Monday, October 30, 2006

This is going to be unpopular

Twenty years ago when environmental concerns were not so trendy - I was an activist. I was later on involved in environmental groups in Cambridge, undertook a masters in the subject and worked in the industry for several years right at the mucky end.

Many of my compatriots have now gone on to become the great and good in the environmental world. I stopped.


Because in my heart of hearts - I'm an economist - it's my mother's fault, long story.  My principle objection, was one concept - carbon tax, and the use of market economics to solve this problem. Carbon tax (or specifically tradeable Carbon permits) works like this - this isn't the technical definition, but the practical one.
  • The environment is a common to everyone, and owned by all.
  • Many rich people have become rich because of industries and products which pollute the environment.
  • Poor people have bought these products or worked in these industries because of aspirations, often created by said industries to drive sales.
  • The environment is now a bit messed up.
  • Poor people should suffer.
  • Rich people won't.
  • The environment will be owned by the rich.
Fundamentally market economics works on exclusivity - which means a lot of people get excluded. Now I have no issue with this for luxury proprietary goods - like TVs, cars etc - but this is not the way to deal with infra-structural or common goods - like clean air, health, education etc.  Sometimes these tricky "infrastructural" things get labelled externalities, as if somehow in the future the environment could be treated as an excluded good. Alas, the environment will always contain an economic externality because the economy is a subset of it and not the other way around.

The market economic system is highly efficient at exploitation and resource usage - which is great if that is what you intend to achieve. It should be remembered that a market is nothing more than an economic tool, as is a centrally planned system - it's a question about practicality and effectiveness not dogma or one being more 'right'.  Neither tool is an excuses for poor governance or a vision-less society or ignoring the wider environment we exist within.

So how do you fairly deal with environmental exploitation with a system which discounts the environment and pretends to supersede it?  On a purely equality basis you can give everyone equal right to the world they are born in, and equal share in this - this is known as a quota.  Unfortunately that doesn't work well in a market system which needs excluded goods which can be transferred.

So what's not the answer? Well, I predicted fifteen years ago that in the next thirty years we would develop an inappropriate excluded market based system, where the rich will win and the poor will become more excluded i.e. some form of transferable permit on carbon usage.

So what is the sensible response to such a scheme?  Refuse it.

Eventually people will share, but not if you say "ok, you've been living your fabulous life styles - champagne, flights abroad etc - I'll cut back on mine, eat dung every day and live in a hole in the ground and suffer some flooding because of damage you created in the past, so you can keep on living your fabulous lives."

You see the rich have more in the long run to loose than the poor, and what is at risk is everyone's quality of life. This isn't the end of civilization stuff but simply horrendous deprivations based upon tipping points which no-one fully understands.

Carbon permits were a bankrupt idea many years ago and they are a bankrupt idea now. Somethings are infra-structural & not externalities waiting to be included (and hence some people excluded).  If you're going to try and solve the problem with an equitable solution then you need annual, non transferable carbon quotas per person.

--- 29th Sept 2013

Seven years later, IPCC report on Climate Change and the talk is firmly heading towards carbon permits.