07 October 2009

Kyoto's going nowhere

Talking to friends attending the United Nations climate change talks being held in Bangkok it's clear that any outcome will be political: representation is largely of nation states, by nation states. Influencing national governments are business people on the one side, who argue that any effective disciplines will undermine the economy; and people whose highest priority is the environment, for whom drastic reductions in greenhouse gas emissions are a necessary, but not sufficient, way of avoiding global catastrophe.

I am in the comfortable intellectual position of being able to accommodate the wishes of both sides. By issuing Climate Stability Bonds, we shouldn't need to take a position on (a) whether catastrophic climate change is happening, or (b) what is causing it if it is happening, or (c) how best to deal with it, whatever is going on. Issuers of Climate Stability Bonds would only need to define objectively the boundaries of acceptable climate, impacts of climate, or rate of change of climate. They then need issue bonds redeemable for a fixed sum only when the array of stipulated climate variables fall within their ranges for a sustained period of time. Everything else would be left to potential and actual investors in the bonds.

If climate change is not actually happening (as some still believe), then the cost to governments of achieving climate stability will be minimal. They would issue bonds that would fetch a high prices, relative to their redemption price, on the open market. If it is happening, then investors in the bonds would be powerfully motivated to stop it. They might well choose to cut back on greenhouse gas emissions, but even if - as with Kyoto - that is their only solution, they would go about it more efficiently than the cumbersome, inefficient and divisive way that we are currently pursuing. More likely they would research, explore and implement all sorts of ways of reducing climate instability: their investigations would be impartial as between country or method. Their projects would be entirely subordinated to results, and these would be entirely defined by how much climate instability they would achieve per dollar spent. There would be all sorts of costs to taxpayers and consumers; but under a bond regime, in stark contrast to the current system, these would be minimised. And the costs of failure would be borne not by taxpayers, but by bondholders.

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