promoting EVs are an example. The poor are forced into more expensive EV cars while no such EPA mandates apply to private jets, mansions, or yachts.

Regressive emission controls seem particularly troublesome given that per capita pollution by the rich swamps that of the poor. From 1990 to 2015, the world’s richest 10 percent accounted for 52 percent of global carbon emissions, with the richest 1 percent contributing 15 percent. Meanwhile, the poorest 50 percent was only responsible for 7 percent of emissions.

With the rich polluting more than the poor, a less regressive emissions-control policy, replacing the current emphasis on costly substitution with a greater focus on green energy innovation, seems warranted, and progressives should embrace it.