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Emissions targets: think globally not nationally

By Stephen Jones - posted Tuesday, 24 November 2009


The Kyoto Protocol takes as its starting point the historical levels of national greenhouse gas emissions. The same starting point is implicit in negotiations for its successor to be decided in Copenhagen in December. It should be abandoned. It amounts to ceding squatters' rights to the atmosphere to the industrialised countries. Similarly, exemptions for developing countries should be scrapped. Although intended to shield poorer countries from a problem not of their making, the two-tiered system of “commitments” and exemptions is at the heart of the political problems that have hindered acceptance of the Protocol.

Developed countries dependent on emissions intense industries have been concerned that greenhouse gas pricing would put their resident industries at a competitive disadvantage compared to those in exempt countries. Where the protocol has been ratified and CO2 pricing schemes have been put in place, acquiescence of heavy emitters has been bought at the price of exemptions and grandfathering that have blunted the pricing signal.

The current pre-Copenhagen haggling over reduction levels and reluctance among major emitters to commit to specific reductions until a method of bringing rapidly developing countries within a CO2 pricing regime are continuations of this problem. A further complication is added by the objection that should concern about global warming be misplaced the increase in the price of energy caused by emissions pricing would unnecessarily and predominantly hurt the poor.

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An alternative starting point which avoids these problems is to treat the environment's ability to absorb greenhouse gases as a global commons in which everyone has one share and for the use of which users would pay the owners a Global Commons Rent (GCR) proportional to their use. Three corollaries follow. First, countries would have ownership and receive payment in proportion to their population. Second, there would be no national targets, rather, only a global target. Third, we can think in terms of a global per capita emissions target.

Today's emissions equate to around 7 tonnes of CO2 equivalent per person per annum - far below that of any advanced country but far above what many around the world live on. If global emissions are to be reduced with a constant or increasing population then over time this average must be reduced.

Administration of such a system, by comparison with the current system of national accounts, would be simple. A Global Commons Rental Board (GCRB) along the lines of a greenhouse reserve bank would be established. It would have access to the best scientific and economic advice and, like a reserve bank, operate at arms length from its political masters to achieve the climate target set by international agreement. Its charter would be:

  • to stabilise greenhouse gas emissions at the internationally agreed level by setting aggregate emissions permits or carbon tax rates;
  • to distribute or auction emissions permits or collect emissions taxes and to audit emissions accounts; and
  • to distribute takings to shareholders, i.e. to countries in proportion to their population.

The GCR could be implemented as a cap and trade system or as a carbon tax. As a cap and trade the GCRB would issue permits to countries in proportion to their population. Countries would be free to sell or reissue permits as they saw fit. Countries issued with more permits than they needed, i.e. countries with per capita emissions below the per capita target, could generate income by selling their excess permits. Alternatively the GCRB could auction permits and distribute the proceeds to countries on a per capita basis.

A particularly simple approach would be to implement the GCR as a carbon tax with the tax on fossil fuel levied at the point of extraction. In this way 60-65 per cent of emissions could be accounted for by monitoring the relatively few sites of oil, gas and coal extraction. Moreover a point of reference is provided by detailed energy statistics that are already collected by a number of agencies. Non-energy emissions could be taxed at point of emission.

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This approach results in a universal, effective, efficient, transparently fair system that is free of the problems that beset the Kyoto Protocol and which are clouding negotiations over its successor.

Being universal, it avoids competitive distortion and the possibility of “carbon leakage”, i.e. the movement of business and industries from countries where carbon pricing applies to those where it doesn't. It thus eliminates the major weakness and political stumbling block inherent in the current approach. Irrespective of the source of a product it would have an appropriate carbon price applied. Consequently all carbon costs would be passed through to the consumer. This is correct moral targeting as the consumer is the agent properly responsible for emissions.

Claims for compensation on the basis of competitive distortion would no longer have any merit. Thus the weakening of price signals and the hidden costs to tax payers that accompany exemptions and compensation are also eliminated.

A GCR would affect a significant transfer of wealth from rich to poor countries thereby addressing a key difficulty of greenhouse policy - that of safeguarding the interests of the poor while also including developing countries in a treaty that raises the price of energy. As such it is both a major development initiative and a low regrets policy in the face of uncertainties as to the causes, magnitude, impacts and potential for mitigation of global warming.

Because all costs are passed through to the consumer the total cost to a country is not determined by the greenhouse gases emitted within its borders but by the greenhouse gases embodied in the goods and services consumed in that country. This is appropriate as it reflects the true moral responsibility of countries for greenhouse gas emissions.

Inherent in the current national allowance based system is the assumption that justice requires more equal national emissions. This is a false assumption, confusing the means - greenhouse gas emissions, with the ends - a better distribution of the fruits of those emissions. Moreover it is counterproductive.

Concentration and specialisation have been recognised since Adam Smith and practised since pre-history as means of achieving efficiency. Unlike the current system a GCR would be neutral towards concentration of emissions intense industries thus making available a powerful means of reducing emissions which is presumed against by Kyoto-style thinking. Conceivably big emitters could become even bigger emitters, as long as offset by even bigger reductions made elsewhere.

So, who would pay, who would receive and how much would go round?

Above average per capita emitters, like most OECD countries, would be net payers while below average per capita emitters would be net recipients. This applies irrespective of the size of the country or the level of its emissions. So large emitters with low per capita emissions such as China would be net recipients. Because all GCR payments are ultimately passed through to the consumer net exporters of manufactured goods, such as China, or of raw materials, such as Australia will end up paying less as rent than would be calculated from their national emissions accounts. Conversely net importers of manufactured goods and raw materials such as the USA and many European countries would pay more.

How much money would be paid as rent? The IPCC puts anthropogenic emissions at more than 50 billion tonnes of CO2 equivalent per annum. At US$20/t that amounts to over US$1 trillion p.a. Of course some rental receipts will be paid back to developed countries as rental payments. But not all. Overall money will flow from rich countries to poor. How much is yet to be determined. If it amounts to only one quarter of rental revenue, that would be US$250 billion per annum - two and a half times the total foreign aid provided by OECD countries in 2006.

Overall a Global Commons Rent is a fair and efficient means of putting a price on greenhouse gas emissions - and one that protects the interests of poor countries no matter what the merits of the debate on global warming.

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About the Author

Stephen R Jones has worked in the biomedical and hi-tech fields for 30 years. In 1979 he was part of the team that researched and wrote the feasibility study for the “bionic ear” cochlear implant. He has since worked in various roles in companies commercialising Australian biomedical devices and also more broadly in the field of technology transfer. He runs a biomedical company distributing products for heart failure. He is interested in greenhouse science and policy. Stephen can be contacted on stephenjones@infovironment.com.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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