Who Should Pay?

Gobion and I were interviewed for Al-Jazeera TV (English) last night. One question they asked in particular struck me. That was 'Q: The global economy is in bad shape: who should be paying the price of tackling climate change? Developed countries (who arguably caused the problem) or developing countries?' Who should pay?

I answered in a way that I later realised was really incomplete. I said that developed countries should pay because they are the only ones who can afford to pay, now and into the foreseeable future. You see that in Fate of the World, where we provide the Tobin Tax as a mechanism to charge wealthy regions, while very clearly the developing regions have highly constrained wealth while also suffering the most harm, as they are in the worst position for impacts caused by climate change. Developing regions have limited capacity to contribute.

A simple observation to make is that when someone is barely eating, and is dealing with flash-floods, disease, and shortage of clean water, asking them to also solve global long-term problems is kind of crazy. One might enable them to solve their immediate life-and-death difficulties in ways that don't make those global problems worse, but one can hardly stand there holding the pump handle and tell the guy with one arm to start bailing with his hand.

What I didn't say is still bugging me. I didn't say that it doesn't matter who you think should pay, if you have no effective means for redirecting their money. On this issue, I take as a guide economists like Dieter Helm, and of course Cameron Hepburn who is on our advisory board. Not being an economist, I've likely mangled their views, but here's how it reads to me. Putting a price on carbon globally is about the most significant immediate step we should take. A price on carbon will make anything that causes emissions cost more, so we'll use it less. Further, this price must be understood to pass along to consumers. So when I buy something made in China, I pay the price for the carbon emitted manufacturing that thing instead of pretending that those belong to someone in China. That is one of the risible consequences of the pious emissions counting by national governments. Yes, yes, it's all very nice that we can claim we emit 'only' 9 tonnes a year per person in the UK, and that we've reduced that slightly, but what about the other 9 tonnes a year emitted on our behalf by workers in China making stuff we use?

Where a price on carbon leads is that the people who consume the most (overwhelmingly, the developed nations) also pay the most. However, if pricing is not global corporations will move their operations to wherever they can avoid the extra cost. So it must be global.

There is also the issue of what the price should be. I favour a cap for reasons explained further below. The virtue of having a cap, and trading for rights to emit below that cap, is that it lets the market decide its own price for emitting amounts that must fall below the maximum that we can allow, which will be tied to the price of avoiding emitting altogether (or sequestering or reabsorbing); but what is that maximum? Who sets the cap, and where should it be?

So another question I was asked by Al-Jazeera was 'Q: Why should we be concerned that the world may heat up by 3.5C'. I was caught a bit off-guard by such a specific number, and especially one that is quite far above the point we should already be very concerned. However, that number is pretty interesting because it is the sort of temperature that has already gone past some tipping points--points at which the costs of climate change might escalate beyond our ability to pay them (or at the very least, where the prices escalate beyond anything we'd care to contemplate).

So where the cap should be is the point before costs escalate, i.e. before tipping points, less a bit more for inefficiencies in the market caused by basic dumbness, failures in communication, and lack of information. I don't now believe that we can avoid 2 degrees even before the end of the century. I rather hope we can avoid 3 degrees. I think the cap should be closer to 2 degrees than 3 degrees, because that will commit us to less harmful change over the long term. Can we then rely on the market to actually price carbon correctly, or will governments need additional regulation to correct the price? I don't know. I do believe the costs must be paid by those who can pay it, and tying the cost to emitting means tying it to consumption, which happens also to be the cause of the problem and means that those who most consume, who can most afford to pay, do pay.

I wish I'd said that to Al-Jazeera.

- Klaude Thomas, November 5th 2010