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Monday, June 16, 2008

Murphy Answers Silas On Cap &Trade

Silas (aka Person) has been keeping me honest regarding my cap & trade op ed. He first criticized the piece on the Mises blog, and now more recently has carried his concerns over to the discussion of my critique (pdf) of Nordhaus.

(BTW, even if you don't really care about my arguments with Silas, you might want to glance at the thread at Aguanomics. I am having trouble getting beyond first base with David Zetland, if you view a home run as changing the other's mind. Any suggestions [posted here on Crash Landing] as to how I can approach from a different angle are welcome.)

Rather than try to quote and respond--which would get very tedious--I'll just point interested readers to the links above to see Silas' concerns in his own words. Below I offer some general responses:

FIRST and most important: The cap & trade bill recently discussed, as well as any cap & trade bill that will be proposed in any remotely plausible future, will not be "a market solution" for any reasonable meaning attached to that phrase. Such a bill will quite obviously distort markets grossly.

SECOND, I concede that there is a sense in which Silas is right. I was assuming (for the sake of argument) that the climate science in the IPCC is correct, and yet I still claimed that cap & trade was no more a market solution than if the government sold people permits giving them the legal right to sneeze. This may have led some readers to conclude that I was saying the very nature of the situation rendered carbon permits as illegitimate property titles, the price of which could not possibly correspond to genuine economic scarcity.

However, as Silas correctly notes, if James Hansen and the guys at RaalClimate are right, then CO2 emissions affect others just as conventional pollution does. If one agrees that one can have property rights to a clean stream etc., then in principle one could have a property right to the atmosphere and this could spawn a market in which the right to inject CO2 into this property is sold.

OK try not to get lost folks, for it gets a bit subtle at this point. I am claiming that whether we take the situation as it is, OR if we imagine a truly free society built on libertarian principles, then in EITHER CASE there would not be anything resembling a market for the right to shoot CO2 into the atmosphere. Hence, both in practice and in theory, I stand behind my claim that cap & trade is not a market solution. Even in an idealized market setting, no such mechanism would evolve (I claim). In the remainder of this post I'll try to explain this latter claim.

================

Why Cap & Trade for CO2 Would Probably Not Arise in a Free World

Although Silas is right that it is theoretically possible to imagine a completely voluntary system yielding a version of cap & trade, I don't think it would ever evolve in any plausible scenario, without governments creating it through fiat. To put it simply, this method of slicing up property rights bundles seems like a very inefficient method to deal with the (stipulated) externality.

For an analogy, we can imagine ecologists lobbying the federal government back before barbed wire. They explain the tragedy of the commons, and the concerned federal officials then institute a massive program of coating the grasslands with agents who monitor cow movements. They keep sophisticated records of whose cattle entered which piece of land. At the end of each month, the records are run through a central processing agency and then each rancher is sent a bill telling him how many cow-boundary-crossing slips need to be turned over to the government, not to the landowners. Depending on the lushness of the grass, the government charges a higher or lower price for issuing the permits. (I.e. the price is higher when the grass has been severely overgrazed and needs to be given a break.)

So the government can go ahead and implement that scheme. In that case, there is much less incentive for anyone to adopt barbed wire, since the government will just adjust the price of its permits in order to continue extracting large rents from the ranchers. There will never be much surplus left to fund payments to landowners. Thus the "market solution"--after all, the feds aren't nationalizing the cows or land, and ranchers can decide where to steer their cattle--will have largely displaced the true market solution, and the government will seize a much larger share of output, permanently into the future.

I hope it is clear how this situation is analogous to the situation with CO2 and climate change.

OK possible alternatives? Insurance companies could pay major emitters to adopt less carbon-intensive techniques. Public education campaigns would bring consumer pressure to bear on emitters. Depending on the severity of the situation, insurance companies and philanthropic organizations could spend dozens of billions of dollars on giant space mirrors, pumping aerosols into the atmosphere, and other geoengineering techniques, at least to buy time.

Under any reasonable scenario, I think focused, voluntary efforts coming from companies that actually stand to make or lose trillions of dollars would be far more effective than world governments throwing around tax dollars and unfunded mandates. What is particularly absurd is that if governments ever actually "won" the war against climate change, they would lose a huge chunk of their power. Does anyone expect the government to declare victory in the wars on drugs, poverty, or terror anytime soon?

