Friday, July 11, 2014

A Non-Misconceived Agenda for Combating Climate Change

The main purpose of this series has been to identify a number of misunderstandings that have grown up around the topic of policy to mitigate climate change.  There are a lot of them, so it’s been a big job.  It would be sneaky, however, to duck out at the end without saying a few words about what a better approach might look like.  What follows is a quick sketch of the main items.

1. The most direct and flexible way to limit fossil fuel extraction is by requiring anyone doing this to obtain a permit, and then restricting the number of permits according to an appropriate carbon budget.  In this series I’ve used the IPCC carbon limits as a matter of convenience; naturally, before committing to any specific number, there should be careful consideration of the risks in both directions—picking a target that’s too loose and doesn’t remove enough risk of catastrophe, or one that’s too tight and gives us too little extra security for the added cost.

Perhaps the hardest part of the target-picking problem is not distilling what we know today into a specific emissions cap, but setting up a dependable system for revising it as new knowledge comes in.  One possibility is to set up a semi-autonomous body, weighted toward science, which periodically reviews carbon targets and modifies them as needed.  Think of the carbon equivalent of a central bank.  Ultimately any such body is subject to political control, but it should have at least some discretion to make adjustments on its own.

Ideally the scope of a permit system would be global, but that’s unlikely to happen, at least at the start.  If several national partners are available, it could begin on a club basis, as described in the previous post, but it could also encompass just a single country.

The permits should not be time-dated.  Since the goal is to limit the accumulation of greenhouse gases and not necessarily their emissions in any single year, it should be possible to move permits backward or forward through time, leaving the total unchanged.  In theory this could be accomplished by markets alone: the entire stock of carbon permits over the period from the present to, say, 2050 could be auctioned off at once, and anyone thinking of using one would compare the value of extraction today to their expected future value if they are saved.  It’s a standard economic result that, under various conditions, the time profile of carbon extraction resulting from such a market would be optimal, in the sense that it would not be possible to increase the value we get from allowable fossil fuels by shifting their exploitation to different time periods.

In practice that's a big risk to take, however.  Markets go awry for a number of reasons: insufficient competition, herd effects, perverse incentives (especially associated with default risk), and so on.  It would be  advisable for the permit issuing body to withhold a large portion of the undated permits, so that markets are allocating only the remainder.  There could be periodic releases of withheld permits as markets demonstrate their ability to allocate them reasonably.

Permits should be issued specifically for the introduction of carbon into the economy, at the mine, wellhead, port or pipeline.  This maximally upstream location enables the economic response to be as flexible as possible, it’s easily enforced, and it’s comprehensive—unlike end user controls.

2. All permits should be auctioned, with no exceptions.  All revenues should be rebated back to the public on a per capita basis, but with two provisos.  First, a portion should be set aside for international transfer payments, to be discussed in a moment.  Second, a small amount may be set aside for specific domestic populations that are exceptionally vulnerable to the price impacts of the permit system.  These latter funds should have a remedial aspect to them, such as relocation subsidies for people who live in areas with unavoidably high fossil fuel demands or retraining subsidies for workers in the fossil fuel sector.

As for the international transfers: there are two ways of doing this.  One is to have separate national systems that auction carbon permits, and then have the higher income country set aside some of its revenues for the lower income one.  The other is to pool the permit system, so that there’s a single revenue stream, and per capita rebates automatically result in a richer-to-poorer transfer.  From a pure theory perspective, the second approach is preferable, especially since it targets the transfers more precisely (on the basis of income rather than location) and is less subject to interference.  But suppose that our club consists of the US and Brazil.  It’s not hard to imagine that the amount that a pooled system would transfer would make the program unacceptable to a large part of the US public, because their rebates would be too small to make up for much of the cost of energy price increases.  For practical reasons, then, it might be better to either set up a partial pool or have an explicit system of transfers.

For purposes of visualizing such a system, suppose that 20% of carbon revenues were set aside for global transfers and 5% for domestic subsidies.  This would leave three-quarters, enough to indemnify, at least initially, something like the bottom half of the income distribution and moderate the impact on the rest.  Indeed, the bottom deciles might well see net income gains, since their per capita share, even discounting 25%, exceeds their extra direct and indirect fuel expenses.  In other words, done right, climate policy can also be a form of progressive income redistribution.

