Wall Street Journal: Market Incentives to Promote Climate Change

By Bob Litterman

Yes, disclosure of climate-related economic risks is important, but on its own will accomplish very little (“Enlist the Market in the Climate-Change Fight,” op-ed, Aug. 19). I had hoped that Brian Deese and Jeff Zients would then move to the essential second step: creating incentives for the market to deliver solutions to climate change.

I have spent most of my Wall Street career assessing risk and trying to make sure that it is priced appropriately. As climate change exacts a growing toll on businesses and individuals, we must provide the market with the proper incentives.

That means that carbon, which is the main ingredient in greenhouse gases, can no longer have a free ride. It should be priced to reflect the costs it imposes on all of us. An overwhelming majority of economists believe that a carbon tax or fee is the most efficient way to reduce carbon emissions. Members of Congress who have reservations should see the sizable proceeds of such a fee as a way to fund a reduction in the corporate-tax rate and other tax reforms. Some of the money could fund infrastructure repair.

However we use that revenue, reliance on the market to tackle this problem is far better than continued reliance on government regulations.