What are negative prices in the market? When you don’t want something and have to pay someone to take it. But why can’t you just “dispose” it somehow? Or “leave it there”? Maybe there are regulations in place. Or maybe there isn’t a place that you can and want to “leave it”
Carbon prices are negative prices; you need to pay someone to take it away. By creating regulations to prevent people from just “leaving it there (in the atmosphere)”, you push the cost of disposal to the polluters and set out the signals and momentum necessary to rewire the system.
Free market doesn’t emerge spontaneously; it requires regulation, boundaries and legal mechanisms to enforce rules, especially explicit ones. Implicit rules are also necessary to keep things together. Question is if we are willing to create a system intellectual property and enforce rights to spark innovation, why aren’t we doing so for climate change?
After penning the End of Oil, I was bothered by my switch of camp. In some sense I had become a new kind of neo-Malthus but yet I resist the analogy. I think the struggle we have today with carbon emissions is different from the issue of resource conservation like in the case of land or other commodities. And the reason has to do with the market system and price signals.
In the past when we are thinking about resource constraints such as agricultural land, we know there is a price on the resource. With subsidies they get over-utilised but overall, because the market system rewards greater productivity of those resources, all the micro-decisions in the economy will encourage discovery of more of the resources or greater efficiencies in utilisation. The economics is working against Malthusian ideas.
Nevertheless, with the carbon emission challenge of today, most emissions still remain unpriced. They rightfully require a negative price but tax systems and enforcement aside, governments around the world are reluctant to even design regulations to create proper carbon pricing. Without this pricing, economics will keep working against the climate change problem, and we can only rely on goodwill or sustainability marketing as motivation which will never be enough.
Many years ago when I first thought about the study of Economics, there was the prevailing concern about oil reserves running out and the world running out of fuel. It was 2005 and the economist even had an issue where the cover page was showing the reflective colorful swirls of oil. The economists would argue that the world will never run out of oil because towards the last drop of oil left, the price of oil would be so high no one would want it. And perhaps many other alternative technologies which were not commercially viable would have become so before oil runs out.
Those were days when we technically already know about greenhouse effect and the global warming potential of carbon dioxide. And I was particularly fascinated with the recurring debates between the Malthusians (and neo-Malthusians) and the others weigh on the hope of technology (and possibly economics).
It is funny how more than 17 years later, I’m in a career to try and reduce (and eventually end) the dominance of oil. Not to promote an alternative technology, not to rail against the political power of oil but to create a future that we all want to step into. Because climate change is an existential danger for us all and the planet as we know it. And because I believe our current economic system can be superceded by one that works for the future and not the tradition notions of wealth and fortune.
There is always this age-old question of what you’d do if you’re rich. And then you might give an answer of an outcome that is already within your reach so then wanting to be rich is more about the identity that one would like to associate with.
What if you were resource rich? Like having lots of friends, or lots of land, or lots of cars, or collectible figurines? Do you think of those resource or things in terms of money? What if they don’t easily convert to money like friends or time? Does it matter?
How do you steward the resource that you are rich in? Does it matter if you can monetise it? Or whether its benefit is depleted by some actions you undertake? How do you think about it? What does it mean to “cash out” on your resources?
We all have a common resource and that is our atmosphere’s carrying capacity for carbon dioxide before climate goes completely amok and make our planet inhabitable. Sacrificing it could give us some money and maybe some comfort to certain extent. How would we steward it?
When our Climate Change summit comes up with a result that is claimed to be “Better than Nothing“, and that we have to somewhat console ourselves what an underwhelming Copenhagen accord have been or might be useful, we might actually want to find a new planet. One to live in of course.
An article from The Economist in its first issue of this year proposes that the Copenhagen climate change summit that just took place at the end of last year could turn out to bring more benefits than perceived despite its being “underwhelming”.
Sure, the whole accord was just a political, non-legally-binding statement and lukewarm at best in its promises for all to do their part for the environment. But at least both developed and developing countries signed up to the Copenhagen accord, considering how these two warring factions were split because the developed countries felt the developing countries needed more cuts while the developing countries felt the developed countries were responsible for all the emissions and hence to bear the brunt of the costs of cleaning up. Not that the rift has narrowed significantly but at least the process and product were not totally derailed.
Another reason for optimism is in “the development of political structures better suited to the challenge”. The complexities of climate change, from all the industries it affects to all the political issues it brings, need to be dealt with under a new body and in more creative manners. And the regulation of so many greenhouse gases from so many sources makes it even more difficult. This brings to mind the possibilities of another Montreal protocol that sought to regulate only CFCs, which turned out to be a much bigger success than even Kyoto was. The Economist proposes that there will be “new pluralism in climate politics”
as different groups come together to deal with different specific issues such as “slowing deforestation” or “stemming emissions from shipping”, that might yield better results than a gargantuan, labyrinthine treaty that regulates every single issue without specifics or generalises the whole complexities of climate change.
A huge barrier to any improvements on Copenhagen could be the US. The Senate will decide upon legislation that will set up “a cap-and-trade system to put a price on carbon”, and whether they succeed will impact post-Copenhagen discussions to finalize cuts in emissions. The upcoming Senate elections may put in place more Republicans and upset the Democrats’ super-majority that will prevent fillibustering of bills like that of health-care reform and cap-and-trade. The Republicans have been rather against the cap-and-trade, and they may derail the whole post-Copenhagen process should cap-and-trade crash and burn in Senate.
