Few economists are as versed in the global diplomatic effort to combat climate change as Nicholas Stern of Britain.
So it was particularly distressing to hear him say, at a debate in New York a few weeks ago, that the international effort to achieve a worldwide climate agreement in Paris in December is already falling short on its most critical goal: The various pledges by nations to cut their emissions of heat-trapping greenhouse gases, he said, would not be enough to prevent the Earth’s temperature from rising beyond the level that scientists consider the tipping point to devastating environmental disruption.
Stern does not call this “failure.” At least emissions would be lower than without a deal. He also expects the agreement to include a mechanism to review progress every few years, so countries might ramp up their efforts to cut emissions as needed.
“This is very much worth having,” he said.
However, perhaps the word failure fits. More than a quarter-century of fruitless efforts to induce the world’s major greenhouse gas polluters, like China and the US, to significantly cut their emissions suggests that the entire approach might be fundamentally flawed.
Such failure indicates that getting nations to make the costly, but necessary, investments to reduce their greenhouse gas emissions requires more than diplomacy. It requires a big stick.
Consider the US, the world’s No. 2 greenhouse gas emitter.
What if every other advanced nation, as a way to encourage energy efficiency and spur investments in alternatives to fossil fuels, agreed to put a price of US$25 per tonne on carbon dioxide emitted into the atmosphere? As a tax, that would add about US$0.22 to the price of a gallon (US$0.06 per liter) of gasoline, something few US politicians — fearing public anger — are yet ready to consider.
According to calculations by William Nordhaus, an expert on the economics of climate change at Yale University, the US, on net, would gain US$8 billion a year by benefiting from everybody else’s efforts to slow down the Earth’s warming without having to exert any effort itself.
However, if the other advanced nations had a stick — a tariff of 4 percent on the imports from countries not in the “climate club” — the cost-benefit calculation for the US would flip. Not participating in the club would cost Americans US$44 billion a year.
This sort of approach offers perhaps the best chance of preventing a climatic upheaval.
In an article published in April in The American Economic Review, Nordhaus proposed just such a climate club, in which nations committed to reducing carbon emissions would impose a uniform tariff on imports from nonmembers.
Even if they agreed on a carbon price of as much as US$50 a tonne — which is consistent with the White House’s estimates of the overall costs imposed by climate change on society — a fairly low external tariff could induce near-universal participation in the club.
“The idea is exciting and provocative,” said Scott Barrett of Columbia University, one of the world’s leading experts on the dynamics of climate diplomacy. “He is aiming at a central problem in a direct and ambitious way.”
Martin Weitzman, a professor of economics at Harvard University and coauthor of Climate Shock, published by Princeton University Press in February, agreed.
“Bill’s proposal kind of wins by default,” he said. “I do not see anything else out there.”
To game theorists, it is no surprise that the many rounds of climate talks, including the Kyoto Protocol in 1997, have failed time and again.
Most successful international agreements include some sort of device to encourage membership and ensure compliance. The Montreal Protocol, which successfully phased out the chlorofluorocarbons once used in aerosol sprays that were blowing a hole in the ozone layer, was built around enforcement. Nations that did not sign up to the deal could not trade chlorofluorocarbons with members of the club, encouraging everyone to join.
FREE RIDERS
Nations join the WTO because they want to benefit from lower tariffs in other countries. They do not slap arbitrary restrictions on another nation’s products because they would suffer the cost of retaliation.
Climate change is tougher.
For one thing, it will be more costly for a country to limit emissions of greenhouse gases. The benefits will be shared by the entire world. Moreover, the threshold for devastating consequences is uncertain. For many, the optimal strategy would be to lie low and reap the gains as so-called free riders.
While nations might cooperate if they were absolutely certain of the tipping point that led to catastrophe, climate science does not work like that. Experiments by Barrett and Astrid Dannenberg from the University of Gothenburg in Sweden have found that where there is uncertainty, free-riding becomes irresistible, cooperation breaks down and catastrophe occurs.
Nordhaus’ proposal would change the rules of the game.
“Unless we do something like this, we will continue down the road we have been on since 1997,” he said.
Adopting Nordhaus’ proposal, of course, would not be easy. One reason there is no truly enforceable climate agreement yet is that most countries are reluctant to sign up.
A system like that proposed by Nordhaus would require some agreement to amend the rules of the WTO, to prevent countries hit by the tariff from retaliating with tariffs of their own. Those countries most dependent on fossil fuels might not quickly climb on board.
While it works fairly well at US$50 a tonne or so, the mechanism starts breaking down when the price of carbon rises higher.
However, the question that must be answered is whether the world has any viable, effective alternative.
Stern still holds out hope for the current diplomatic process, which relies on peer pressure to do the trick, allowing each country to decide on its own how much it wants to contribute to the climate goal.
Barrett suggests breaking the problem into smaller chunks that are easier to solve — like eliminating hydrofluorocarbons or imposing new regulations on aluminum production — rather than continuing to aim for the grand deal that has eluded global leaders for so long.
These seem thin threads on which to hang the Earth’s future.
“When you add up all of this, even in my wildest dream you are not going to solve the problem,” Barrett said.
Weitzman might be the most realistic of all.
“I think, alas, that we will keep drifting to higher and higher greenhouse gas concentrations until climate change is perceived as something catastrophic at a grassroots level,” he said.
As a result, many are clutching at straws. In the absence of real progress, some experts are tweaking the science instead: coming up with increasingly far-fetched assumptions that hinge on dubious concepts like “negative emissions” in hopes that new calculations push back the climate change time line and make addressing the problem seem more feasible.
“The issue is not whether we will have disastrous effects, but when climate change will have disastrous effects,” Weitzman said.
Given the dearth of alternatives, Nordhaus’ scheme, draconian as it might sound, looks like the only game in town.
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