Following a lawsuit brought by environmental groups, a court in The Hague (Netherlands) just ordered Shell to cut 45% of its carbon emissions by 2030 because the company “is partially responsible for climate change,” as the Wall Street Journal puts it (Sarah McFarlane, “Shell Ordered by Dutch Court to Cut Carbon Emissions,” May 26, 2021). The company will quite certainly appeal the ruling but, irrespective of the final result, it is interesting to ask what could have led to that and what are the implications.
If Shell may be bossed around by a court not because it did anything illegal but to force it to do in the future something considered good, what prevents a court from giving direct non-purchase or lower-purchase orders to its customers? Consumers are the ones whose market demand leads the company to produce whatever it produces? Moreover, targeting a single supplier looks arbitrary,
Governments have become addicted to the habit of preventing producers from satisfying consumers’ demand, probably because the coercion is thus less visible and more politically palatable. In America and in other countries, governments have long penalized and criminalized prostitutes but not their customers. Blame the prostitute! As the wind of political correctness has changed, prostitutes now tend to be viewed as victims and, in many places, their customers are now prosecuted. In the case of tobacco, alcohol, certain food, and books, government bans have targeted, and continue to hit, the producers and sellers in order to control the consumers and buyers.
As many other businesses, Shell is in the position of the old-style prostitute. But if it ever becomes politically or technologically easier to prevent ordinary consumers from buying too much gasoline or fuel oil—through ration cards, for example—what would prevent governments and courts to directly hit them?
In stark contrast with this approach, economists generally think that the seller is no more guilty than the buyer. Both (adult) parties exchange because they think it is in their mutual interest. The consumer benefits as much as the producer; on a free market, in fact, it is the former who determines what is produced. And except in mala per se markets (murder contracts, slave trade, and such), there is no sin and no reason for guilt.
It is tempting to think that, in the case of oil and gas, a special problem comes from so-called “externalities”: a free exchange relationship between Shell (or any other oil company) and its customers is said to impose climate spillovers to third parties. But this case is not that different from other cases of government discrimination against sellers. Just like carbon, alcohol (think of the Prohibition), tobacco, sugar, indecent or subversive books are viewed by third parties and busybodies as imposing harmful externalities. As is well known by experts in the field, externalities also attach to consumption and not only to production activities. The late E.J. Mishan, a famous welfare economist, acknowledged that a consumption externality can arise “from an awareness of what is happening to others” (emphasis in original). Sometimes, these consumption effects are as physical as carbon: a cross reflects photons to the eyes of militant atheists, generating photon pollution. (On the many problems of externalities, see my forthcoming article in the Fall issue of Regulation.)
Perhaps global warming will impose large costs on certain parts of mankind. (See my complacent review of Tyler Cowen’s Stubborn Attachments in the Spring 2029 issue of Regulation. Should it have been more critical?) Similarly, perhaps sinful behavior will endanger the eternal salvation of large parts of mankind if it doesn’t bring divine wrath on the whole species—consequences which, just from the “eternal” factor, represent infinitely higher costs than climate change. Externalities justify any control one might think of.
The environmentalists’ scaremongering of the 1960s and 1970s were big hoaxes in pursuit of an ideological and political agenda. The New Republic thought that world hunger would be “the single most important fact in the final third of the 20th Century.” “If I were a gambler,” Paul Erlich said, “I would take even money that England will not exist in the year 2000.” (See Paul Sabin, The Bet [Yale University Press, 2013].) Is it much different today?
A rational approach is required. Every individual is “partially responsible” for something that some other people don’t like and that (at least probabilistically) harms them to some degree. How to get out of that slippery imbroglio? I would suggest the following. To all extent possible, individuals should be allowed to make their own choices; collective choices should be minimized. A presumption of individual liberty should replace the presumption of the savior government’s coercive solutions. These principles are not necessarily a panacea but they are a good starting point for analyzing government action.