The types of private efforts I have mentioned above would, in my opinion, be far more likely than the evolution of permits to CO2 emissions that would need to be enforced on a worldwide scale. That is simply too costly to monitor and enforce, in my opinion. Surely a different legal mechanism would evolve to deal with this stipulated threat.

Cap & trade is not a market solution.

16 comments:

  1. Silas2:39 PM

    Bob_Murphy: First, I appreciate the time you've taken to give a thorough response. I will try to focus on our core points of disagreement. Though I'll get wordy, it's fine if you just point out which fundamental assumptions or inferences you disagree with.

    I accept that you can look at any specific proposal and say, "this cure will be worse than the disease", and the (now basically dead) climate bill in the Senate is no exception. Granted. But you went further than that in your IER op-ed, to make arguments that say or imply that a) no capping of total emissions, with tradeable rights, could ever be market-compatible, even in theory; that b) restrictions on CO2 emissions do not reflect economic scarcity (!), and that c) concerns about the political process suffice for blanket dismissal of *any* cap-and-trade scheme.

    Well, Bob_Murphy now agrees that b) is in error, though he kind of dances around saying so explicitly, and I doubt we're going to see any kind of apology on the IER or Mises sites for trivializing catastrophes, which his essay effectively did. He sees now that even without government, there is a conflict between "total CO2 emissions at X level" and "Sally-Sue's home not flooding". He also agrees that there's at least a parallel between cap-and-trade, and free-market solutions to stream pollution, and only "efficiency" concerns invalidate it at the global scale, which I'll have to tentatively view as conceding the point: capping pollution levels, and allowing polluters to trade the rights to do it between themselves, *is*, he agrees, compatible with the free market.

    So Bob_Murphy is making an argument similar to c), and I have stated elsewhere why such a concern does not prove what he thinks it does. Like I said above, you can look at how any bill has become, right before it's voted on and say, "Hey, look how skewed this is, factor in the bureaucracy and time-consistency problems, and it will be even worse than the claimed harms." And in almost all cases, I'd agree. But, and this is an important point, that would be a different argument from the claims that "those permits don't reflect real scarcity" or "tradeable pollution rights are incompatible with the free market", and I think Bob_Murphy blurred the difference.

    However, as long we're going to permit discussion of ideal solutions, Bob_Murphy's hypothetical is still not making a valid comparison. In a semi-ideal cap-and-trade system, the revenues would go mostly (i.e. net of adjudication and administration costs) to those victimized by the externalities, and so Bob_Murphy is not comparing apples to apples in his cattle grazing example – he should compare to a situation where the compensation would be paid to the victims of the overgrazing. But either way, such a system proves my point: the system would be unjustifiable because of *practical* concerns, not because of something morally wrong about making aggressors pay victims, and certainly not because "hey, the cost of these permits doesn't reflect any REAL economic scarcity".

    At this point, I'm going to digress a bit to talk about externalities and why people care. There is a huge disconnect between the layman and typical economist on negative externalities. Where the latter see problems of efficiency, the former (rightly IMHO) see problems of justice. In short, most people do not think recipients of pollution should have to pay the polluters to stop, even and especially if the deal can be cheaply brokered, or the polluters "get more benefit than the victims were harmed". Also, where economists see the problem as "solved" the moment neg-externality-throwers *feel* that cost in their accounting, the layman doesn't see the problem as solved until the victims of the neg-externality are "made whole" (either by recompense, or fixing the resulting problems). The economist sees revenues from permits or carbon taxes as "free money for the government"; the layman sees them as funds that rightly belong to the victims.

    The above reasoning is also why I compared Bob_Murphy's point about economic growth (and now, his claim that victims should handle the damage themselves without any assistance, presumably including the 100 million poor displaced Bengalis), to a polluter claiming that he doesn't have to pay for some kid getting asthma, on the grounds that, hey, one day economic growth will suffice to buy him a cure, you know, if the kid makes it that long. I doubt Bob_Murphy would endorse this line of reasoning, yet it's precisely analogous to what he's said about GW.

