02 April 2007

Better than Kyoto

Climate change is too important to be left to the bureaucrats. The latest manoeuvrings of the various interest groups: farmers, forest owners, car drivers, politicians and officials tell us all we need to know about where our ingenuity and inventiveness are going: into bickering, lobbying in defence of vested interests, and competing with other interest groups for subsidies. Much serious brainpower will be spent on resisting change or extracting privileges from government.

It’s a natural reaction to the same top-down approach that, at the global level, despite all the treaties and blandishments has led to nuclear proliferation and the frightening prospect of nuclear catastrophe. And it’s that same approach, which at the national level in most developed countries, has generated soaring crime rates, failing educational and health systems, and the entrenchment of an underclass.
Leaving climate change to the government is just not good enough. And this not a criticism of government employees, who in my experience are almost all hard-working (sometimes to a fault), and undoubtedly well intentioned. The problem is that these employees are reacting perfectly rationally to the incentives on offer from the institutions that employ them. And these incentives are perverse. They have little to do with actually solving meaningful problems, and far more to do with the prime, over-arching goal of all institutions: that of self-perpetuation.

The outcome we should be targeting is some definition of climate stability, which should include indicators of plant, animal and human wellbeing as well as climatic variables and the rate of change of those variables. Targeting climate stability means that we don’t prejudge the best way of achieving it. This is, in my view, Kyoto’s most glaring flaw: it supposes that the best way of tackling climate change is to reduce anthropogenic greenhouse gas emissions. There is no evidence for this, even though the evidence that links such emissions to climate change appears convincing – with our current knowledge.

The point is that this knowledge is rapidly expanding. We are learning more and more about the links between greenhouse gas emissions and the climate, and about ways in which we can prevent or mitigate climate change. Kyoto is a single, one-size-fits-all, top down, fossilised, supposed solution to the climate change problem. But the climate change problem is so huge, and so urgent that we need instead a mosaic of approaches, that can adapt to our rapidly growing knowledge.

We also need to enlarge and motivate the pool of people prepared to do something to tackle climate change. Currently there is probably more human ingenuity devoted to marketing cans of dog food than there is to finding ways of preventing or mitigating climate change. The fact is that the rewards to a successful pet food campaign manager can be in the millions of dollars, while someone trying to generate new ideas for tackling climate change that don’t fit in with Kyoto will have difficulty getting attention, let alone adequate funding. This points to the need to divert some private sector resources away from trivia and towards solving our most urgent environmental problem.

Recently the Virgin corporation has seen that gap, and offered a reward for the best ideas to remove CO2 from the atmosphere. This is getting closer: we need to target a stable climate however that goal is to be achieved. We cannot afford to let the bureaucrats who run the Kyoto industry dictate the pattern of the world climate: we cannot afford the waste and inefficiency of brainpower that people will expend on gaming Kyoto.

There’s more. We also need people to buy in to solving the climate change problem. Kyoto doesn’t do this. Just the opposite in fact: most people instinctively resent imposed pseudo-solutions originating in remote bureaucracies. Kyoto has become politicized; so much so that anybody who questions it is assumed to be an environmental vandal. (This itself is indicative of Kyoto’s limitations: people who are secure in their beliefs don’t feel threatened when those beliefs are questioned.)

It is for all these reasons that I believe Climate Stability Bonds would be an improvement over Kyoto. Climate Stability Bonds would be backed by the world’s governments. They would be redeemable once a specified climate stability goal had been achieved and sustained. They would be freely tradable and their value would rise or fall as the targeted goal become more or less likely to be achieved. The goal could be specified as a combination of climate and other indicators. The bonds would not prejudge the best ways of achieving their goal. They would reward the achievement of climate stability, however it is achieved. Investors in the bonds would have incentives to respond quickly and appropriately to new knowledge about what is causing climate change and to new ways of dealing with it. Governments would be the ultimate source of finance for achieving climate stability, but the private sector would allocate society’s scarce resources.

A Climate Stability Bond regime would express its aims in terms that people can understand. Its explicit goal would be climate stability. If people understand what a policy is all about, they can participate more in its development, refinement and implementation. This matters hugely when, as with climate change, government will probably have to rein in activities to which we have become accustomed. Kyoto discourages buy-in because it is focused entirely on one single policy: the cutting back of net anthropogenic greenhouse gas emissions which, at best, will do little to prevent climate change and despite being ineffectual will impose heavy, and up-front, financial costs.

Climate Stability Bonds, on the other hand, have a comprehensible, meaningful goal: the achievement of climate stability. They would channel the market’s incentives and efficiencies into the solution of our most urgent environmental problem. But with their focus on a targeted outcome, rather than a supposed means of getting there, they would also encourage greater public participation and buy-in to the solutions they generate. We need a widely supported, coherent, and efficient response to climate change. Climate Stability Bonds have all those features. Kyoto has none.

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