Back to the Drawing Board : Appropriation and Environmentalism, Climate Change

Cap and Trade vs. the Carbon Tax

Donny with an A — Fri, 13 Jun 2008 22:09:00 GMT

So I've been addressing the issue of anthropogenic climate change for some time now, and I haven't said much in the way of addressing specific policy proposals. But I was just given a delightful present by one of my fellow FEE associates: a copy of the American Institute for Economic Research's latest Economic Education Bulletin, entitled "The Global Warming Debate: Science, Economics, and Policy." I didn't read the whole thing, but my favorite part was definitely when William R. Cotton, a professor of atmospheric science at Colorado State, closed his completely science-oriented essay, "Summary View of Climate Change," with:

There are strong indications that our global climate is warming. But the question is, is the warming due to anthropogenic greenhouse gases, or is it due to some other forcing mechanisms (or their transient absence) and natural variability. As human population on Earth continues to increase, the chances of human-induced changes in climate due to greenhouse gases, aerosol pollution, or alterations in land use become increasingly likely. Thus, rather than consider climate engineering, we should devise methods of encouraging the reduction of population growth through economic and quality-of-life incentives.

Period, end of conversation. No comment on that gem anywhere else in the entire essay. Who's got two thumbs and loves it? This guy.

But anyway, that's not the point. Later in the publication was an essay by Kenneth P. Green, a resident scholar at the American Enterprise Institute, where it was argued that a carbon tax is superior to a cap-and-trade system. I bounced between frustration, amusement, and glee as I read it, and felt an immediate need to comment. Not because Green did a bad job--he did just fine--but because he was guilty of something which is very common among people who discuss climate change: he discussed the possible "solutions" to climate change without addressing the reasons that a policy was to be implemented in the first place, and how the different solutions worked to address those reasons. His argument for a tax scheme over a cap-and-trade scheme was simply that a tax scheme could achieve the same goals, but with better economic side-effects and less potential for failure. Fine, I'll even grant it. But taxes and caps are fundamentally different policies, which only make even a little sense when confronted by specific sorts of problems.

I should explain what I mean. I've discussed elsewhere the idea that in order to make any sense from an ethical point of view, pollution taxes need to be based on the idea that an individual is justified in polluting if and only if she pays compensation to her victims for any damage done to them. That idea is controversial, but for our purposes we don't need to address that controversy. The point is only that even if we accept that idea as true, there are still only certain kinds of instances in which the injustice of pollution can legitimately be dealt with through a tax on pollution. The paradigm cases are those instances in which the damage caused by pollution is directly proportional to the amount of pollution that there is, so that the tax becomes the "price" of compensating the victims of one's actions for the costs one imposes upon them.

Cap and trade schemes, on the other hand, are built for an entirely different kind of problem. In a paradigm cap and trade situation, there is a threshold level of pollution with which policymakers are concerned, and at the threshold, a certain amount of damage is anticipated. The cap and trade scheme accordingly sets the cap at the relevant amount of pollution, and then distributes "shares" of the "environmental space" below that threshold in some way (e.g., auction, grandfathering system...). Because the allocations may be economically inefficient for whatever reason, the shares can then be traded in accordance with the wishes of their owners in order to ensure that the right to pollute is distributed to those individuals who are willing to pay the most for it (note that the normal objections to the "willingness to pay" criterion are avoided by passing the buck to the distribution process, which of course must be justified separately).

The point I want to make here is that global climate change is a very different phenomenon than the sorts of phenomena for which either of these policies is built to provide a solution. As noted elsewhere, climate change is an emergent problem. That is, climate change is not the result of any individual's actions, but rather is the consequence of many individuals acting separately, so that no individual can reasonably be said to have been able to prevent climate change from occurring, and no individual could have caused climate change singlehandedly. Accordingly, it does not make sense to talk about the consequences of climate change in terms of marginal contributions. The amount of damage caused by climate change will not likely change recognizeably with an additional increment of CO2 (or any other forcing agent), so it's not reasonable to try to put a price on how much damage "a unit of climate forcing" (expressed, perhaps, in terms of GWP, or Global Warming Potential, as defined by the IPCC?) causes.

