Monday, May 18, 2015

The Climate Club Adopts Eli Rabett's Simple Plan

In the New York Review of Books, William Nordhaus(the intelligent one, not Ted of the BTI) looks Climate Shock: The Economic Consequences of a Hotter Planetby Gernot Wagner and Martin L. Weitzman. Nothing in the review and book will come as a surprise to bunnies who have been paying attention.  Nordhaus discusses the three themes of the book, that attempts to control climate change have a serious free rider issue, that tail risks must dominate any discussion of policy to deal with climate change and that geo-engineering to control climate change has serious risks that make it inadvisable (see, Eli can be nice).

The free rider issue is the key to action,
If the fat tails of climate change are perilous, and geoengineering is itself a dangerous solution, what remains? Here, Wagner and Weitzman largely follow the standard economists’ prescription: “Stick it to carbon.” We might think that capitalism is the problem because economic growth has led to rising emissions. But, they argue, a modified invisible hand is the only workable solution: “It’s capitalism with all its innovative and entrepreneurial powers that is our only hope of steering clear of the looming climate shock.” 
 and Nordhaus has another suggestion
The major challenge for climate policy is to overcome free-riding. The answer, I would suggest, is to rethink the design of climate treaties. We can look at successful treaties such as the European Union, the World Trade Organization, or military alliances as models for a more promising climate treaty.The essence of these successful treaties is the “club model.” A club is a voluntary group deriving mutual benefits from sharing the costs of producing an activity. Members get the benefits but also pay the dues. The benefits of a successful club are sufficiently large that members will pay dues and adhere to club rules in order to gain them. If we look at successful international clubs, we might see the seeds of an effective international system to deal with climate change.

I recently described a possible Climate Club in the American Economic Review.4 Under the club rules, participating countries would undertake harmonized but costly emissions reductions. For example, they might agree that each country would implement policies that produce a minimum domestic carbon price of $40 per ton of CO2. The easiest way to raise the price is through a carbon tax, but countries might prefer other approaches such as setting quantitative limits on emissions, or hybrid approaches.

A crucial aspect of the club is that countries who are outside the club—and do not share in the burden of emissions reductions—are penalized. Penalties for those outside the club are central to the club mechanism, and penalties are the major difference from all other proposals from Kyoto to the upcoming meeting in Paris. Economic modeling indicates that the most promising penalty is uniform percentage tariffs on the imports of nonparticipants into the club region. A country considering whether to undertake costly abatement would have to weigh those costs against the potentially larger costs of reduced trade with countries in the club.
This, of course, is Eli Rabett's Simple Plan to Save the World, proposed in 2007
Nations wishing to make major progress on decreasing greenhouse gas emissions should introduce emission taxes on all products. These taxes should be levied on imports as well as domestic goods at the point of sale, and should displace other taxes, such as VAT, sales taxes, and payroll (e.g. social security, health care) in such a way that tax revenues are constant, and distributed equitably. 
These should be introduced as an Emissions Added Levy (avoiding the bad jokes). EAL would be imposed on sale for emissions added in the preceding step and inherent to the consumption of the product, as would be the case for heating oil and gasoline. Manufacturers would pay the EAL on electricity they bought, and incorporate this and the levy on emissions they created into the price of the product they sell.

Imports from countries that do not have an EAL would have the full EAL imposed at the time of import. The base rate would be generic EALs based on worst previous practices in the countries that do have EALs, which would be reduced on presenting proof that the actual emissions were lower.

All countries with EAL systems would reserve a portion (say 5%) for assisting developing countries with adaptations (why not use acclimations?) and mitigating programs.

By basing the levy on emissions rather than carbon all greenhouse gases stand on a common level, sequestration is strongly encouraged as well as such simple things as capturing methane from oil wells and garbage dumps (that gets built into the cost of disposal). The multipliers would come from CO2 equivalents on a 10 year basis.

The process can be effective without across the board agreement which means the ability of countries such as the US to bargain the process down is decreased. Further, early adopters will control the process and establish the base rates in concert. Imagine a world wide EAL system controlled by the early adapters. The Simple Plan will advantage them and the world.
Paul Krugman adopted the Simple Plan in 2014, and now Nordhaus comes on board. 


CapitalistImperialistPig said...

It is a very good plan - probably the only workable plan, but unfortunately it will be a very hard sell. Of course big energy will hate it, but so will all those guys and girls in pickup trucks, plus anybody who lives in a cold or hot place and needs heat or AC.

afeman said...