    =====

    Why Cap & Trade for CO2 has a Reasonable Chance of Arising in a Free World

    So how would a free world handle CO2 if scientists demonstrated the causal connection in harms? Well, there are some things I can say for certainty about a free world:

    -There would be no pollution, just violation of well-defined property rights, or degradation of one's own property.
    -If you were curious about how much pollution you had a right to emit, it would be perfectly clear, and you would know exactly who to go to, if you wanted to buy more (permission to pollute).
    -It would have to tackle a very nasty web of interconnected issues is assigning rights to the atmosphere. On the one hand, it obviously couldn't just ban CO2 emissions outright, or even just of fossil fuels. On the other hand, it couldn't allow unbounded CO2 emissions, if most were convinced that doing so would terminate humanity (or cause apocalyptic conditions). On the third hand (limb), each and every person, whenever this free world realizes it needs to assign rights, would have already performed a valid "homesteading" of certain easements in the atmosphere, such as for breathing. On the fourth limb, there is no direct entity-to-entity harm, which the tort system is accustomed to handling. Rather, the harms are a function of total global CO2 emissions, meaning no one subgroup can be said to be responsible for any one catastrophe.

    ("Whoa whoa whoa, TIMEOUT. We did NOT cause 100 million Bengalis to get displaced, okay? We simply emitted a little CO2. If only those other morons hadn't ALSO wastefully emitted their stuff, there would never have been any flood. So don't try to pin this on us." Reverse and repeat.)

    Since Bob_Murphy already accepts the market-compatibility of "clean stream + tradeable cap rights", and that a free world would lack the inefficiencies of a global government, it should be clear that if such a class action tort ever arose, a free market court would recognize that the most sensible solution would be either:

    -"Hey, the world can only handle X beyond what people have homesteaded (i.e. breathing and such). So, we'll auction the rights to that off, and distribute the proceeds to a rough approximation of the dispersal of any damage; anyone undercompensated more than 90% can sue for a bigger share."; OR
    -"Whoever emits 1 unit of CO2 beyond natural bodily processes is responsible for x% of the total damage due to CO2, and thus may emit however much they feel like, so long as they pay that amount. Whoever can document a fundamental harm resulting therefrom, gets a proportional share."

    I disagree that Bob_Murphy's ideas are workable market solutions. W.r.t. insurance companies, even if we ignore the free rider problem (a nasty can of worms in and of itself), all that does is make people want to emit CO2 so they can get free money to make them stop. Mere social pressure is just a policy of asking for "unilateral disarmament" and thus merely rewards those who don't "disarm", while making it harder to untangle which processes use the least CO2 over a life cycle.

    Whether or not cap and trade "is" a "market" solution, it is clear to me to assigning property rights to something for which rights are ill-defined or non-existent, is a precondition for the market to solve anything.

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  2. Bob, have you seen the GAO summary of expert opinion on climate change policy?

    I summarize it here:

    http://mises.org/Community/blogs/tokyotom/pages/gao-releases-report-summarizing-views-of-leading-economists-on-climate-change-policy.aspx

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  3. Tom,

    No, I don't think I've seen that yet. Thanks, I'll take a look.



    Silas,

    As usual, I will have to be briefer than a full response would require.

    First and most important, I specifically said in the op ed that if prices "explode" because of cap and trade, then this won't be a reflection of economic scarcity. I think Nordhaus overestimates what the "optimal" carbon tax would be, and even his profile wouldn't lead to an "explosion" of fossil fuel prices. So I wasn't saying that the price of a permit couldn't possibly reflect economic scarcity, I was saying it wouldn't if it were really high (in the near future).

    Second, at best you can call this a "half market solution," since the demand side is a true market. But the supply side is a number dreamed up by a person/committee in DC. I was relying on the calculation problem in my position; reread the op ed and see that I am specifically talking about bureaucrats picking the number of permits.

    So you are basically in the position of Lange/Lerner saying that Mises was wrong, because they had dreamed up the "market solution."

    There's nothing logically contradictory about that position, but I don't think it's very useful.

    In any event, I hope I've shown you that I'm not nearly as stupid and/or corrupt as you had earlier deduced.

    Remember, Silas, I was writing this for people who might not even have known what "cap and trade" is. And I didn't dismiss cap & trade as stupid; I explained why people liked it, and even referred to the "elegance" of its theoretical achievements.