3. The club of countries participating in the carbon permit system can be expanded primarily through the use of revenue transfers, either explicit or by pooling.  To qualify for a transfer, a low-income country would have to join the club.  On the other hand, the exports of countries outside the club would be subject to tariffs designed to offset as accurately as possible the production cost differences attributable to cheaper fossil fuel prices.  The idea is to prevent leakage, such as when production sites are relocated to take advantage of policy-driven energy cost differentials.

4. If someone develops a genuinely reliable system for long term carbon sequestration, new permits will be issued equal to the amount of sequestered carbon and given (not auctioned) to whoever does the sequestering.  They can sell them, and this provides the right level of subsidy: the value of carbon restrictions avoided.

5. As fossil fuel costs begin to rise, it should be possible to create support for a substantial shift in public spending in the direction of energy-saving technologies, renewable energy subsidies, and research and development to improve non-carbon technologies.  The money to pay for these things could come from redirecting existing spending, additional taxes, and increased public borrowing if depressed macroeconomic conditions persist.

6. Regulations may need to be introduced to minimize the perverse effects of otherwise desirable carbon incentives, such as the restrictions on conversion of food crops to fuel crops, as discussed in a previous post.

7. Adaptation is largely beyond the scope of this series, but that doesn’t mean it doesn’t matter.  In addition to all of the above, considerable sums will have to be spent protecting people from current and near-future climate impacts.  It is especially urgent the upper-income countries support this work in poorer regions: the better-off benefited from the use of fossil fuels in the past which are responsible for today’s climate forcing.

Climate change is about the planetwide relationship between “people” and “nature”, but it also exposes enormous and deeply unfair inequalities between those disproportionately on the causing and receiving ends of the problem.

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Sandwichman said...

" requiring anyone doing this to obtain a permit..."

An action needs an actor, unlike a sentence in the passive voice. Who does the requiring and how did they get the authority to compel compliance?

Myrtle Blackwood said...

RE: "7. Adaptation...considerable sums will have to be spent protecting people from current and near-future climate impacts. "

It is very likely that we are already at the stage where all spare household dollars need to be devoted to strategies for climate adaptation and low carbon investments. Not to mention our direct labour.

media said...

I agree with the last comment. I went to a talk on 'steady state economics' the other day (of course in a bar). They were more interested in the meme 'against growth' as an economic goal (disputing people like Yellen, so its possible like on the IPCC andScafetta of Duke U (physics) there is no consensus, except that there is almost surely a controversy and possibly some hot air---its 9 am and already 85).

One point made was the only group dealing with this issue was the one presenting so all you extra household dollars should be givwen them to them (though of course you should tip the bartender and maybe we'll let you buy another beer).

My 'skeptical ' view is that instead all the spare dollars should be directed to me because I can solve the problem. I'll do a powerpoint, write another book, and make a film 'The Conveniant Truth' (based on the modern reformulation of the US Rational Anthem, 'the star spangled banner' which is the Dead Kennedy's "Give me Conveniance or Give me death'.

(For example, a conveniance store nearby i often went to---now closed---had its owner killed in a robbery July 4. )

Of course, sometimes one has to figure out the 'optimal allocation' of spare dollars, otherwise it will just be spent on plane travel, conferences, putins, etc.

Myrtle Blackwood said...

I can understand the skepticism regarding the funding of 'green' lobbies and groups. Here in Australia the major 'environmental' groups such as the Wilderness Society, the Australian Conservation Foundation and the Greens political party all supported the expansion of vast corporate monoculture tree plantations.

Most of these green deserts were concentrated in Tasmania (and in the North West corner where I live). To make room for them vast areas of temperate rainforest and blackwood and stringybark were cut down and mostly burnt. This, along with the destruction of farming infrastructure that took a century to put together.

I can not be assured that personal effort devoted to supporting such groups will translate into effective action. We need a new world and the power that I can be assured of lies in what I can achieve with my own imagination and direct labour.

