Saturday, August 30, 2008

My thoughts on carbon emissions

Emission reduction and climate change are controversial topics of discussion, and whether the US elects McCain or Obama, the next Presidency is sure to sign in some bill pertaining to the reduction of US carbon emissions.

Abatement is very difficult to coordinate internationally; the incentive structure is just not well-defined. Why should a developed country abate when the developing world won’t or can’t abait its share of emssions? To be sure, a Google search of “success emission reduction” gets 286,000 hits, while a search of “failure emission reduction” gets 2,140,000.

Why should we reduce emission levels? According to Green Peace, the easily identifiable college-aged person wearing a bright tee shirt, holding a notebook, and appropriately blocking your path in his/her troll-like stance until you look at their clipboard, “the time to stop global warming is now”….or, “the health of the planet lies in the balance.” But according to the National Center for Policy Analysis, a libertarian organization (I call it libertarian but don’t know how they would classify themselves) whose mission is to provide alternatives to government regulation on various topics, “the causes and consequences of the earth’s current warming trend is still unknown, the cost of actions to substantially reduce CO2 emissions would be quite high and result in economic decline, accelerated environmental destruction, and do little or nothing to prevent global warming regardless of its cause.”

Global warming or not, I am sure that I like cleaner, rather than dirtier, air. If I lived in Vietnam (I was riding on that bike and thought that I would die with all of the exhaust I was breathing in), I would be much more active about emission reduction because my health would eventually be at risk. However, I don’t live in Vietnam and already enjoy reduced emissions and cleaner air. Perhaps there is some marginal value to even cleaner air, but the costs to get it are likely too large. In the end, if I am somehow forced to change my behavior, then I will. But if I am not, then I won’t. Unless every person in every nation around to globe goes green at the same time, then global emission levels will not change. Hence, the classic “free rider” problem.

If policy makers want to figure out a way to reduce emissions, fine, just don’t set unreasonable goals and don’ use a cap and trade system. The cap and trade system is extremely complicated to design, and can even result in higher emission levels.

Hans Gersbach proposes an alternative to coordination efforts and complicated cap and trade systems: the Global Refunding System (GSR), and on the surface, it is encouraging. Here is a link to an article that highlights his points:
-Countries choose whether or not they want to be a part of a Global Refunding System (GSR) fund
-Each year, countries pay into the fund according to a self-determined carbon tax
-The fund earns interest, and each country contributing to the fund receives an appropriate refund based on their share of emission reductions – this defines the incentive to abate.
-If a country exits (which it can), it forfeits its right to refund.

Dr. Gersbach argues that the GSR plan is self-enforced with a well-defined incentive structure (sharing in the fund’s wealth accumulation) that will entice countries to set a tax rate that actually reduces carbon emissions. It’s kind of a cool idea, but the part about the developing nations is not properly addressed. The key to reducing global emissions is the developing world cutting its emissions (China, India, Vietnam, Mexico, etc.) levels, but these nations have neither the technology nor the funds available to participate in the GSR.

Dr. Gersbach suggests that “only rich countries pay an initial fee into the fund, thus increasing future refunds for all countries and benefiting developing countries” in this version of the paper, and that “wealth not refunded and accumulated can be used to support particular projects for reducing greenhouse gases in some countries” in this version of the paper.

Basically, those who cannot afford it will not have to pay in but receive refunds when the GRS fund is started, and countries can spend any excess revenue of the fund.

My conservative alarm goes off, ding, ding, ding, haven’t we learned our lesson from the infamous US Social Security Fund?

Yup, this is why DR. Gersbach’s GSR fund won’t work. The fund will pay out early to those who don’t pay in, and all along the way, the fund’s surplus can, AND WILL BE, spent. As with the US Social Security Fund, there will be nothing left but several trillion in fancy IOU’s (US Treasuries) in 73 years (1935, when the SS Act was passed to 2008).

I don’t envy the Economists and policy makers who must sort out this problem. The difficulties in coordinating emission reductions internationally are daunting. It is likely, however, a solution will present itself when the proper technologies are developed.

Have you seen Demolition Man? My years of watching Science Fiction has convinced me that technology will eventually catch up with our social goals.

Please leave your comments. Best, Rebecca

1 comment:

  1. Who or what is Demolition Man? (I'm showing my ignorance.) Funny, as I was reading through this, I, too, thought of the Social Security fiasco. I do believe we are in a warming climate but not that it is all man caused. Therefore, we could continue to do our own abatement procedures in the US and not bother with the rest of the world. It would be a lot less trouble and easier to control. Given that a some pollution comes on the winds from the Far East, it could still work on a individual US basis. Our air and water is so different now than 20 years ago. Maybe this is something NAFTA could address?