Heading for disaster

This post summarises my position on climate change

There is overwhelming, but not quite conclusive, evidence that the global climate is changing. That said, scientists and policymakers are divided as to (a) how fast climate is changing, (b) what is causing it to change, (c) the likely effects of climate change, (d) how much we can do about it, and (e) how much we should do about it. Despite these uncertainties, climate change has the potential to inflict serious harm on large populations, so there is a strong argument for doing what we can to prevent it or minimise its adverse effects. The December 1997 Kyoto treaty required developed countries to bind themselves internationally to numerical targets. If there is any universal consensus about Kyoto it is that, for all the bluster and bureaucracy, its impact on the climate will be so small as to be unnoticeable.

Gaming the system

The forthcoming climate change summit in Copenhagen, if deemed successful, will be more of the same. At best we can look forward to minimal reductions in emissions; undetectable effects on the climate; and the squandering of billions of dollars on wasteful, corrupt schemes all over the world. The big beneficiaries will be third-world dictators, Swiss bankers, and the burgeoning bureaucracies at national and supra-national level who will be charged with administering and ensuring compliance with whatever emission reduction regime is agreed. This is not cynicism, it’s realism. The manoeuvrings of the various interest - fossil fuel extractors and users, as well as farmers, forest owners, the auto industry, politicians and officials - tell us all we need to know about where human ingenuity is going: in bickering, lobbying in defence of vested interests, and competing with other interest groups for subsidies. Gaming the system in other words. One example: US companies and interest groups involved with climate change hired 2430 lobbyists just last year, while 50 of the biggest US electric utilities spent $51 million on lobbyists in just six months.

They are all reacting perfectly rationally to the incentives on offer, and those 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 – even if the rest of the world has to undergo catastrophic climate change. Under Kyoto-Copenhagen that’s where humanity’s boundless energy and ingenuity will be diverted and that’s why it’s not going to work.

Rewarding achievers

Here’s a different approach: agree on the outcome we want to achieve, and reward people for achieving it. The outcome we should be targeting is some agreed, meaningful definition of climate stability, which should include indicators of human, animal and plant 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, the most glaring flaw of the Kyoto-Copenhagen approach: it assumes 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.

But our knowledge is rapidly expanding. We are constantly discovering more about the links between greenhouse gas emissions and the climate, and about ways in which we can prevent or minimise the impacts of climate change. Kyoto is a single, one-size-fits-all, top down, supposed solution to the climate change problem, and it’s based on science fossilised in the last 20 years. But the climate change problem may be so huge and so urgent that we need instead a mosaic of diverse approaches that can adapt to our rapidly changing knowledge and rapidly changing circumstances.

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 new brands of dog food or securing the bonuses of failed bankers than to finding ways of preventing or mitigating climate change. The fact is that the rewards to a successful pet food campaign manager or a reckless banker can be in the millions of dollars, while someone trying to generate new ideas for tackling climate change that don’t fit in with the Kyoto paradigm will have difficulty getting attention, let alone adequate funding.

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-Copenhagen industry dictate the pattern of the world climate: we cannot afford the waste and inefficiency of brainpower that people will expend on gaming the current system.

Climate Stability Bonds

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. And crucially, Climate Stability Bonds would not prejudge the best ways of achieving our goal. They would reward the achievement of a sustained period of climate stability, however it is achieved. Investors in the bonds would have incentives to respond quickly, appropriately and with maximum efficiency 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. Investors in Climate Stability Bonds would have exactly the same interest as society: achieving climate stability and the lowest cost.

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 encourage us 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.

There is still some legitimate doubt about just how big a threat climate change represents. Here Climate Stability Bonds have another huge advantage: because they would be auctioned on the open market, it would be bidders for the bonds, rather than governments, who would have to take a position on just how much will have to be spent to achieve climate stability.

To summarise: Climate Stability Bonds 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, at least cost to society. And 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, and whatever will be agreed at Copenhagen, have none.