"You never change things by fighting the existing reality. To change something, build a new model that makes the old one obsolete" Buckminster Fuller.

media said...

i heard australia had big fires. in usa we never have these fortunately, apart from NWT canada (53rd state) or california (which has been deported to russia0.also the 'taZsmanian devils' ( a big lizard' are all sick )---dont know if thats the same tazmania (here we do sometimes have a related specie like 'taze mania' (as in we're gonna tase you---happened to me, since i said its 4 am and you're mom wants you to go home---problem was i didnt have a police badge and they did, but they just locked me up for a few hours (i was out because it was the coldest night of the year 4 degrees F so thats my climate).

i did see a nice big rattlesnake (and i catch them too) recently up north of JMU on north mountain.

i am the most humble person in the world (i have a noble prize in humility) but there is also another brand of 'synergetics' often cited from one of the people on this blog besides buckminster fuller. I think in Review of Modern physics around 72 hAken has a review. its almost mainstream now but i feel people still missed the best stuff which you can look up.
i dont like nitwits taking my material so they can pad their CV so i have no comment.

peace out

Myrtle Blackwood said...

Media, Yeah really big unprecedented fire in South East Australia. The Autumn rains are delayed until Winter now. The number of really hot days have increased very noticeably. And, thanks to the wide expansion of single species (Eucalypt Niten) deserts there is an unprecedented amount of fuel for the bushfires to burn, often right on the perimeter of rural towns and some cities.

The Tassie devils are a mammal (sort of bear-like) species. Looney Tunes had 'Taz' the devil played out as one of Bugs Bunny's gullible foes.

They are suffering a facial tumour disease that has spread from one devil to another across the state. A link has been made between the onset of the cancerous disease and the heavy chemical applications to the (then) relatively new tree farms on the Tasmanian East Coast.

I mentioned Buckminster Fuller because I have recently downloaded a series of lectures he did in 1975. I'm yet to read it all but was particularly taken by his strong sense of living in a time in history of great transformation. (I'm sure my great, great grandfather felt the same way when, at the age of 19, he was sentenced to 7 years in chains and exile in Tasmania by a judge in Lancashire.)

media said...

Thanks for the correction (though its likely i won't be quizzed on this for the correct answer--- i focus on being able to answer more difficult, economic research questions like 'do you have an id' (and quite often, no).

I was thinking of Komodo Dragons. though i like tasmanian devils too. (I was also thinking the dragons and devils collaborated to create some kind of wack, garbage game, but that was dungeons and dragons. As they say, the devil is in the details). I saw a bear a few days ago.

I wonder why your relative was put in chains, and exile. (Maybe so he could star in the Johnny Cash song 'ball and chains'.? A relative of mine served on a chain gang in W Va. since he refused service in WW2 (he was a sort of anarcho-pacifist under the influence of people like paul goodman of 'new politics' and someone named r j mushti (?) though he said he had known of the holocaust he would have served).

B Fuller i always thought was sort of a trip---many good ideas, but like alot of music it didn't appeal to me. I went to a discussion today on 'what ethical principles should govern a market society'. It didn't appeal to me either, because it was so basic (citing people like Tyler Cowan, Michael Sandel, an generic stuff about market failures, business regulation, consumer choice and possible irrationality (eg 'housing crisis'). (And these are people with PhD's or law degrees, but alot of libertarians who recite quotes from their bible (eg GMU) which they actually haven't read . I did talk with one guy first about 'David Bohm' and he gave me a 'star wars name' and then we got into evolutionary algorithms (and music---but the music i like is too hardcore for them). He did actually buy me 4 beers so it was free!!! Freeat last, no money down, and i was free to choose my own kind of beer. Then some dude got into why he was so happy he carry a handgun legally here---a real man, in the NRA, but people carry guns around here anyway, and they are into NWA (youtube). peace out

Myrtle Blackwood said...

Why was my ancestor was put in chains and exile to Tasmania? My guess is that he began his early life as an abandoned child in Bolton (near Manchester). The local parish placed the boy in an 'orphanage' and 'they', in turn, put him to work in the local cotton mill. His pay rate gradually increased, as he grew older, and eventually became a comparatively onerous obligation for the mill owner. He was sacked, stole a bolt of cloth to find funds to survive.... Caught in the act. Evicted from Britain on the 'Moffatt' ship.

The British Secretary of State for the colonies instructed Governor Arthur of Van Diemans Land to take 30 or so of the Moffat's newly arrived prisoners "and work them in chains for 7 years, instead of giving them the milder punishment of assignment [on farms]. spread the terror of Van Diemans Land in England..."
[The Fatal Shore, by Robert Hughes. Page 386]

Well, that was in 1834, but Jeremiah didn't arrive until 1839. He did end up in one of the most horrific places for punishment, however. He did not recover.... Chain gang life in the colony was not conducive to notions of anarcho-pacifism.

He stole a bolt of cloth - classic 'market failure'?