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  4. Bob, when you say "But the supply side is a number dreamed up by a person/committee in DC. I was relying on the calculation problem in my position; ... I am specifically talking about bureaucrats picking the number of permits," it appears that you are forgetting the 190+ states involved in international climate negotiatons (plus all of the corporate interests and NGOs).

    As we can see with Kyoto - which didn't become effective until certain participation threshold were met (but lacked enforcement mechanisms), and even then the parties did not fully perform since the US and others chose not to play along - the US and other countries are unlikely to take meaningful action unless free rider, burden-sharing and other problems are worked out (and trading mechanisms agreed to create a global market and price), so that clearly no single nation's politicians or faceless bureaucrats will be setting prices - quite unlike the SO2 scheme or other domestic quasi-market policy measures.

    This is very much like a bunch of ranchers deciding, in the face of growing pressure on a shared open-access resource, sitting down to discuss how to manage a range.

    See Jon Wiener, On the Political Economy of Global Environmental Regulation, 87 GEO. L.J. 749, 769-71 (1999) (http://eprints.law.duke.edu/1554/1/87_Geo._L.J._749_(1998-1999).pdf):
    "In principle, the voluntary assent rule at the global level means that . . . coercive redistribution cannot occur. No country will adopt a treaty that does not yield net gains for the country. International agreements, unlike majoritarian legislation, are analogous to voluntary multiparty contracts in which every contracting party must benefit to secure its participation."

    Regards,

    Tom

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  5. Bob_Murphy: Thanks for responding again, I will also try to be brief.

    First, about your op-ed: you are now trying to argue that your op-ed said something that no reasonable person could interpret it as meaning (i.e., that prices would be reflect a fake scarcity *only* if the permits were under-issued), and which contradicts the claim you repeatedly make, that various conditions would force governments to over-issue them. I still believe your op-ed is very misleading for that reason.

    The fact that you were writing for a novice audience is no defense, given that you could have packed more content into the same number of words, with which to clarify the matter. (I would be glad to edit your works for just a sliver of your cut, no joke.)

    Second, about the claim that government declaration of the cap level would be a "half-market", and vulnerable to the same criticisms of Lange:

    You are simply digging yourself deeper into the same critique I made previously: tradeable permits are not fully a free market, but complete lack of property rights in the very resource you expect a market solution for, is strictly further removed from the free market.

    Yes, the governments are making a SWAG (scientific wild-ass guess), but a free world would have to do the same thing. The only difference is that the free world would have clearer market signals with which to balance the competing wants. But again, EITHER system would provide better signals to entrepreneurs about the resources that they are consuming, than simply leaving the atmosphere in a massive tragedy of the commons!

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  6. Bob, you realize that "cap and trade" is essentially the same as the very successful ITQ schemes that are increasingly being applied to fisheries?

    http://www.reason.com/news/show/36839.html
    http://www.reason.com/news/show/34998.html
    http://www.knowledgeproblem.com/archives/000594.html

    Do you oppose these too, simply because they are not "pure", privately derived property rights?

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  7. TokyoTom, Silas\Person,

    I don't really want to interfere in this discussion, and I don't really feel qualified to (since I have no formal training in economics), but this subject does interest me for many reasons.

    Why do you think negotiations between governments will result in a reasonable compromise? It seems that governments have a tendency to maximise their power and income, and serve the special interests that keep them in power. Doesn't that make it likely that they will try to use any cap-and-trade treaty for that purpose? It would depend on whether it is the CO2-emitters, or the opponents that control them. But it seems unlikely that those will be evenly balanced in various states at any period in time. Either the emitters have the upper hand in most countries, or the opponents, but not 50-50. As far as I know, the EU does have emissions quota, but so far the "deal" made between EU member States has resulted in emissions quota being granted generously. At least that's what the environmentalists say here. As long as I'm not convinced that climate chance is caused by human beings, or that it is something that must be stopped, I suppose that is a good thing. But it does illustrate the shortcomings of democratic "50%-plus-one" systems and international negotiations. It's the majorities, or combinations of minority special interests that rule, and not an objective truth, or even an average of the will of every individual.

