Rod Richardson serves as President of the Grace Richardson Fund (GRF), and co-founder/co-chair of the Climate & Freedom International Coalition Meeting, co-facilitated in collaboration with Americans for Tax Reform Foundation/Tholos Foundation. GRF pioneers new free market solutions to emerging 21st Century challenges. Notably, over the last decade, GRF has emerged as the leading private foundation pioneering free market climate policy, a set of new proposals rooted in the observation that the key solution for climate change, poverty and the evils that follow, is one and the same thing: more freedom. All the tools in the free market toolbox — free trade, competition, property rights, supply side tax policy, democracy, and rule of law, etc. — can be combined in novel ways to powerfully accelerate not only the innovation and deployment of ever cleaner solutions, but the expansion of freedom itself — and with that, the eradication of global poverty. As a hybrid private foundation / think tank, GRF follows a strategy of collaborative policy innovation. It convenes scores of fellow think tanks and hundreds of scholars and experts, to brainstorm and develop new freedom-expanding solutions to the pressing problems of our time.
Speak Freely: Thanks for agreeing to speak with us Rod.
Rod Richardson: My pleasure. I take it that you’re a fan of low taxes, free trade, competition and private property rights?
SF: Indeed I am.
RR: Then congratulations! You’re already an environmentalist and a climate activist. Because these are all the key building blocks of effective climate and environmental policy.
SF: Can you tell us a little about your organisation, the Grace Richardson Fund?
RR: Sure, it depends how far back you want to go. It’s one of the Richardson family Foundations, and draws on strategies that my father and grandfather developed back in the 1960s and 1970s. My grandfather, Smith, had made quite a bit of money – he rose up from poverty, and he wanted to maintain a society that had opportunities for people to improve their circumstances.
My father, Randy Richardson, had a second layer of motivation. He’d fought in World War Two, from the Battle of the Bulge to the liberation of Leipzig. His division liberated three concentration camps. Then he faced off against the Soviet troops on the Czechoslovakia border. He saw them driving up and down the road: the NKVD would shoot people they considered defectors. They might be German POWs going home, but because they didn’t have a perfect German accent, they would be considered defectors so you know, boom, dead.
So he was very upset when, at Yalta, half of the area that he and his buddies had fought to liberate was given from one maniacal totalitarian dictator to another. He vowed to undo that horrible injustice. His focus became increasingly international at the Smith Richardson Foundation, and no doubt helped bring about the fall of the Berlin wall.
One of the key programme strategies that he taught me, was always to address the issues of the day with a better free market solution. That way, no matter what the issue, you always advance freedom.
When I was devising the new GRF programme, it seemed there was one area where the liberty movement was doing an absolute crap job. No one was even thinking about using free market solutions for climate change. The policy space was totally slanted to the left, and free marketeers were losing the big votes, and still are. There was quite a lot of work being done on scepticism about climate alarmism, but it seemed to me that that was a losing strategy. Even if you were right on the facts, and winning small debates, you were ceding the overall policy design arena to people who would use heavily interventionist leftist solutions that would screw up the economy. And that’s exactly what’s happened. The scepticism arguments, while they sensibly show how alarmists exaggerate risks, end up a losing strategy, overall. If you want to expand freedom, you need to address big, global problems with free market solutions. I felt that there was a particularly huge opportunity to do that on climate and the environment.
SF: So markets are the answer to environmental problems?
RR: Yes, climate problems too, and increasingly so as clean technologies become more and more competitive. For example, in the last decade, and particularly from 2011 to 2015, wind and solar moved from being basically unprofitable and uncompetitive to being profitable and competitive. By 2015, both of those technologies were cheaper than fossil fuels, unsubsidized, in the best sited locations, by measure of LCOE [levelized cost of electricity]. Now, that doesn’t mean that they were perfect, or that they didn’t have limitations. But in more and more locations, like Texas, they could now compete head-to-head with fossil fuels.
This meant that all of the policies that had been developed to support something unprofitable and uncompetitive were then out of date. You need a different kind of policy to support things that are profitable and competitive. And of course, if something’s competitive, you need to let it compete. That means that opening markets is actually one of the most important things you can do for decarbonisation.
That insight, by the way, has proved to be true. Wayne Winegarden at the Pacific Research Institute recently did a great study comparing competitive and uncompetitive power markets in the United States. It turns out the competitive power markets are decarbonizing 66% faster than the monopoly markets. Competition is decarbonization.
Another thing, once you have profits, you can use things like taxes on those profits as a new tool. So you can use supply side tax cuts. We don’t need to rob Peter to pay Paul and do these wealth transfers that are corrosive to the economy. You can simply reward success by letting Paul keep more of his hard earned profits. And we can do that in ways that accelerate innovation across all technologies, making them all cleaner and more efficient. Without picking winners or losers.
