Friday, April 09, 2010

What every other green is talking about

Paul Krugman's piece this weekend about environmental economics, and he basically comes down for cap & trade + strong regulation (ban?) on coal plants. The implication being that cap and trade alone might/will be insufficient on its own to get the worst climate pollution out of the system.

(If I were Gar Lipow, I'd take this as a partial vindication of his argument that the best parts of the House climate bill have nothing to do with cap and trade.)

This little bit caught my eye, though. Krugman is discussing the difference between advocates of a carbon price that starts low and rises gently and a price that starts high and gets quite a bit higher (policy-ramp vs. big-bang):
The policy-ramp advocates argue that the damage done by an additional ton of carbon in the atmosphere is fairly low at current concentrations; the cost will not get really large until there is a lot more carbon dioxide in the air, and that won’t happen until late this century. And they argue that costs that far in the future should not have a large influence on policy today. They point to market rates of return, which indicate that investors place only a small weight on the gains or losses they expect in the distant future, and argue that public policies, including climate policies, should do the same.

The big-bang advocates argue that government should take a much longer view than private investors. Stern, in particular, argues that policy makers should give the same weight to future generations’ welfare as we give to those now living. Moreover, the proponents of fast action hold that the damage from emissions may be much larger than the policy-ramp analyses suggest, either because global temperatures are more sensitive to greenhouse-gas emissions than previously thought or because the economic damage from a large rise in temperatures is much greater than the guesstimates in the climate-ramp models.

As a professional economist, I find this debate painful. There are smart, well-intentioned people on both sides — some of them, as it happens, old friends and mentors of mine — and each side has scored some major points. Unfortunately, we can’t just declare it an honorable draw, because there’s a decision to be made.

Personally, I lean toward the big-bang view.
The old "friend and mentor" that Krugman is most likely referring to is Bill Nordhaus, who IIRC taught Krugman during his undergraduate degree. Nordhaus is a character who interests me because he plays essentially a sort of late Aristotelian role as far as I can tell: desperately trying to show how the system doesn't need any real changes, just tinkering at the edges.

He's been doing this for decades: he was one of the early savage critics of The Limits to Growth, and his current DICE model implies ridiculously low prices on carbon.

But here is a student of his, basically calling him out in the pages of the NYT Magazine, who by the way won a Nobel Prize and by the way Bill where's yours?

There's not a lot new in the Krugman piece for anyone who's been following this debate, though Krugman is pretty respectful of Jim Hansen's argument against cap-and-trade:
What Hansen draws attention to is the fact that in a cap-and-trade world, acts of individual virtue do not contribute to social goals. If you choose to drive a hybrid car or buy a house with a small carbon footprint, all you are doing is freeing up emissions permits for someone else, which means that you have done nothing to reduce the threat of climate change. He has a point. But altruism cannot effectively deal with climate change. Any serious solution must rely mainly on creating a system that gives everyone a self-interested reason to produce fewer emissions.
That's fairer to Hansen's point than I'd be, actually. Either a tax (Hansen prefers tax-and-dividend) or the overall number of carbon allowances will be set centrally, so the gross economic impact will be largely detached from individual action. If people (especially wealthy consumers) see a low tax as permission to emit rather than a fine for doing so, then you're basically right back where you started: there's a certain amount of bad behaviour washing out the good.

Part of me wonders if an individual tradeable ration, like that proposed by Carbon Equity, would satisfy both sides: acts of virtue are directly rewarded, instead of simply punishing vice.

Politically impossible in the US or Canada, I'm sure, but worth thinking about.


Anonymous said...

Big Bang approach!

Concentrating on GG effect ignores acidification of the oceans, a much more short-term and immediate effect.

Unless I misunderstand the literature I've been reading.

doconnor said...

If all or most of a big-bang carbon tax is returned to individuals, only people who generate significantly above average carbon emissions will feel the economic impact, and those tend to be the people with the most money. Of course people who generate below average carbon emissions will be better off.