A tax on contributions to climate change, therefore, seems like a policy which would require a bit of shoehorning. Individuals paying the tax would not be paying the "social cost" of their particular contribution, taken in isolation, because that would be basically zero. They would need to be charged for their "portion" of the total amount of damage done by climate change. So what policymakers would need to do would be to determine the total amount of damage which would be done at the equilibrium price for pollution permits, and then sell the permits at that price. The problem then becomes one of economic calculation. It could be done to some degree, but it would be inherently imprecise. And remember: the end result needs to be that the victims get compensated, so the government would have to go into its own pockets (that is to say, the pockets of its treasury or, more realistically, the pockets of its Federal Reserve printing press) to take care of the balance if it aimed low. And as my wonderful economist friends would point out, there would be a considerable incentive to aim high, creating a surplus revenue stream for the government which would almost certainly not be returned. So the tax is doable, kind of, but the problem is not the kind of thing that the tax is designed for. It's just that you can use the tax to accomplish the end goal if you want.

The cap and trade system is a little harder to adapt to the task, but there are a number of ways that the idea can be useful. First, there is a level to which we could collectively exert a forcing on the climate system without producing objectionable consequences. This level of climate forcing is a threshold which could be amenable to a soft cap and trade scheme (soft like the baseball salary cap). In this kind of policy, the cap would be set at the level of forcing which would produce no negative consequences, and this "environmental space" would be allocated somehow (or, if people find this to be a bad idea, we would simply say that these shares should be allocated in proportion to one's contribution to climate change, so that the soft cap has no effect). People not receiving these shares, or polluting in excess of their shares, would be filling environmental space which represented something like "harmful social emissions". Because these emissions would not be legitimated by the soft cap, they would be the ones which would be subject to the obligation to compensate the victims (again, if the soft cap isn't being used, as mentioned above, it would just be that everyone would have to participate in compensating the victims).

Here a potential for another cap would become apparent: We might imagine that policymakers would decide on a level of pollution (corresponding to some amount of total damage) which was determined to be "socially desirable" somehow. Perhaps, using the same reasoning involved in the tax scheme discussed above, the policymakers would arrive at the level of pollution which would clear the market if everyone paid some price for it. Or perhaps the policymakers would identify a level of pollution beyond which unacceptable results would occur, and the cap would be set there. In any case, you would then have to set a cap and allocate the shares. So again, the policy could be made to work. But the problems are simply that it's difficult to identify a level of "unacceptable" pollution, it's just as difficult to identify a market clearing price in this scheme as it is with the tax (assuming that the shares are auctioned, of course), and any other way of running the scheme is sure to carry either difficulties of its own, or charges of arbitrariness which would sever the connection between the problem and the solution.

So ultimately, what we're faced with is a situation in which the only two policy suggestions that are on the table are not particularly well suited to the task of "solving" the problems arising from climate change (and I haven't even begun to address the question of how the compensation process would even work, or whether compensation could make climate change legitimate!), and the only way to make either of them work is to basically stretch and contort them until they are made to do the job acceptably. Doing so, it will be noted, requires in both cases that government decision-makers possess knowledge and foresight which they almost certainly do not have, and even then it's unclear that the policies would work properly.

Obviously, there's a lot more to say about this. I just wanted to get some preliminary thoughts down, and I think this was a good start.

Is There a Right to Culture?

Donny with an A — Thu, 03 Apr 2008 20:52:00 GMT

[Cross-posted on the parent blog]

Last week I had a conversation with my thesis advisor, Dr. Harry Brighouse, in which we discussed an interesting idea which I think might prove important in one way or another, and which I think is worthy of elaboration here. The idea was that a big part of what people are concerned about in discussing climate change is that members of certain social groups will be deprived of the opportunity to integrate themselves into the societies in which they were raised, as a result of changes in the physical context in which those societies were able to flourish.

To illustrate, we might travel to Bangladesh several decades in the future. In my imaginary scenario, sea levels are rising around the low-lying country, and the property of the locals is suffering considerable damage. However, because I am the master of this imaginary scenario, I'll stipulate that we have fully compensated all of these property owners for the damage done to them (regardless of whether or not they would actually be entitled to this compensation). So everyone whose property is damaged by climate change is fine.

But imagine that there is a child, Nadia, who has grown up in Bangladesh and is beginning to plan a life for herself. Perhaps it would be possible for Nadia to live in Bangladesh, but with the environmental damage being done to the area, perhaps it would be unfeasible for her to do so. It's not that she has such great opportunities elsewhere, but rather that the prospect of living a good life in Bangladesh looks bleak. Accordingly, the best choice for Nadia and her peers might be to assimilate into another culture which would offer a more promising future. Would Nadia have been deprived of something to which she was entitled?