    Like I said on Mises.org, I believe the rights to your own body and physical property, combined with existing court systems, would be enough to settle any conflict. But I am stuck on more fundamental issues. Assuming the anthropogenic greenhouse hypothesis is correct (and that's a big leap), would it be a crime to emit CO2 (beyond a possible threshold)? Because I'm not sure if it is a crime per se. What people are doing by emitting CO2, is supposedly changing the climate. Firstly, it seems bizarrely coincidental to me that climate is now at some imaginary "optimum", where any change, warmer of cooler, would result, on nett, in more disasters than we currently have. Although of course it could increase the chances of certain groups of people suffering certain disasters, while decreasing the chance of other disasters.

    But is increasing the "chance" of a disaster, the same as an actual act of agression? That would mean, if you increase the chance of a hurricane hitting New Orleans, you are a criminal. But to be logically consistent, it also means that stepping into a car or owning a gun, increasing certain risks and decreasing others, is a crime. Of course third parties can somewhat avoided those risks by not getting onto roads with motorised transport, or living in a gated community that doesn't allow (private) guns. But the chances of suffering from climate change can also be avoided or diminished. I could move out of the low-lying part of the Netherlands, and live on higher ground, or live on a boat. Although of course, rising sea levels themselves would be more than just a "chance", the damage that could follow is still avoidable by taking certain measures, like building higher dykes. There doesn't seem to be a qualitative difference from a person moving into a gated community to avoid the risks of guns. Also, sea levels have been rising since the last Ice Age. If the natural trend is "total meltdown" anyway, it would simply be accelerated.

    And it seems vital to know on what ethical basis the CO2-emissions are to be solved. If damage to persons or property (or an increase in the chance of that happening) IS allowed, then why not simply choose the option Silas just put in his first response to Mr. Murphy, that anyone can emit as much as they want, as long as they can pay the compensation. But that would be equivalent to the factory owner paying off the asthma he inflicted on a child, and continuing his pollution. To further complicate matters, that also depends on whether you only allow (an increased chance of) damage to either person or property, or both.

    If ANY damage to person or property must be stopped, then compensation would simply not do. The persons who (might) suffer damage would sue for an injunction against emitting any amount CO2 that could cause climate change. There would be no room for balancing the costs and benefits of CO2-emissions, it would simply be stopped above whatever threshold, if any. All people that depend on emitting CO2, would have to suffer, or maybe even die, in order not to make the (possible) victims of CO2-emissions suffer or die. Even if the latter group is much smaller.

    I'm sorry for the length of my post, and maybe it's not economic or relevant enough to your discussion with Mr. Murphy. But in order to find the correct "market solution" wouldn't you first need to define the legal or ethical framework for that market?

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  8. Owl, who`s an economist?

    I`m a little tight for time and will try to respond later.

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  9. Owl, let me make a few responses:

    1. Why do you think negotiations between governments will result in a reasonable compromise? It seems that governments have a tendency to maximise their power and income, and serve the special interests that keep them in power. Doesn't that make it likely that they will try to use any cap-and-trade treaty for that purpose?

    The key is that each country has DIFFERENT interests (and a different balance of special interests). That makes it exceptionally difficult for any country (or set of special interests) to control the outcome.

    2. so far the "deal" made between EU member States has resulted in emissions quota being granted generously.

    This was quite predictible. Why should the Europeans unilaterally should any real burden when the US, China etc. have not yet? So they set up a process, but deliberately overallocated permits.

    3. I believe the rights to your own body and physical property, combined with existing court systems, would be enough to settle any conflict.

    Owl, the transaction costs (suing everyone in the world in non-existent internationally-binding courts), proving everyone's respective contribution, and obtaining meaningful damages or a halt to GHG releases) are just too high to make any private remedies meaningful. As GHG levels have been building up for years and effects linger for decades, releases by firms and individuals no longer in business are not even theoretically possible.

    Furthermore, while a libertarian would call for damaging behavior to be enjoined (in addition to money damages), in the case of GHGs an injuction would be extremely unlikely, given the very slight harm that one person suffers that can be attributed to a particular emitter.

    5. Changing a risk profile is no different from what classic pollution does, Owl. This has never stopped courts from assigning liability. The problem here relates more to the transaction cost and marginal contribution aspects.

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  10. TokyoTom,

    1 and 2: Isn't it likely that at least amongst democratic nations, one particular interest has more power than the other? Besides, if any nation has an effective veto over any treaty, even one fossil fuel producing nation can block the whole thing. As you rightly observed, any one country or group like the EU, will not sacrifice it's own wealth for a lost cause. Except when run by people who put (right of wrong) "principles" above full effectiveness.

