The economic crisis has accomplished something that many nations have been trying, and failing, to do for years—reduce CO2 emissions. This reality highlights the enormous social and technical challenges we face. Is a continuing recession and reduction in prosperity the best way to deal with climate change or any environmental problem? No. Economic growth and the investment it fosters is the only sure path to a cleaner, safer environment.

The economic crisis makes explicit what serious observers have known for quite sometime—the current policy focusing solely on emission reductions (exemplified by the Kyoto Protocol) is both a technical and a political failure. The recent G-8 summit showed this approach is simply too costly for democratically elected politicians to accept. This collapse of purpose illustrates what happens when apocalyptic rhetoric and utopian policies meet economic realities.

Absent subsidies, low carbon energy technologies advance only when they are cheaper than traditional fossil fuels. With the exception of natural gas, the popular alternatives (e.g., wind and solar) are too expensive and limited by geography. Nuclear has many promising small scale options, but huge cost overruns at Finland’s Olkiluoto plant make investors wary of large projects.

The least bad alternative to spur an energy transition is a carbon tax. Higher energy prices will induce people to behave as members of Greenpeace ideally do. Since a carbon tax will hit low-income folks hardest, it should be offset by cuts in other areas. Reducing payroll taxes and revoking automobile fuel efficiency standards are good candidates.

A carbon tax is far superior to the current alternative; the 1,200-page American Clean Energy and Security Act of 2009 known as Waxman-Markey after its congressional sponsors. Since the bill will do little to cut CO2, it is universally derided by all but the special interests expecting to gain from it. Waxman-Markey reinforces Princeton Ph.D. George Will’s observation that: “The world is divided between those who do and do not understand that activist, interventionist, regulating, subsidizing government is generally a servant of the strong and entrenched against the weak and aspiring.”

Waxman-Markey proposes giving away almost $1 trillion worth of emission permits over the next decade. Peter Orszag, Director of the Office of Management and Budget, notes, “This represents the largest corporate welfare program that has ever been enacted in the history of the United States.” Of course President Obama dumped his election promise to auction the permits.

About the only positive thing that supporters could say is that Waxman-Markey is necessary to convince China and India to curtail their emissions. Even if developed countries cut emissions, it matters little unless China and India follow, for their emissions will swamp our progress.

In response, Indian Environmental Minister Jairam Ramesh said, “India will not accept any emission-reduction target—period. This is a non-negotiable stand.” And regarding China, British journalist James Delingpole writes, “China cares about as much about...global warming as Chairman Mao did about providing his population with five-course steak dinners. ...[A]s far as the Chinese are concerned, global warming is as an ingenious device to suck up money and power from the gullible West....”

Climate change produces an unequal distribution of costs and benefits. This means that different countries will behave and bargain strategically to advance their perceived interests. It is naïve to believe otherwise.

Fortunately, some policy entrepreneurs are proposing realistic alternatives. They follow Gwyn Prins, of the London School of Economics, who observes: “Worthwhile policy builds upon what we know works and upon what is feasible rather than trying to deploy never-before implemented policies through complex institutions requiring a hitherto unprecedented and never achieved degree of global political alignment.”

It remains an open question whether the ideas of Prins and his colleagues can break the inertia of the status quo. Perhaps there are politicians seriously concerned about climate change who will bring this new perspective forward?