We have stipulated that Nadia owned no property which was damaged, or that if she did, she was fully compensated for it. Further, we have stipulated that Nadia had not yet even chosen a profession, or settled down anywhere. She was simply deciding what she wanted for her life, and she saw that Bangladesh offered scarce opportunities for the kind of future she envisioned for herself. Given the way we normally think about rights violations, it doesn't seem like we have wronged Nadia in any real way.

But at the same time, I can see why Nadia would offer an objection. She might say that as a Bangladeshi, she would have wanted to be integrated into Bangladeshi society. Now, as a result of the effects of climate change, it will be extremely difficult for her to make that happen. Nadia's claim, then, would seem to be that she had some kind of right which is infringed by other people making it difficult or impossible for her to become a part of the culture of her upbringing. And it does seem like a good portion of the concern aimed at climate change is directed at the idea that we would be infringing this kind of right by contributing to a state of affairs in which Nadia is forced to find a way of life which does not reflect her native culture.

It's easy to sympathize with Nadia, and see how she would be frustrated by the state of affairs in which she finds herself. But does Nadia have any right like this? Do we act impermissibly when we put Nadia in this position?

In a previous post, I discussed the possibility that in cases involving inheritances, the would-be inheritors of some valuable object might claim injustice if that object were damaged or destroyed, even if the person or people who owned that object at the time of its destruction were compensated. I said that while I understood why someone might see things that way, it would seem to go very much against the way we normally think about property rights, and I wasn't sure I could defend the position. However, I didn't think that the problem could be dismissed as easily as that, because there was something intuitively reasonable about the objection. But I'm not dealing with that issue here.

In our story, Nadia isn't inheriting any property. Therefore, we avoid all of the problems associated with Akiko's case in the other post. Here, we're dealing with a particular right not to an object, but to a kind of opportunity which is being denied to Nadia. Namely, the opportunity to become a member of the culture.

But in spite of the differences between Nadia's case and Akiko's case, I want to reintroduce an example I used in the previous post:

...we might point out that the above case sounds a lot like a story where an agrarian community is "destroyed" by industrialization and mass production. Small scale family farms can't keep up with the low prices generated by the advanced practices of a local agribusiness concern, and can no longer support their old way of life. It's a sad story, but we wouldn't want to claim that any injustice has occurred. Perhaps as a society, we would want to help these farmers get back on their feet and find a new place in the market. But we wouldn't want to blame the agribusiness for doing something wrong.

It seems to me that if I were the offspring of one of the small scale farmers, I might feel frustration towards the agribusiness, but I would have no legitimate claim against them. So if we're going to attribute to Nadia the kind of right we're talking about here, we need to give some reason for thinking that Nadia's situation is fundamentally different from the industrialization case. In the earlier post, I pointed out that the small scale farmers' frustration is the result of relying on something which they never had any right to: the support of their customers. But the source of Nadia's frustration is less clear.

We might say that Nadia simply wants to be offerred an appealing job in the location in which she wants to work, and a place to live which matches what she hoped for. If we phrase Nadia's frustration this way, then it is clear that she has no right to these things, as they too require something of others. But this seems unfair to Nadia's case.

It seems to me that Nadia's objection is more holistic in nature. She sees her cultural community as a distinct entity, to which we could coherently apply the concepts of stability and integrity. When healthy and vital, that community would provide her with a range of opportunities to try to make a life for herself without any active facilitation by any members of the community. Certainly she could choose to pursue other opportunities, and this would not be a problem for anyone. But the option would be available to her if she wanted it. By causing climate change, we degrade Nadia's community, and diminish her opportunities. Nadia's objection seems to be that the degradation of her community, which is the result of the actions of those who contributed to climate change, represents a wrong done to her.

This is an interesting idea, but is not one which I know how to handle. I think it would be best to take some time to digest it. So having set up this discussion, I'll leave settling it for another time.

Climate Change, Vanishing Lifestyles, and Children

Donny with an A — Wed, 26 Mar 2008 00:56:00 GMT

[Cross-posted on the parent blog]

So in a previous post, I discussed a case in which rising sea levels, resulting from a warming of the Earth, caused the salinization of a Bangladeshi farmer's land, so that he could no longer grow rice on it in the way to which he was accustomed. I concluded that as the owner of the land, with full property rights, he should be entitled to compensation for any damage done to him by those contributing to climate change. And it seems like this could be extended to any member of the contributors' generation who were harmed by climate change.