    3: Is that necessarily true? How would this be less costly than the new bureaucracy that needs to control the issuing and observance of permits? I am no expert in legal matters either, especially not in common law systems, but can't any private party set up a class-action suit against the greatest polluters (fossil fuel producers, refineries or power plants for example), suing them for a % of the pollution they contribute (which is how permits would work?) and if this doesn't enforce full compliance, work their way down to smaller polluters? Then the whole business could be left up to private firms, that can be hired or fired by the "victims" of pollution, competing to do this at the most desired price and quality. How would a cap-and-trade system enforce compliance?

    The courts would also not be less internationally binding than cap-and-trade, unless international negotiations will lead to the "correct" price for CO2-permits, and complete international coöperation. Again, this might also (I'm just theorising here) be solved by private litigation, since any products produced by foreign nations that do not comply to CO2-compensation, might be impounded if they try to import or export to or from a country that does enforce those private compensations. I don't see how a US court could not seize Chinese goods crossing into the US, or products going via the US to China, and keep them until the (prospective) owners pay up? Again, how would a cap-and-trade system do this any differently, or more efficiently? And this is not even taking into account that such a private solution would allow others to come up with even more efficient ways of achieving the same goal.

    4: So if the harm is "slight", then you can't be stopped from doing it? Don't get me wrong, I am still not clear on what my personal ethical position is on this, but that seems somewhat inconsistent. And that would mean a million persons contributing a slight harm, make one giant harm to others. If this is serious enough for people to advocate a cap-and-trade system, then how is that different from suing or enjoining someone for contributing 0.1% of the damage?

    5: I'm guessing my question is if that classic approach to pollution is correct. If changing a risk profile is the same as committing a crime (or a tort?), then almost any human behaviour could be considered criminal. That seems absurd, so I'm trying to find out what is it exactly that makes it a crime, and not just the same as getting into a car or owning a gun for example.

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  11. Silas1:47 PM

    Owl, I think TokyoTom is making most of the points I would. (The differences in our positions are dwarfed by that between us and the "other side". I'd still like TokyoTom's comments, good or bad, on any of my posts just to see how close we really are, hint hint) But let me add this:


    On 4, you had better durn well GET an ethical position, instead batting TokyoTom into that little gap between a rock and a hard place. But even BEFORE you get laser precision about what your ethics are, you should notice some clear bounds your ethic will have to meet, and I've listed some above.

    If your position implies that no one should ever burn hydrocarbons if they would cause a harm (and contributing to meeting the global threshold thereby displacing millions sure counts as a harm!) that would imply no one should ever burn HCs. Yet obviously, obviously this can't be right. There's no way that any property rights system should say NEVER burn HCs. The problem is to figure out WHY that position is ridiculous, and therefore WHAT the actual constraints should be on emissions, if any.

    TokyoTom and I, on careful reflection of the issues (correct me if I'm wrong, TokyoTom), have come to the conlusion that both the aggressors and victims are so widespread and so overlapping, and the elimination of this harm so excessive, that it just makes more sense to have compensation for the aggression paid *as* its committed, instead of completely disallowing it.

    Victims win, polluters win.

    5. As much as we can debate the question of whether changing a risk profile is itself aggression, we don't need to. Any use of CO2 contributes to the global amount, which in turn *eventuates* in *actual* damage. The CO2 use was a contributing, *causal* factor, and as such, warrants compensation.

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  12. Silas\Person,

    What interests (and frustrates) me about the whole anthropogenic global warming theory, hypothesising that it's true (though I'm not too convinced about that yet) is precisely that it stretches my idea about what is or is not ethical. I was never entirely clear on ethics anyway, leading me to sympathise with (but not be entirely convinced by) libertarianism as a political-ethical theory that seems one of the "least bad" and elegantly simple amongst the other known choices.

    But you don't seem entirely consistent either. On the one hand, you do see increasing the chances of damage as an actual act of agression. You even imagine millions of people on the run from the sea, though this would be a process that even according to the IPCC would take a century or more, and then only constitutes a modest rise in sea levels. That seems more to conjure up an image of Bangladeshi's building houses on longer stilts, or moving a little further inland with each generation, or building dykes, rather than an apocalyptic display of millions of people on the march.

