Snarky Behavior

Dropping Knowledge: The Economics and Ethics of Carbon Abatement

May 20, 2008 · Leave a Comment

This past semester I took an interesting (albeit frustrating) class on the “Risks of Globalization,” taught by an economist who was involved in the incipient development of the Kyoto protocol. 

Fundamentally, the risks of climate change are as follows:

1.      Overwhelming scientific evidence shows that the earth is becoming progressively warmer, and that this trend is accelerating.  People who still argue this fact are known in most circles as “dumb fucks.”

2.      Significant evidence suggests that this warming is anthropogenic, primarily due to Carbon emissions (CFC, CO2, and CH4).  People who argue this fact are known as Republicans.

3.      The atmosphere is treated as a global public good.  That means it is non-rival and non-exclusive (everyone enjoys it for free without diminishing anyone else’s right to enjoy it).  Also important to note is that gases disperse evenly throughout the atmosphere.  Hence the “global” part.

4.      Because the atmosphere is treated as free for everyone, it is subjected to what is known as “the tragedy of the commons.”  In economic terms, this means that because no single person (or nation) can reap the benefits of a clean atmosphere, no single entity will incur the costs to do so.  Another way to think of this is: a public toilet that everyone uses but nobody cleans up.    

5.      Generally, when dealing with the market of public good provision, we would say that the sum of everybody’s preference for clean air (instead of carbon-based energy consumption) should equal the rate at which we as a society choose that tradeoff.  That is another way of saying, if you want to reduce your individual carbon footprint, and I want to reduce my individual carbon footprint, and so on for every person in the world, the total amount we reduce carbon emissions will be equal to the global rate of change between a public good (clean air) and a private good (energy production).   

6.      The problem here is that there is significant reason to believe that we cannot afford to make that tradeoff at its current rate, because it results in insufficient abatement. 

This is where the majority of people who think about solutions to this problem begin to diverge significantly.  The consensus is that we either need some mechanism to increase the individual incentives to abate (i.e. a carbon market), or to decrease the benefits of polluting (i.e. a carbon tax).

In theory, a market (which allocates property rights or permits to emit, which are then priced and traded for competitively) provides certainty for the outcome of the tradeoff (since emissions are capped), without providing certainty for the costs.  A tax provides near certainty in costs (by internalizing the cost of the tax), without providing certainty for emissions (since there is no cap).

What makes these options trickier is the underlying game theory.  Since the policies are directly tied to energy consumption, which is directly tied to domestic output, self-imposed “carbon constraints” in a global economy put early adopters at a competitive disadvantage.  Carbon markets that aren’t global essentially introduce a “black” market in non-participating nations, who continue to treat the air as free.

Even if we can get beyond the competitive issue with present rivals, the issue becomes even more complex when we consider future generations.  As this article from Scientific America highlights, there is a fundamental ethical question surrounding inter-temporal dynamics:      

The costs of mitigating climate change are the sacrifices the present generation will have to make to reduce greenhouse gases.  The benefits are the better lives that future people will lead: they will not suffer so much from the spread of deserts, from the loss of their homes to the rising sea, or from floods, famines and the general impoverishment of nature.

I think that this way of framing the problem (sacrificing today for the benefit of tomorrow) complicates the issue unnecessarily. 

First of all, if we indeed create the incentives to reduce current consumption, we should compensate ourselves by treating this reduction as an immediate increase in investment.  As such, we (current generation) should be entitled to a return from future beneficiaries—through financing for alternative energy sources today.   

Future generations will expect a cleaner and energy independent future, and will pay for it by an increased debt burden.  This is a fair and just expectation, unlike the expectations to bear the costs of the reckless and unjust invasion of Iraq.

The problem after all isn’t energy consumption per se… it’s carbon emissions.  If we can invest in and/or subsidize immediate alternatives to coal/oil/natural gas, then we can consume all of the energy we want (hypothetically speaking).    

Second, I believe that the idea of sacrifice for future beneficiaries undervalues the costs we are currently facing from not only climate change, but fluctuating commodities.  As long as coal and oil are the most cost competitive sources for energy, we will use them, and build our infrastructure around them.  Clearly these are not viable long term investments, so the risks to the investments, and therefore the incentives to remain committed to those inputs of production, increase.

 

If you take oil off the table, there is no longer speculation on what the future holds or when it will get here.  It is not a matter of reducing current consumption.  It is a matter of leveraging the future.

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