But costs associated with climate change will not only be incurred by individuals who are alive now, they will be realized by future people as well. The nature of the cost to future people, however, is less clear than the nature of the costs to existing people. This post will explore a sort of impact which seems to be central to people's concern about climate change, but which is difficult to deal with in the framework of human rights. Namely, many communities will be impacted in a way that makes it difficult for them to continue their cultural existence, making it necessary for the children of those cultures to find fundamentally different ways of living.

For example, indigenous communities in Africa will see progressively more significant alterations to their natural setting as the climate continues to change. Plants and animals which were once prevalent in the region will no longer be fit for survival there, and new species will move in. Knowledge developed over centuries will no longer be effective. Being ill adapted for life in a fundamentally different climate, it is conceivable that these communities will be unable to survive in the manner in which they have for countless generations. They would have to find a new way to live.

What do we say about this? It is clear that a great number of people are concerned about precisely this sort of problem, and cite it as a reason to be worried about climate change. But does it tell a story of injustice? Many people's intuitions say yes.

However, we might point out that the above case sounds a lot like a story where an agrarian community is "destroyed" by industrialization and mass production. Small scale family farms can't keep up with the low prices generated by the advanced practices of a local agribusiness concern, and can no longer support their old way of life. It's a sad story, but we wouldn't want to claim that any injustice has occurred. Perhaps as a society, we would want to help these farmers get back on their feet and find a new place in the market. But we wouldn't want to blame the agribusiness for doing something wrong.

If there is no wrongdoing in the industrialization case, where communities might be unable to sustain their old lifestyles as the result of the actions of others, then can we consistently hold that there is injustice being done to indigenous people by climate change? Or are we simply setting indigenous communities on a pedestal because they're different and mysterious, and we somehow think that by being so unusual, these individuals come to have different rights than the rest of us?

It seems to me that there is a critical difference between the destruction of the indigenous community caused by climate change and the destruction of the agrarian community caused by industrialization. In the industrialization case, it's not as if the agribusiness made it impossible for the family farmers to continue farming. Rather, the problem arises because the family farmers were depending on the support of their customers in order to sustain themselves. Given that their customers had the right to remove their support at any time, it should be clear that the farmers were depending on others making choices which they could permissibly not make, or stop making at any time. The agribusiness, with its greater efficiency, could offer much lower prices than the family farmers, and their customers decided to withdraw their support, as was their right. It should be clear that in our story, the agribusiness never did anything to the family farmers. It simply revealed the fact that the family farmers could only continue to sustain themselves in their traditional manner if their customers continued to voluntarily purchase their products. The family farmers never had any right to that support, and so when it was withdrawn, no right was violated.

On the other hand, it doesn't seem like the indigenous communities in question depend on anyone for their continued survival. They require only that their environments not be modified so as to make them incompatible with their lifestyles. And as far as these indigenous communities have been making use of their environments for centuries, it seems fair to say that they have some legitimate claim to their not being negatively affected by the actions of other people.

I suspect that if we told the agrarian story in a way that matched the indigenous story, our intuitions would tell us that we were dealing with a rights violation. For example, let's say an agrarian community depended on an underground stream to bring water to the region with which to grow crops. Now imagine that someone diverted the flow of water through the area so that the community's land ran dry. Surely we would say that the diversion of the water flow represented a wrong done to the farmers, right?

In the same way, it seems that changing the climate in a way that would negatively impact indigenous peoples' ability to continue living in their traditional manner would be unjust. But this is not new ground. This conclusion is pretty much the same as the one I reached in my post about the Bangladeshi farmer and the rising sea levels. I want to go one step further here.

As I mentioned before, the intuition that people have about this sort of case is not simply that our alteration of the climate is wrong because it harms currently existing indigenous peoples' ability to live in the manner to which they are accustomed. The problem is also that their children will be unable to live in that manner. That is, the issue is not just what happens to the people whose lives are made difficult by climate change, but also what happens to the people who will be unable to live in the traditional manner dictated by their culture, and what consequently happens to the culture itself.

