30 April 2006

Kyoto may not go far enough

Whenever I write or speak against the Kyoto Protocol I'm often taken as an apologist for the anti-climate change lobby. Reading Tom Flannery's book, The Weather Makers makes me again want to stress that I am certainly not a climate change skeptic. I advocate that governments collectively issue Climate Stability Bonds, which would reward the achievement of a stable climate. It seems likely that this would entail massive government expenditure, but it would be up to the market, via the price it pays for the bonds when they are floated, to decide exactly how much would be spent. It would also be up to bondholders to decide how best to stabilise the climate. It may very well be that they will concentrate on reducing anthropogenic greenhouse gas emissions, as does Kyoto, but it's also likely that other projects will be considered and undertaken.

Flannery is beginning to convince me that Kyoto will be far too little far too late, even if it's actually implemented. If that's so then Climate Stability Bonds could see a greater transfer of resources into mitigating or preventing climate change than Kyoto. When the bonds are first issued, potential investors would decide how much they are worth. If they believe that governments aren't putting enough resources into redeeming the bonds, they will ignore the bond issue or buy the bonds for virtually nothing and just sit on them. At that point, the issuing governments would have to put in more resources and issue more bonds. The value of all Climate Stability Bonds would then rise as would-be bondholders see that they can make worthwhile gains by doing something to stabilise the climate.

What all this means is that the commitment to stabilise the climate would not be the result of bargaining and deals struck between the various members of the relevant bodies: that's what Kyoto is. Instead, the resources devoted to mitigating or preventing climate change would be decided by would-be investors in Climate Stability Bonds: these people have powerful incentives to get a handle on the climate change problem, and to investigate the least-cost ways of solving it. Climate change, in short, is too serious to be left to the top-down compromise that is the Kyoto Protocol.

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