Assume man-made global warming is a big, bad problem. Let's try some
thought experiments concerning what, if anything, should be done
about it.
One "solution" might be recognizing, at least, that there is nothing
to be done about it. One might argue that for the sake of lifting
billions of poor people out of abject poverty humanity must continue
to burn cheap oil and coal to fuel economic growth in this century.
One unavoidable side effect is that this will increase the amount of
heat-trapping carbon dioxide in the atmosphere and thus boost global
average temperatures by between
1.5 and 4.5 degrees Celsius by the
end of the century. People three generations hence will just have to
adapt to this increase. Fortunately because of the wealth produced
by burning fossil fuels, average incomes will have increased about
sevenfold and so they will have the
resources to do so. In addition, wealth may enable them to develop
new low pollution energy technologies.
But let's further assume that that it turns out that most people
prudentially prefer to leave a cooler planet to their posterity.
What to do then? In that case, one proposed "solution" is a global
carbon market. This is the idea behind the European Union's
Emissions Trading Scheme (ETS) established to meet its commitment to
reduce greenhouse gas emissions under the Kyoto Protocol. Countries
set a limit on how much carbon dioxide they will emit and then
allocate permits to emitters. The permits can be bought and sold
among emitters. Those that can cheaply abate their emissions will do
so and have some permits leftover. The cheap abaters can then sell
their extra permits to other emitters who have a harder time
reducing their emissions. Thus a market in pollution permits finds
the cheapest way to cut emissions. The advantage of creating a
carbon market is that it allows for the setting an overall specific
limit on carbon emissions. For example, some scientists argue that
it will be necessary to cut humanity's carbon emissions by 70
percent in order to stabilize the concentration of carbon dioxide in
the atmosphere. Once carbon has a price, it boosts the prices that
people pay for electricity and gasoline.
The best example of a market in pollution is the market in sulfur
dioxide (SO2) permits in the United States. SO2 is emitted by power
producers when they burn coal contaminated with sulfur and SO2 is
noxious to breath and contributes to acid rain. In 1990, Congress
enacted legislation that mandated that SO2 emissions from electric
utilities be reduced from 17.5 million tons in 1980 to a level of
8.95 million tons by the year 2010. Each year, the Environmental
Protection Agency issues a declining number of permits and so far
SO2 emissions are 7 million tons lower than they were in 1980.
Taking into account the bureaucratic tendency to exaggerate an
agency's success, one estimate suggests that by 2010, the annual
cost of the SO2 reductions will be about $3 billion while the annual
benefits will exceed $100 billion.
In the case of SO2 market in the U.S. the permits are allocated to a
limited number of emitters and enforced within one country.
However, establishing the nascent carbon market in Europe is proving
to be
problematic. In October, all of the
European Union countries forwarded their proposed National
Allocation Plans for carbon dioxide emissions to the European
Commission. It turns out that they allocated permits allowing
emissions 15 percent higher than current emissions. As EC
Environment commissioner Stavros Dimas
warned, "If member states put more
allowances into the market than are needed to cover real emissions,
the scheme will become pointless and it will be difficult to meet
our Kyoto targets." When Dimas tried to scale back the excessive
number of emissions permits issued by Germany, the German government
refused to go along. If Germany won't go along, don't expect France,
Britain, Poland, and so forth to do so. The problems with the ETS
highlights the fact that governments have every incentive to cheat
by issuing enough permits to keep energy costs low for domestic
businesses and thus advantage them over their foreign competitors.
Again, assuming that global warming is a big problem, a global
trading scheme would need to be created. If it is difficult for
European countries to fairly allocate and police permits among
themselves think how much harder it will be to do among all the
countries in the world.
One other possible "solution" to the problem of the emissions of
excessive carbon dioxide might be carbon taxes. The idea here is
that tax would increase the price of fossil fuels which would
encourage people to burn less of them. Consequently they would put
less carbon dioxide into the atmosphere. An example is the tax that
the U.S. imposed on
ozone depleting chemicals in the
1980s. The tax boosted the price of refrigerants so that
manufacturers and consumers were encouraged to buy air conditioners
and refrigerators that used more expensive but less damaging
compounds.
Yale economist William Nordhaus argues that
harmonized carbon taxes are more
easily administered and monitored on a global basis than are cap and
trade systems like the ETS. Also, a harmonized tax offers relative
price stability; the tax on carbon emissions can be raised gradually
and predictably over time so that governments, industries and
consumers all see what the price of carbon based fuels will be over
future decades and make investment and purchase decisions
accordingly. Prices in pollution markets can be very volatile-the
price for SO2 emissions permits has ranged between $70 to $1550 per
ton. Nordhaus argues that a harmonized carbon tax can be far more
transparently administered across the globe than trying to set
emissions limits among countries. There is less of a temptation and
opportunity to try to cheat. If a county chooses not to impose
pollution taxes on emitters, other countries can boost their tariffs
on exports from that country as a way to encourage it to join the
harmonized climate tax regime.
One major objection to a pollution tax is that, unlike a cap and
trade system, imposing such a tax does not explicitly set a limit on
emissions. However, if it turns out that people believe that it is
really necessary to cut greenhouse gas emissions by 70 percent, it
will be possible to keep increasing the tax until the price of
energy produced by burning fossil fuels rises sufficiently that
people will cut back that level by conserving and switching to
alternative sources of energy. And finally, poor countries could be
made exempt from the tax until the average incomes of their citizens
reach some agreed upon level, say, $10,000 per year.
Perhaps there is no one "solution" to any problems posed by man-made
global warming. Instead, partisans will accuse one another of bad
faith. And ultimately, perhaps, the world will muddle through using
some combination of all three strategies.
Leadership Focus