    On the other hand, you seem convinced that this assumed agression should go on, and all we have to do is "pay that asthma-afflicted child off" (to use your earlier analogy) for the (chance of) damage he suffers because of pollution, since he benefits from the cause of pollution too. Which is true, but rather utilitarian. If you think there is a difference between such an asthma-suffering child, whose sickness may not be caused by pollution, but whose health or well-being may suffer more from pollution than the average polluter\victim, and the Bangladeshi who may suffer more (chance of) damage because of climate change than an average polluter\victim, please let me know. Why would the pay-off be acceptable in one case, but not the other? Because one involves property and the other life? Or is the one more of a "risk-increase" and the other "actual damage"? Then again, what's the difference?

    It is of course perfectly true that agressors and victims are "overlapping", but clearly some benefit or suffer more than others. And it still seems morally dubious to just say to your victims (if you see them as such) "Here you have some cash, now everything is ok". Some people place far more than the monetary "market value" on their home flattened by a hurricane that may be x% caused by CO2-emissions. But on the other hand, if people are held responsible for every possible scenario that might indirectly result from their actions, one might as well sue that butterfly in Beijing that flaps its wings and "causes" a tornado in Kansas.

    So I'm trying to find a correct ethical position, but it seems shaky no matter where I stand.

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  13. Owl, let me make a few further comments.

    1 and 2: Isn't it likely that at least amongst democratic nations, one particular interest has more power than the other?

    Sure there are differences in relative power, but so what? Any agreement among them is voluntary and to be meaningful must be enforceable some way. The lack of interest by the US and China are the chief reasons why nothing effective has been put in place.

    3. Sorry, but there is simply no effective private remedy for climate change damage available. There is no court in which a US plaintiff could sue a Chinese power company that sells no goods in the US, for example, or a Pakistani peasant could sue Peabody coal, and no way to enforce any judgment, as none manufactures goods sold where the damages are felt. For any legal process to work against general imports, a specific action would be needed against EACH exporter, and since the goods are generally owned by the purchaser rather than the seller, in essence you'd be robbing a domestic Peter to pay Paul. Moreover, any damages that could be won, of course, would in principle be limited to each defendant's relative share of the harm. This would eliminate any remedy against firms that are no longer in business (shutered or merged), and mean effectively that the costs of litigation and collection for any plaintiff against any defendant would far exceed the discounted future value of any possible recovery.

    4: So if the harm is "slight", then you can't be stopped from doing it? ... And that would mean a million persons contributing a slight harm, make one giant harm to others. If this is serious enough for people to advocate a cap-and-trade system, then how is that different from suing or enjoining someone for contributing 0.1% of the damage?

    Under libertarian principles, one could be enjoined from activities that cause ANY harm to anther or his property. In practice, those who generate harms borne by others when those others are free to act until somebody considers it worth their while to incur more costs in order to seek a remedy. Where harms are diffuse, this does indeed allow for massive cost transfers.

    The argument for cap and trade or a carbon tax is that the government provides a ready mechanism that avoids all of the "transaction costs" of millions of injured parties against millions of defendants. Of course use of the state involves costs as well (both to freedom, any vindication of private rights, and in terms of bureaucratic inefficiency, etc.) that must also be considered.

    5. If changing a risk profile is the same as committing a crime (or a tort?), then almost any human behaviour could be considered criminal.

    Legislatures decide what are crimes; courts typically decide what are torts (claims for private action), based principally on common law doctrines. Under old principles, a polluter could be enjoined from ANY invasion, no matter how slight (as long as measurable), but action of course depends on the harmed person noticing the harm, figuring out who is responsible, and making a cost-benefit analysis of whether trying to do anything about it is worthwhile.

    So I'm trying to find a correct ethical position, but it seems shaky no matter where I stand.

    Join the rest of us. Nothing is easy here, Owl. We just know that for as long as we fail to develop institutions to manage open-access commons, economic incentives encourage each of us, acting independently without any liability to others or any basis to profit from long-term investments in protecting the resource, will tend to contriibute to the destruction of the resource.

    The question is when, and how, we confront such situations when we can identify them.

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  14. TokyoTom,

    1 and 2: So basically, because of these politics we either end up with a situation where from an ethical (libertarian?) point of view there should be intervention, but there wont be, or there should not be intervention, but there will be?

