Investing for the Future: An Old Tradition with a New Purpose

James Wells develops systems that support energy efficiency incentive programs. He spends his spare time encouraging people to actively participate in the decision about the Gateway Pacific coal terminal.

Have you heard that people are not willing to sacrifice now in order to have a better future? If you ever discuss actions to save our climate, there’s a good chance that you have. Repeatedly. Any time that you may propose an important and useful action that will yield huge future benefits for our climate and environment, you’ll hear “Oh, people will never go for it. Everyone wants to spend their money now, and won’t be willing to defer gratification.”

This doleful response has nothing to do with the merits of any proposed plan, such as for a carbon tax,1 to save the climate. Unable to argue against a plan on its merits, opponents of action retreat to a circular argument that such a plan should not be accepted because people won’t accept it.

It’s also completely and demonstrably wrong. Our society has, and people generally have, an astonishing ability to defer in the present in order to reduce risk in the future.

Humans Have Always Invested in the Future

This ability can be traced for as long as we can find evidence of human activity. Hundreds of thousands of years ago, we gained evolutionary advantage by walking on two feet, not because it was faster, but because it freed both of our hands to carry food and other objects back home. When you bring food home, you’re not eating it on the spot — you are saving it for the future. Moving along the timeline, the invention of the basket conferred a stunning advantage – the ability to defer consumption even more by carrying more stuff, over longer distances, to a place where it might be used in the future. Then agriculture – holy cow! Months of toil for food that may or may not arrive later in the year.

Leaving ancient history aside, let’s check out a modern human behavior that is absolutely considered normal in our culture. In fact, it’s expected. That behavior is: saving for retirement.

In the United States as of the end of 2011, tax-qualified retirement accounts totaled 18 trillion dollars – yes, that’s trillion with a T. Every single dollar of these accounts represents a dollar that did not go into current consumer spending, but was set aside for thirty, forty, fifty or more years, for future needs. Some of the funds were contributed by employers, others by employees, while others represent investment gains — but all of them were deferred.

Even people who are close to retirement are saving for a long time in the future. Take, for example, somebody who is 50 years old and has already saved some for retirement. That person is not saving for the day that they turn 65, because that’s already covered. That person is saving for the day that they are 75, or 80, or 85, to make sure they don’t run out at the back end of their life expectancy.

Many people put extensive effort into planning for an inheritance for their children. This planning, of course, goes even beyond that person’s entire lifetime.

Why Not Invest in the Planet’s Future?

So if a regular person is capable of saving a set of arbitrary chits in a computer account, on the theory that the successor of that computer will be good enough to pay it all back in a few decades to themselves or their descendants, why would that same person not be willing to invest in, let’s just say, a habitable world?

Let’s take on a variation of the canard. You’ll hear that institutions are incapable of asking people to defer instant gratification, in obeisance to the next election cycle.

Again, wrong. Consider Social Security. Our government forces everyone to defer 12.4 percent of their earned income (up to a ceiling), on the theory that the money will come back to the taxpayer, someday. Through Social Security, Americans defer over a trillion dollars (with a T) each every year. And we accept it.

Not only is this plan politically acceptable, it is considered to be so important that any proposal to change Social Security is considered to be a third rail of politics — if you touch it, you die.

Carbon Tax as an Investment in the Future

Now, consider the costs of reducing our greenhouse gas emissions. Guess what – they’re small compared to the sums that we already save for retirement. According to a McKinsey report (these guys are business consultants, not environmentalists), the U.S could reduce emissions of up to 4.5 gigatons a year of CO2 at a cost of up to $50 per ton of CO2 — that’s 225 billion dollars a year. The report also notes that the cost could be much less considering potential gains from energy efficiency.

Deferring for the future is normal and accepted, both on a personal and a national level. For people to accept the idea of investing now for climate benefit in the future, it simply must be demonstrated that the plan will meet defined goals, and that it is equitable. There are several climate investment programs on the table which meet these two core criteria. The Tax and Dividend plan is especially intriguing, returning some or all of the carbon tax receipts to the residents of the United States in equal shares per person.

Any time you find yourself in a discussion of plans to help save our climate, make sure that any debate is on the merits of the plan itself. The idea that people are inherently unable to plan for the future is simply false and should not enter into any reasonable conversation.

References:

• Social Security receipts and expenses through 2008 from the Social Security Administration: http://www.ssa.gov/policy/docs/statcomps/supplement/2009/4a.pdf

• US Retirement Plan Assets: http://www.ebri.org/publications/benfaq/index.cfm?fa=retfaq4

• Carbon Tax and Dividend: http://citizensclimatelobby.org/carbon-fee-and-dividend-faq

• Cost of reducing greenhouse gas emissions in the US: http://www.mckinsey.com/client_service/sustainability/latest_thinking/reducing_us_greenhouse_gas_emissions

Endnotes

1Carbon A carbon tax is imposed on fossil fuels based on the quantity of carbon that the fuel emits to the atmosphere when burned. The purpose is to partially or fully include the climate costs of those emissions in the price of the fuels. When fully loaded costs of fossil fuel are considered, this creates a level playing field for renewable fuels and energy conservation efforts, with the effect of reducing fossil fuel use and the resulting emissions. The Carbon Tax Center (www.carbontax.org) describes a carbon tax as the “most economically efficient means to convey crucial price signals that spur carbon-reducing investment.”