04 June 2006

Kyoto and common sense

[T]he costs of ambitious front-loaded carbon abatement programs (such as the Kyoto Protocol, fully implemented) would have had (a) only a modest impact on our climate prospects, according to the current models, and (b) enormous economic costs. Yes, something must be done -- but need it be as costly and as ineffective as that? Clive Crook, National Journal

Unfortunately the debate about climate change is so politicized that anybody speaking out against the ludicrous Kyoto Protocol is assumed to be either scientifically illiterate or a corporate shill. Clive Crook is neither (as far as I know) and has some sensible suggestions for the US:

An initially moderate carbon tax, an initially gentle scheme of mandatory caps on greenhouse-gas emissions, and an honest plan to promote long-term energy efficiency could nudge the economy with minimal disruption on to a path of much lower climate-change risk. At the same time - anathema to many environmentalists
- serious thought should be given to policies for adapting to climate change.

Climate Stability Bonds are compatible with all this. Investors in the bonds would implement such measures, but only if they were convinced that they are the most cost-effective ways of dealing with climate change. And they would implement them on a global basis, so that the sources of emissions aren't simply transferred from one country to another. In short, they would take an over-arching, global view of what is, after all, a global challenge. Mr Crook's suggestions are more clearly thought out than Kyoto or the 'do nothing' approach, and are probably much better than either. But they still suffer from their narrow perspective. The goal, remember, is not to reduce anthropogenic greenhouse gas emissions from the US, but to stabilise the global climate. Climate Stability Bonds can divert resources into this objective without prejudging how best to achieve it. They would reward only the most efficient climate-stabilising projects, whatever form they might take.


Harald Korneliussen said...

Ronnie Horesh, I never understood your opposition to Kyoto. While it's not a social policy bond program, it's a tested and valuable market based mechanism, cap and trade. You insist that the effort should be focused on outcomes, but CO2 in the atmosphere IS a very good indicator of climate change. Perhaps the best there is. There is no scientific dispute about this, only a lot of noise raised by paid advocates for the oil and coal industries.
Finding a good indicator of "outcomes" is hard. In other fields, you seem to accept much poorer ones. CO2 has a big advantage over counting the storms in the atlantic and other attempts to attach a measure to climate change: It's not nearly as affected by random fluctuations. Much randomness in the indicators will give rise to speculation. You risk that people treat it as just another gambling market, focus on "outsmarting" the other traders, and don't care about influencing the outcomes, since it's so unpredictable anyway.

Also, with climate change, it's the issue that our institutions should ensure that people pay for the damage they cause, rather than be rewarded for not polluting. We risk encouraging anti-social behaviour this way.

One thing about indicators: You want them to be as early as possible. If they only indicate a catastrophe after it's happened, they are less useful, no matter how accurately they measure it.

Ronnie Horesh said...

Thanks Harald for your comment. I just think the stakes are too high for something that may or may not work. I agree the scientific consensus is coming round to the view that CO2 is a good indicator of climate change and even that it is a cause of climate change. Even accepting this, and even accepting that anthropogenic emissions of greenhouse gases including CO2 (ghgs) are the main cause of climate change, I still think Kyoto is flawed. These are my reasons:

1. Reducing anthropegenic ghgs might not be the best way of reducing the concentration of ghgs in the atmosphere;

2. Reducing the concentration of ghgs in the atmosphere might not be the best way of preventing or mitigating climate change;

3. Preventing climate change might not be the best way of preventing the worst effects of climate-induced catastrophe;

(Less relevant perhaps, I also think that preventing climate-induced catastrophe might not be the best way of avoiding catastrophic reductions in welfare.)

Two other points:

Assuming that you are right, and Kyoto is the best way of targeting climate change, I think that holders of Climate Reduction Bonds would target anthropogenic ghgs in a similar fashion to Kyoto, but more efficiently: for example, they wouldn't be bound by political correctness or realpolitik of the sort that exempts some countries that emit huge quantities of ghgs from any disciplines at all. They would simply buy these regimes off or otherwise undermine opposition to the disciplines. And this brings me to another important point: the presentational aspects. Kyoto doesn't focus on a desirable outcome: it's focused on processes and activities. So it is now so politicised and its money flows so unpalatable that it is seen as an imposition; in the rich countries it's seen as an imposition by the greenies on everyone else, and in the poor countries it's seen as an imposition by the rich countries on them. Kyoto means huge upfront costs for a very small payoff well in the future. So large parts of the world disagree with it, or are totally exempt from it. A triumph for the bureaucrats but a tragedy for the planet. In times of financial stress, or slowdown, everyone will repeat the George Bush and Tony Blair line: "I'm not going to sign onto anything that involves economic sacrifice."

Now what I am entirely focussed on here is the outcome - and this excludes justice, morality, the historical record, or the venalities of politicians. Unfortunately Kyoto, being a political construct, is I think so compromised that even its most ardent advocates will agree that it's ineffectual. And there's little argument that it's going to be ruinously expensive. They justify it as a first step, but that step is unlikely ever to be taken.

A bond regime would target an outcome that people could empathise with and understand, and that would entail taxpayer spending only when it had been achieved. So even if we took reducing anthropogenic ghgs as an end in itself (which I certainly don't); even then it would be more acceptable as well as more efficient than Kyoto.

I have said this baldly because my computer's on the fritz, but please don't hesitate to try to convince me I am wrong - in a way I hope I am and that Kyoto will avert a calamity. It's certainly got more traction than Climate Stability Bonds at the moment....