16 May 2009

Keeping the globe livable

Paul Krugman has been visiting China:
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable. It’s time to save the planet. Empire of Carbon, 'New York Times', 14 May
In an increasingly complex and interlinked world, like it or not, there's going to be a greater need for government regulation and restrictions on the ways we have been doing things. Diffusing the negative externalities of, for instance, power generation is no longer politically sustainable when the impacts could be drastic and far-reaching - even if there is uncertainty about the exact size of the impacts.

In our newly constrained world, there may be a place for Social Policy Bonds. There will be a sharper focus on bottom-line outcomes. Up to now, governments have got away with assuming away many negative externalities. So: economic growth has always been good; so too has been the freedom of movement of goods and capital. The assumption has always been that the market and non-market positive impacts have outweighed the negative. We can no longer make such an assumption. To have a globe that is livable is now something that will require co-ordinated government action.

Of course, government doesn't have all the answers. But what it can do is determine, or rather articulate, the broad social and environmental outcomes that we wish to pursue and reward the achievement of those outcomes, however it is done. Such goals, I suspect, would include the avoidance of major catastrophe, whether natural or man-made, and the stabilising of a (carefully defined) array of indicators and measures of the global climate. Government is fairly clueless about how to achieve such goals, but it does have strengths in articulating them and raising revenue for their achievement. So, using the Social Policy Bond principle, it could issue Disaster Prevention Bonds, or Climate Stability Bonds. These would have the effect of contracting out the work necessary to achieve these fundamental objectives without prejudging how best to do so. They would also ensure that the livability of the globe would be achieved at minimum cost.

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