Friday, October 26, 2007

Splitting the Sky

Now that the Intergovernmental Panel on Climate Change (IPCC) and Al Gore have been awarded the Nobel Peace prize, the debate about global warming can shift from whether or not the human population is primarily responsible, to how we should design a solution. The idea that is currently most popular with politicians involves setting a cap on carbon emissions, distributing free permits to corporate polluters, and then allowing them to trade the permits amongst themselves. Since it establishes a free market for pollution rights, this "cap and trade" system is supposed to lead to the most efficient reduction in carbon emissions -- allowing the companies that learn how to reduce their pollution to profit by selling their permits to companies that have more trouble.

It sounds like a reasonable system, and it has even been used successfully in the past to reduce sulphur-dioxide emissions -- the leading cause of acid rain. But it suffers from a fatal flaw: the polluters do not pay the costs of the efficiency improvements, but instead transfer the burden to consumers. A slight modification of this system, popularized by the book "Who Owns the Sky?", divides the pollution permits equally among the population and forces the polluters to purchase them from us! Again the costs are eventually transferred back to us through products and services -- but the average person comes out about even. This has the advantage that it also establishes an incentive for individuals to reduce their pollution-generating consumption: if you drive an efficient car or reduce your overall energy use, you can can earn more from selling your carbon permits than you pay back to the polluters.

On a national level, this modified system seems pretty workable -- but how do we divide pollution rights between countries? The most obvious answer would be to split the sky evenly among the entire population of the planet -- every person gets an equal share. But the obvious answer may not be the best answer, because it effectively rewards countries with large populations -- and population is a major factor in the growth of global warming emissions. What really matters for each country is the relationship between its biocapacity (the natural resources within its borders, and how they are used) and the product of population and consumption (the total drain on those resources). Some countries have more biocapacity than their population consumes, while others have ecological deficits. If the global distribution of carbon permits were based on biocapacity, it would force countries that are far out of balance (whether due to consumption, population, or both) to purchase permits from countries that manage their resources more responsibly. This establishes the right incentives for both consumption and population.

With the right system, we can transform our societies and bring them back towards a balance with the resources of the planet. If we start reasonably soon, we might even avoid the most unpleasant consequences of pushing the limits of nature.