I wondered what that guy was doing at Breakthrough.

Hank Roberts said...

Mispasted text in the quote:

We can look at successful treaties [misplaced text appears here]
such as the European Union, the World Trade Organization, or military alliances as models for a more promising climate treaty.

This is the misplaced text:
[ If large enough chunks of the world economy, for example, the EU and Japan adopt this, manufacturers world wide have to follow across the board no matter where they are. There are not going to be separate lines to produce whatever for North America and Europe in China. And yes, as in all things there would be some gaming of the system. It’s the price you pay for lawyers and economists.]

Fernando Leanme said...

Your friend nordhause doesn't know much about geoengineering. Therefore he can't muster much of an argument against it.

Regarding your plan, that sounds fine. It's almost identical to mine, but I support adjustments using pielke's proposal to change it according to the actual temperature change (for example the last decades average). But none of this sells. We got too many solar bunnies and wind groupies who live in lava lamps and repeat endless slogans. And then there's the repressive psychos like norgard who want to medicate me and alter my brain with cheap prescription drugs.

Barton Paul Levenson said...

FL: And then there's the repressive psychos like norgard who want to medicate me and alter my brain with cheap prescription drugs.

BPL: They may be trying to control your mind with radio signals, too. But there is a defense, and it's inexpensive and effective. Just fashion a helmet out of aluminum foil. Be sure to cover the entire cranium.

jrkrideau said...

plus anybody who lives in a cold or hot place and needs heat or AC.

I don't understand this. Would not the hot and cold people save on the other tax changes and essentially come out even?

Everett F Sargent said...

I think ... that we should ... AC the entire planet ... specifically SE Asia, the Middle East, all of Africa, and most of South America using only 100% renewables.

Though we might have to slightly tighten up the corrugated metal shanty towns and thatched huts.

We gotta install microwave ovens custom kitchen deliveries
We gotta move these refrigerators we gotta move these color T.V.'s.

They want their MTV.

Fernando Leanme said...

Barton, the aluminum foil hat originated with a joke I played on greenpeace followers 20 years ago. I penetrated their organization and got them to wear those to avoid falling victim to Koch brother conspiracies.

Unknown said...

Congratulations FL, you have an impressive noise to signal ratio.

Bernard J. said...

ELi's plan will of course require a management strategy.

Bernard J. said...

I'm desperately concerned that Paris will be a monumental squib, at a time when it is almost certainly the last feasible chance of initiating effective mitigation action on climate change. I fervently hope that penalties for persistent inaction are discussed and agreed on: there is simply no excuse for any further delay.

Additionally, I believe that countries who have actively moved to hinder progress on effective pre-emptive action should receive additional and automatic penalties, no matter their subsequent participation. Australia stands out as the notable case-in-point: it eschewed a leadership role in climate change mitigation and confused the politics, economics and science of the problem with its conservative government's rabid hatred for and repealing of an effective carbon tax. In any fair consideration of due diligence this was an unconscionable act, and should not be left unpunished.

The world needs to get its collective head around a simple calculus:

At 2° C over preindustrial mean global temperature (and in consert with other, non-climate challenges), international governance and the cohesion of many and probably most nation-states will eventually fail. The biosphere will be severely damaged and significant portions of the human population will suffer and even die from climate disruption.

At 4° C over preindustrial mean global temperature, global and national civilisation structures will effectively fail, as will many and indeed probably most local-civilisation apparatus. Present-day Cuba will be as (or better than...) a First World country is now should this amount of warming occur. There will be so much extinction of flora and fauna species that humans' ability to garner a sustainable living from biodiversity will fail, with catastrophic consequences for large swathes of the population.

At 6° C over preindustrial mean global temperature, humans will have no long-term particiption in the ongoing evolution of (any?) intelligent life on the planet. None whatsoever. Even high-tech enclaves will not offer refuge from premature extinction, because too many complex societal systems will have failed and too much pre-industrial skill will have been lost for tech to remain coherent and to push aginst the thermodynamic cost of FUBARing our ecology. A majority of the eukaryotic taxonomy will be committed to extinction as well, many taxa before humans, and many afterward, even millenia after.

Any uncertainty in the estimations will be biased to the scientifically (not politically) conservative side, especially in the context of eventual equilibrium of the global system.

That's the calculus.

Tom said...

Don't be such an optimist, Bernard J. Something might go wrong.