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The Kyoto Protocol to reduce greenhouse emissions has not been widely adopted or followed and the Copenhagen climate summit ended in a fiasco. Why is it that the world community cannot cooperate on an important issue? And even if one doubts about global warning, one has to agree that this is a potentially large issue, and thus at least some coordination is required. People will immediately point out that there is a huge free rider problem, and they are right. As emissions are global, everyone benefits from the efforts of the others but little from one's own. Hence the need for cooperation.
Peter Cramton and Steven Stoft write that this cooperation problem becomes even more difficult depending on what the central coordination mechanism is. The argue that cap-and-trade makes things especially difficult, because it makes objectives of the negotiating parties even more divergent. If the rule of the game is that everybody needs to have individual and binding emission ceilings, then everyone will try harder for low (developed economies) or high (developing ones) emission caps. One solution out of this quagmire is to adopt a global emission ceiling that is enforced through a market-based mechanism, with the sale of pollution permits. We have known for a very long time that prices are very powerful enforcement mechanisms, and in the context of this public-goods game it is even better because it will foster more cooperation in the negotiation of the emission ceiling and lead to an agreement having a better chance of actually happening.
Friday, August 27, 2010
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Although choosing a single global emission cap would appear to help. Here's why it has not been tried.
Instead it's necessary to has a single global target for the price of carbon (abatement). You can read more about this a www.global-energy.org.
To make the choice of total abatement cooperative, the world should collectively choose a single global cap. In fact, if countries differed only by size, this would completely eliminate the free-rider problem and produce an optimal outcome. With individual caps, a country can only tighten the global cap by tightening its own cap. So it must pay the full cost of tightening the global cap. But if tightening a global cap requires only that the country pay for its share of the necessary abatement, the optimal outcome can be achieved.
Why has this possibility been ignored? Because, to make this work, the obligations of a global cap must be shared in proportion to each country’s size, and there is no agreement on how that should be done. In fact there is not even a proposal worth discussing. As with a national cap, obligations would be determined by the allocation of emission permits. If these are allocated by GDP, the poor countries will objected, and if they are allocated by population, the rich countries will object.
This is still a cap and trade system, just one that is straight global rather than getting to the global by negotiating a bunch of national caps. Maybe it would be easier to negotiate, but almost certainly not. That is a matter of diplomacy, which currently is totally in the dumps, without dredging up the ugly details.
And then there is this minor problem of who is going to run such a mechanism. As someone who has been involved in international global warming negotiations (yes, one of my hats), this is nowhere near being on the table, so far off the table in fact that it is not even in the same room as the table.
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