    3. I'm not (yet) convinced about the superiority of cap-and-trade versus private remedies. Yes, I agree it could be rather a big administrative burden no matter what solution is chosen. But how would this cap-and-trade deal be better? Wouldn't its enforcement also require inspecting and fining the largest polluters that (willfully) exceed their permits or refuse to buy them, and if that doesn't enforce compliance, also the smaller polluters? Wouldn't there need to be some system of import and export tariffs to force the non-compliant nations into signing the treaty, or to compensate (a part of) the costs of their non-compliance? If a "private" system doesn't have control over all the actors, then why would a cap-and-trade system be any different?

    And also, how would the "compensation" be paid to the persons that deserve it most? You had that new interesting article on your website, that argued it would simply be an additional form of income for the State. Just like most of the money the EU gets from its fining companies found guilty of forming cartels, goes directly to the EU treasury. In theory, this would be a deduction on the total tax burden, but in reality, taxes don't exactly come down, and the consumers that were supposedly "harmed" by the higher monopoly prices, pay as much taxes without receiving any of the compensation. If the State really wants to give the compensation money to the most deserving, it cannot even in theory just lower the tax burden, because that would benefit the nett polluters just as much as the nett victims. It would have to find out exactly which people are most deserving, and in doing so, it would have to perform the exact same action as the private solution would.

    If the private courts were to use something similar to "emission permits", as a way of calculating which plaintiffs are "nett victims" or "nett polluters", then at least it would not involve another "Bureau" of "Office" or other bureaucratic nightmare full of civil servants that will cost money no matter how necessary or redundant their work actually is. Law firms may also be expensive, but at least you can fire them when they are no longer cost-effective. They may even work on a "no cure no pay" basis, and only receive a percentage of the compensation money. That is not the approach a government cap-and-trade agency would likely take.

    I also don't think that private international enforcement is less effective than cap-and-trade. Apart from my suspicion that cap-and-trade also has the same compliance problems and difficulty in distributing the costs and benefits, I don't see why nations who commit themselves to compensation can't do this with private means. Yes, the importers\purchasers are usually the owners, and yes they will have to pay a top-up fee on goods from producers that don't comply to the "private compensation treaty". But basically they're only paying what they should have been paying in the first place. The CO2-compensation would otherwise have been paid by the producer, plus the costs of compliance (either in a private or cap-and-trade system) raising the price by the same amount. Like someone who is fined 50 dollars because he bought a stolen product at 50 dollars, which was on sale for 100 dollars in the store of the legitimate owner. Yes, it is the buyer who now has to pay double, and not the thief (unless he can be caught) but if the owner had sold him a legimate product he would have paid the same amount anyway.

    The examples of the Chinese power company and the Pakistani are also good, but this would be exactly the same under cap-and-trade. If China doesn't want to sign a treaty that allows the American to sue the power company privately for compensation, then any cap-and-trade deal is also unlikely. If all nations except China, America or Pakistan sign a "private compensation" or "cap-and-trade" treaty then enforcement seems to have the same difficulty in both variants. And the example of defunct or extinct polluters is an interesting one, but how would cap-and-trade solve this? Would it have to lower the permits of everyone, to compensate for the CO2 that previous polluters emitted? Is that any different under a private system?

    4. I question whether the transaction costs really are lower with cap-and-trade, or that they just "seem" lower, because "buy some permits" sounds simpler in theory than "millions of people suing millions of other people, calculating their relative guilt or victimhood, and then paying each his or her due". The latter does sound more complicated, but I suspect, when you look at exactly how cap-and-trade would achieve this, it is either just as complicated (if not more), OR it is much more crude in lumping victims and perpetrators together, and in (not) distributing the compensation payments properly.

    5. I still don't know whether I am of the "injunction againts any harm to person and\or property School" or the "just pay compensation School". Injunction seems more simple, and more in line with absolute rights to person and property, but it's also rather rigid, and maybe even unrealistic in a living world where everything is interconnected. And if injunction leads to mass death and poverty, and more victims than allowing the CO2-emissions to continue or paying compensation for them, well... I'm confused. But I do still think that private litigation can be just as effective in eliminating the tragedy of the atmospheric commons, as long as there is a measurable harm to person or property.

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