But basically, we started with this realisation that the policies that are being used are completely out of date, so a new set of policies are going to be needed. But how do you figure this out? Well, we asked people to join in collaborative policy innovation. And so GRF convened expert working groups, using charrette process, a concept that goes back to 19th Century Paris, l’École des Beaux-Arts. It’s used today in architecture or design meetings, as the most efficient way to design any complex project quickly. We used this process to explore how free market tools can address a global negative externality. Something that no one had ever done before.
Prior to our work, the best approximation of free market climate policy has been market-based tools, like a carbon tax or emissions trading schemes. But these are not genuine free market tools. A carbon tax is the equivalent of jamming a wrench in the gears of the market and calling it “market based policy.” These policies are based on intervening in the market, creating tax barriers or regulatory barriers or wealth transfers. Nobody had really thought about the strategy of removing barriers, prior to 2015. The R Street Institute and the NRDC came close with the Green Scissors campaign, arguing for cutting government spending that was counterproductive in terms of climate change. Makes sense, but there’s way more that we can do with the full free market tool kit.
SF: Economic growth and environmental protection are widely seen as being in conflict with each other. Is that perception incorrect?
RR: That is absolutely incorrect. There’s a great study by Nick Loris at C3 Solutions called Free Economies Are Clean Economies. He correlates economic freedom with environmental performance, looking at the Heritage Index of Economic Freedom and comparing it to the Yale Index of Environmental Performance. What he found was an almost one-to-one correlation: the higher the economic freedom, the higher the environmental performance. And coincidentally, the higher the economic freedom, the higher the level of prosperity. In fact, the central insight that we’ve brought to the table in free market climate policy, is that the solution for climate and the solution for poverty are really one and the same thing: more freedom. Especially for innovative problem solvers.
SF: What role should property rights play in encouraging stewardship, and what role should governments play in providing incentives?
RR: Well, property rights are essential in terms of stewardship, because governments make terrible stewards. Look at the massive deforestation in Latin America, Africa and Indonesia. Everywhere the problem is too much government ownership of the rainforests – far more than they can possibly protect – combined with weak or even NO property rights, and not much in the way of rule of law.
Contrast that with the United States where you have both strong property rights, and a framework for charitable tax deductions for land conservation. Since Ronald Reagan signed the conservation easement tax deduction into law in the 1980s, the United States has re-grown more than 33,000,000 acres of forests on private land. That’s the most effective unintended climate policy ever enacted. If the rainforest nations of the world copy those same policies, deforestation would end, and a massive global reforestation would be underway.
Even if you have a conscientious bureaucrat in charge of land, that might change. You will someday get a new leader, so it’s going to be very inconsistent. People care less about what they don’t own. Private property owners care a lot, all the time. So, frequently it’s the private landowners that will take the best care of their own land.
I would say that the proper role of government is to provide fair incentives for people who are going above and beyond in terms of conserving nature or providing public access to nature. When people conserve land, they’re sometimes taking a hit to their pocketbook. They’re making a decision which is in the public benefit if they let the trees grow instead of mowing them down for cattle or subdivisions. So it’s a public spirited act, it’s a charitable act, and it should be treated as such. And that’s what a charitable easement tax deduction does.
There are some states that have gone overboard on conservation tax deductions, and then you have problems with people putting lands into conservation that would have been conserved anyway. But by and large, the conservation easement tax deduction has been done right in this country, and it has succeeded, by the numbers. So private property rights with a legal framework that encourages conservation can be very important. Looking at the situation globally, there are many countries that don’t have solid property rights and don’t have these frameworks; it’s hugely problematic and driving climate change.
SF: On the flip side, what are your thoughts about policies aimed at taxing negative externalities more?
RR: One has to realise that those ideas were largely developed decades ago; they’re old ideas. They come from a time when there really weren’t any profitable competitive solutions to climate change. It was hard for people to credibly think about using competition and supply side tax cuts to address climate problems. So it was sort of an act of desperation, because they couldn’t think of something better. They wouldn’t frame it that way, but that’s my take on it.
These policies are basically, as I say, like jamming a wrench in the gears of the free market and calling it “market-based policy.” You’re creating a fiscal barrier and you’re also engaged in picking the winners and losers. You’re saying, Oh, we need to tax the ‘bads.’ So you are demonising fossil fuels, but hey, wait a minute, those are also, in many ways, very good for everyone. Really, ALL current energy technologies have pros and cons, they’re all imperfect. They all have negative externalities, they’re all working on solutions, and they’re all getting better, bit by bit. So if you only tax fossil fuels, you will end up driving a whole new set of massive negative externalities.
But the real thing about the carbon tax is that it just really doesn’t work very well. One of the things that economists like William Nordhaus have pointed out is that the price for a carbon tax to effectively produce change in a timely manner is higher than the social cost of carbon. So you’re actually having to impose costs on the economy that are higher than the cost of doing nothing at all. It’s a policy that doesn’t make any sense.
