Opinion: The VW case tells us why regulation is crucial

Photo credit: European Parliament via Flickr.

By Anders Lorenzen

Even in today’s political and economic climate, free market enthusiasts continue to talk down the importance of regulations, claiming that an unregulated market would take us in the right direction. This even includes free market enthusiasts who care about tackling climate change.
Weak regulations
But if there is anything that the Volkswagen Dieselgate scandal teaches us, that now appears to have affected CO2 emissions as well as diesel emissions, then it is how crucial regulations are. In the VW scandal, it is fundamentally clear that not only have regulations been too weak but also that the corporate powers have been able to successfully water down those regulations. If we are not careful, we could enter a new world where the powers of corporates are more powerful than the state. And it is on these grounds that, rightly so, activists have fought The Transatlantic Trade and Investment Partnership (TTIP) which would give corporations the right to sue governments. We should ask ourselves: is that really the world that we want?
A fair balance
It is really crucial that we find a correct and fair balance. But it would also be wrong to go as far as the hard left wants, by making a move to privatization. There is also no way that the state should or could be funding our clean energy revolution. In order to deal with climate change, we need an energy revolution that we have never seen before. And pretending that this should be state lead is a big mistake and would be a big step backwards. The business world has to move us out of climate change and make the trillions and trillions of dollar investments in clean energy. Some companies are moving in that direction, albeit slowly, but there are too many who are not.
I firmly believe that in order to do what is needed on climate change, and to make sure that future investments are the right ones, policy makers have to guide companies in the right direction. And this can only be done through regulations. Let us take the VW scandal for example. Some have argued that we should move outright to ban diesel cars in cities, and some want this to apply to petrol cars as well – but by doing that we only move the problem from one place to another.
Sending the right signal
Now, what we really need to do is to address the economics. We need to remove incentives from people and companies, in order to stop them from investing in diesel- and petrol-powered engines. Several governments are now moving to make it less economical to drive an electric car and more economical to drive a petrol or diesel car, which gives completely the wrong signal. The economics are simple; give more tax breaks and other subsidies for electric car usage, and put more taxes and other costs on driving petrol and diesel engines. Then we really would have the market taking care of the problem.
The big climate question
But when it comes to the big climate question, it is really about time to create a global carbon tax scheme and end all fossil fuel subsidies. These two market mechanisms, if done correctly, would do a lot towards spurring the global investment market in the right direction and fast enough. But sadly these two fundamental questions, which I see as the two biggest obstacles preventing us from dealing with climate change, were not discussed at the Paris climate talks, COP21, last month. This is in spite of the fact that the French hosts supported the idea.
As free market clean energy enthusiasts have claimed, then regardless of what we do, the economics of clean energy are now so encouraging that it will happen regardless – I would agree with that. But it is not happening as quickly as the world needs. We are still, and particularly in the developing world, investing massively in fossil fuel projects, funded by the West. But instead, we need to enact some simple market mechanisms to prevent this from happening.

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