Doing the maths on Copenhagen
It's my party and I'll fly in the face of common sense
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Copenhagen is dead. Hurrah! And I say that as someone convinced that climate change is happening, we're causing it, and we need to do something about it. However, what we don't need to do is the ghastly mess that was being cooked up in Denmark.
They've essentially agreed to, um, well, try - and they'll think a little bit more about what they're going to try sometime later. And that's the best result we could have hoped for. We already know what needs to be done, as the economists have worked it out. It is true that economists are not exactly the flavour of the month right now, but they are still the experts here.
We are trying to change people's behaviour, and long experience tells us that the way to do that is to change the incentives people face. We might make it illegal to burn coal, for example - as we largely have done in British cities - and the motivation people would have for doing so would be an incentive not to.
Yet observation of humans over the past couple of centuries has shown that the carrot tends to provide a better incentive than the stick. Being shot for failing the Five Year Plan should concentrate minds more than the alternatives of bankruptcy or hot and cold running lingerie models which our own system provides for failure or success, but which has been better at producing economic growth? Quite.
So economists have thought long and hard about how we might alter incentives to change behaviour and avoid boiling Flipper. There are essentially two options. The first reaches back to Arthur Cecil Pigou and his publication in 1912 on welfare economics. He note that markets are very good things indeed, but they are not perfect. They have periods when they do not act as advertised. The most obvious of these is when there are externalities: things which affect others but which are not included in prices and thus are not in the calculations that market participants make when deciding how to act.
Externalities can be positive or negative: if they're positive then this means that markets unadorned will not provide enough of these nice things. The fact that knowledge is a public good and has positive externalities is the reason that the taxman asks us to pay for basic research in universities and the like. The correct thing to do with positive externalities is to subsidise them.
Pollution is a classic example of a negative externality. My factory polluting the river has costs for those downstream. If I'm not forced to pay those costs then they're not included in my prices, so I'll be making a profit while harming others. We should tax negative externalities, and with climate change, this leads us simply to taxing emissions. Alternatively, we could tax fossil fuels when they're dug up: a suggestion recently made by James Hansen which might be his most intelligent contribution to the debate so far.
So, solution 1) from the economists: slap on a carbon tax and we're done. The tax should be at whatever the damage done costs and we should reduce other taxes to make it revenue neutral. We might want to study what the actual cost of that damage is: current estimates range from around $5 a tonne CO2 from William Nordhaus to $80 a tonne from Lord Stern - the differences stem from technical points such as the length of the technological cycle and discount rates, which is not stuff we have room to explain here.
However, the economists agree that we should slap on the tax and then let everyone get on with it. But when this simple idea meets the world of politics and Copenhagen, one subtlety gets missed which makes a mess of the entire theory.
The economists insist that the tax should be what the cost of the pollution is. Not a high enough tax to stop people polluting at all, but rather just the cost of the pollution. This is an offshoot of welfare economics and what we're trying to do is maximise the welfare of everyone, current and future. We only want to stop people doing things where the cost is greater than the benefit. We don't want to stop people doing something where the benefit is greater than the cost.
Next page: A ban on petrol?
COMMENTS
Real cause missed
Population.
Needs to be reduced.
Example : Recently, the Bangladesh finance minister warned that 20 million might be forced to leave the country due to climate change in the next 40 years.
http://www.guardian.co.uk/environment/2009/nov/30/rich-west-climate-change
This is less than the expected growth in population, which has nearly doubled in the last 30 years
http://en.wikipedia.org/wiki/File:Bangladesh-demography.png
Est 156 million now
https://www.cia.gov/library/publications/the-world-factbook/geos/bg.html
Time for (more?) state-sponsored contraception
Cost of carbon? We can't see it.
I like this article; you make a lot of sense.
Before I rip you apart, let me declare my prejudices:
I'm not convinced of the case for anthropogenic carbon-based global warming thermageddon - too much of this seems based on computer modelling, and, as we know, computers cannot yet forecast next week's weather accurately. I also don't buy into the "it's peer reviewed science so it must be right" argument, because I understand the peer review process. I do, however, believe in global warming (by which I mean that average global temperatures have risen over the last two centuries). I also think that a cautious approach might be useful, because of the damage we might be inflicting to our life support systems (i.e. the planet Earth).
I also believe that, if you use fossil-carbon faster than it is generated, it will eventually run out.
Now, if CO2 and methane are responsible for global warming, everything that generates them should be included in a trading system, or that system makes no sense. Of course, you need to believe in the free market for that to happen, and need to set a 'safe' quota, which is, obviously, artificial. Note that a lot of the environmentalist activists (the noisy ones) don't have much faith in the free market, as they used to be communists. In fact, a lot of the same people who are pro-global tackling of environmental problems seem to be anti-globalisation (and they never see the irony in that).
If a tariff is to be universally applied to greenhouse gases, based on their 'real' cost, that could work. But in order to be effective, the tariff would have to then turn into grants to compensate those who are, to use your analogy, downstream of the factory.
For instance, let us assume that Bangladesh is going to need to relocate its entire population because of global warming. A tariff on carbon could pay for that. Similarly, if hurricanes are expected to increase from three to four a year (say), the clean up cost of one of those hurricanes would be paid for by the tariff.
The problem with our 'green taxes' is that they go into general exchequer, rather than being ring-fenced to help the environment. So we are inevitably talking about a rise in taxation here, which, frankly, a lot of people won't swallow. Instead they'll say 'But I already pay fuel duty!'. Probably followed by 'GB's rip-off Britain!'. (I've been reading too much Have Your Say, sorry.)
Actually, the problem with global agreement over this (or anything else) is that different people have different ideas of justice. For instance, somebody in a poor, unindustrialised, African country might think that it is only fair that the industrialised First World pays more based on the amount of carbon that has already been released since 1800 (or whenever). Somebody in Alabama or Antwerp may think that, as the problem is current and global, every person on the planet should pay the same (this is pretty much the argument used in this article, by the way).
The African, of course, would be right, objectively. Any carbon tax should be retrospective. But practically, this would be impossible.
If I am totally honest, I don't think that humans are psychologically equipped to deal with a problem of this magnitude. We are used to defending our camp against the threat of marauding wolves. Even when we know that we ourselves are the threat (or even if we might be), we can't help but look for other external threats. Notice how quick people are to blame the US or China here. Yes, they are the biggest polluters, but, in the end, they are made up of people trying to make a living, just like us. And they will be just as quick to point the finger at everyone else if no agreement can be reached.
That's the problem with Copenhagen, and the problem with this argument - economics is just one facet of politics. And politics, to a greater or lesser extent, is the art of shifting the blame.
I don't really care whether climate change is real/man-made or not
It seems to me that regardless of whether it's happening and regardless of who or what is causing it, if it is, it is just plain common sense to stop raping the planet and polluting our environment.
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