The reason a carbon tax has to be so high, is that the substitution goal – which is to encourage people to switch to low emission technologies – is frustrated, because those low emission technologies are not ready for prime time. Electric cars, heat pumps and renewables have severe technological limitations – such as poor range, cold weather inefficiency and intermittency – that make them imperfect substitutes. Many people don’t want them. And then there are market barriers. The carbon tax has to be so high because it’s pushing up against these barriers and getting nowhere. The smarter policy is to directly incentivize innovation across all technologies, so they all get better, and open markets so better substitutes emerge faster, and cheaper.
SF: Are there any potential or proposed technological innovations that you would be particularly excited to see over the coming years?
RR: I try to avoid demonising or championing technologies, because that’s not my role. I’m a free market policy guy. When any of our colleagues start championing or demonising any particular technology, I roll my eyes, because they have just stepped off the free-market bus.
But there are several different classes of innovation that we need to accelerate. They fall into three broad buckets.
The first of these is unforeseeable beneficial innovation. For instance, looking back at the personal computer, the internet, and the iPhone, they all had huge environmental benefits in terms of increasing productivity, enabling businesses to become more efficient in reducing paper, using fewer materials, etc. Nobody realised that these things would have these environmental impacts when they were introduced. These were unforeseen benefits. No surprise, though, that they all came into existence following Reagan’s broad supply side tax cuts – exactly the kind of policy that accelerates unforeseeable environmentally beneficial innovation.
It all comes down to incentivising innovation, by making it cheaper and more profitable. If we agreed to set taxes globally at the OECD average or lower – maybe a global maximum tax instead of a global minimum tax rate – that would really drive all innovation, even unforeseeable innovation.
Speaking of which, policies can have unforeseen benefits too. For instance, Reagan also introduced accelerated depreciation. which drives down the cost of property plant & equipment (PP&E) by making the cost tax deductible more quickly. Proponents predicted that would lead to greater investment and economic growth, which it did. Nobody expected that it would drive the energy efficiency revolution, driving down electricity use per capita and energy per unit of GDP. But it did, because it encouraged people to put into service the newest most efficient equipment faster. Suddenly all kinds of energy efficient investments pencilled out, with accelerated cost recovery.
And that is important for the second bucket, which is foreseeable beneficial incremental innovation. For instance, all of the energy technologies – wind, solar, nuclear, fossil fuels, fuel cells, heat pumps – all of these things are constantly getting incrementally better. But we can accelerate that. Reagan’s accelerated depreciation did just that. The 2017 tax reform introduced immediate expensing, which is even better. One new proposal might be even better yet.. Tax exempt debt for PP&E, what we call Innovation Acceleration Bonds, Loans, and Savings (or InABLS) would drive down the cost of interest for PP&E by 20% – 30%, while also attracting investment to the leveraged up equity side of these projects, driving more rapid deployment of the newest, most efficient, environmentally beneficial technologies. Remarkably, all of these broad-based supply side tax policies encourage rapid environmentally beneficial innovations, but do so entirely without picking winners or losers.
The last bucket is foreseeable, game-changer innovation, the kind that removes a huge chunk of global emission. For instance, if we could develop zero-emission fuels that are profitable and competitive, or industrial production machines that run on any fuel with zero emissions, those would be game changer innovations. That’s the kind of thing that would allow us to decarbonize aeroplanes and ocean transportation cheaply, and eliminate about 75% of global emissions. One of the proposals to emerge from GRF working groups is what we call Game Changer Tax Cuts – useful when we can foresee that a future innovation would be a complete game changer in getting rid of a massive fraction of emissions. The legislation could say, for instance, that if anybody in the next 20 years develops profitable zero-emission fuel, or machines that run on any fuel with zero emissions, then for the next 15 or 20 years, the profits (income and related capital gains) from that technology will be completely tax free. It massively increases the potential profitability of difficult but much-needed game-changer innovations. But once again, here is a supply side tax policy with potentially huge environmental benefits, and complete technological neutrality.
SF: If any of our readers are inspired to take up the fight for free market environmentalism, where should they begin?
RR: Start by learning as much as you can. The Clean Capitalist Leadership Council is an organisation that I co-founded; we share a great number of resources at cleancapitalistleadershipcouncil.org.
You can also head to the Climate & Freedom Accord Workshop at LibertyCon International in Washington DC, at 1.00-4.00pm on Friday 2nd February. We will be designing an international free market climate policy agreement that think tanks can take to their own national governments and say, ‘hey, here’s a new approach on the climate issue that doesn’t involve taxing people, raising energy prices through the roof, or contributing to global poverty and deforestation.’ Check the conference schedule for the time and location and come get involved.
There are other great organisations out there to check out. C3 Solutions have great resources on their website. The British Conservation Alliance (BCA) as well. There are a bunch of different places you can go to learn more. It’s a very new area, led by a handful of policy wonks and economists. We need more young scholars and more economists to step into the space, to start kicking the tires on this new paradigm, and driving it in new directions.
But we’ve made a start.
