Who should pay for climate change?

20 May 2015 | Noel Forrest

Often,  giving people  a  reason to think  or  act in  a certain way is  one  of the most powerful tools  one can  employ. The hope  of those concerned about climate change is that these reasons can be mutually communicated and agreed at the Conference of the Parties (to the UNFCCC) in Paris later this year.

Indeed,  the  text  of  the  communique  resulting  from  COP  20  in  Lima  last  year  talked  of “common  and  differentiated”responsibilities, and targets, reflecting “different national circumstances”, as key to future discussions. So whether reductions in emissions be achieved via in-country policies, such as taxes, or by a global carbon trading scheme, answering the question as to who should pay more or less, is potentially very important.

Implicit  in the  assumption  that  present  day  populations  should  bear  a  cost  for  the  emissions  of  their ancestors  is  the  idea  t hey  have  benefitted  from  those emissions. After all, only a certain portion of historic emissions have actually been directly made by populations alive today.

So  the  most  obvious  candidate  to  distribute  the  costs  involved  would  be  historic  emissions  of  a  nation  divided  by  the  present  day  population  size  of  thatnation. A  discount  factor could be  applied, looking  back  over time, in  order to  sum historic  emissions together  and bring them to  a present  day  total.   This discounting could, in theory, link the ‘ responsibility’  attached to  emissions to the improvement in  understanding  of climate change which  has  occurred  over time.

However,  natural capital  (such  as  fossil fuels) is not  always converted successfully into  other, long-term income yielding  forms  of capital  such  as legal  and educational  institutions.    It  seems  unlikely  that  accounting  for  variation  in  nations’   relative  success  or  failure  in  this  capital-conversion  task  (known  to economists  as ‘ genuine  savings’ ) should,  or  even  could,  be  fully  accounted  for  in  answering  the  question  as  to  who  should  pay  for  climate  change  today.  Nevertheless  one might  at least  expect those countries where  economic benefits had  not  really  been  felt to  argue in  favour  of this theoretical link between benefit from and responsibility  for historic  emissions.One might argue that  a simple discount rate  applied to  all  historic emissions  account s for the fact the conversion is not always 100%.

Working  against  historic  discounting  of  emissions, however,  might  be  the  longer  atmospheric  residence time  of  emissions  made  further  back  in  time.  The calculation would also have to take into account that of historic emissions (of CO2 anyway), roughly 50% have so far been absorbed by the planet’ s oceans and terrestrial ecosystems.

This present-day divvying-up of ‘ responsibility’  could be combined with short term per-capita projections of actual costs to reduce carbon (marginal abatement curves), for specific countries, in some kind of purchasing-power-parity terms, to arrive at a near-term target for each nation.

If a global carbon budget could be agreed, out to a future point in time where there are zero emissions, then the correct relative allocation in costs, out to the same point in time, could reasonably be projected as well, given emissions and population size are reasonably foreseeable.  However, the missing knowledge would be the economic cost to each nation of a given reduction, per unit of carbon, at a given point in the future, because this is highly dependent on alternate fossil fuel prices, and innovations that will have occurred.  These future carbon abatement curves would therefore be needed, in theory, to arrive at long term carbon targets.

One  might  hope,  however,  that  reasonable  assumptions  could  be  made  in  this  area,  so  as  to  achieve  sufficient  confidence  in  the long  term  scheme  (any confidence  would  be  nice),  and  that  firm  targets  for  the  short  term  could  be  accompanied  by  indicative  goals  beyond.  A  mechanism  of  looking  forwards  at regular periods  of time to  divvy up  short term costs,  so  as to stay within the  original carbon budget set, whatever the total  of those short term costs might come to, would be the obvious way to address this issue.  I understand such a mechanism is under discussion.

If  all  this,  in  terms  of  numbers  and  analysis  feeding  into  discussions,  is  too  much  to  hope  for  in  Paris,  what  can  at  least  b e  hoped  for  is  a  universal appreciation of the principles involved, and that a similar outcome might be replicated by an iterative process of target -pledging.  There is certainly hope.

Noel Forrest

Manager

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