In order to isolate these factors from the harm done to the currently existing indigenous individuals, we might imagine that these individuals have been fully compensated for the damage done to them as individuals. This compensation not only takes into account the damage to their property, but also the damage to their character and psyche; the currently existing indigenous individuals recognize they were wronged, but acknowledge that they have been compensated adequately for all that they personally have endured.

Now we might imagine that one of these indigenous individuals has a child, Akiko. Akiko is raised in the indigenous culture, but sees that she will be unable to support herself in the traditional way. She will need to live a fundamentally different lifestyle from that of her people in order to survive. If we are to sustain that climate change will result in injustice to people like Akiko, then we must say that Akiko is wronged by having to find a way of life which differs from her culture's traditions.

At first glance, this might seem absurd. I grew up in Westport, CT; do I have the right to a house there? I have a friend who comes from a family of doctors; does he have the right to be one too? Surely we don't want to say that people have a right to live like the people who brought them up lived. We must find some other way to explain what is wrong with Akiko's situation if we are to be taken seriously.

A clue can be found in the fact that just like in the example with the agribusiness and the family farmers, my demands about a house in Westport and my friend's demands for a doctor job require things of others. Given that I have no right to anything from these people, it seems ridiculous to suggest that I am wronged if they do not provide me with something. I do have the right to try to buy a house in Westport, and my friend has the right to try to be a doctor. But given that having a house or being a doctor require the voluntary consent of others (in my case, the consent of the house's previous owner; in my friends case, the consent of the hiring institution and of the customers who choose to purchase his services), we cannot have the right to these things.

Akiko's demands would also be rooted in her getting others' consent. That is, she does not own her people's land; the older members of her culture do. But the kind of consent Akiko requires is very different from the kind of consent I would need in order to get a house, in that Akiko has that consent. Akiko's people, we presume, would gladly allow Akiko to use, and even to own, the group's land. In the absence of climate change, Akiko would be able to support herself in the traditional way using nothing but this land. But because of the effects of climate change, the land will not be able to support her in the traditional way. The substance of Akiko's complaint, then, might seem to be that she should have inherited enough resources to sustain herself, but that climate change diminished those resources to make it impossible for her to use them in the way her culture would have suggested.

This leads us to an interesting idea. Remember, we have said that the current owners of the land were fully compensated for all of the damage done to them by the effects of climate change on their land. Akiko's complaint is that there is a gap between what she should have inherited and what she actually did inherit. In order to satisfy Akiko (if we have interpreted her complaint correctly), we would need to take the view that by damaging the indigenous people's land, we not only wronged those people, but also the people who stood to inherit the land later. The "damage done" would be the damage done to the current owners, as well as the "damage" done to the future owners who "should have" inherited the land in its original condition, but instead inherited it in a damaged and less useful state. Accordingly, Akiko too would be entitled to compensation.

Of course, from Akiko's standpoint, this seems like it would be a fair solution. Because climate change destroyed her people's ability to live off the land, every generation of people in her community would be compensated for the damage done to the land. I'm not sure if this would actually be right, though. It seems to go completely against the way we normally think about damage and liability. I'd like to think about this some more, but I think this was a good place to start.

Climate Change and Market Definition of Property Rights

Donny with an A — Tue, 25 Mar 2008 06:35:00 GMT

[Cross-posted on the parent blog]

A fellow named Gregory responded to my post, "Can the Free Market Solve the Problems Posed by Climate Change?" with an argument which I think deserves to be discussed in some depth. Gregory wrote:

If the market has not arrived at an efficient means regulating itself (compensating those damaged) then a government certainly will not be able to affect such a regulation efficiently. The cost of the regulation must be weighed against the benefit it provides. If economic growth is retarded by inefficient regulations, do we not harm future generations more than by waiting for the market to develop a mechanism to efficiently distribute justice?

Gregory highlights the fact that the market has not yet developed an efficient way to enforce the property rights involved in discussions of climate change. I agree that on some level, to indict the free market for this fact would be problematic. In his essay, "Market-Based Environmentalism and the Free Market: They're Not the Same," Roy Cordato wrote

...environmental problems are not an unavoidable side effect of a free-market economy. Instead, they occur because the institution setting--the property rights structure--required for the operation of a free market is not fully in place. Because, in all modern societies, government has taken nearly complete responsibility for the establishment and maintenance of this institutional setting, environmental problems are more appropriately viewed as manifestations of government failure, not market failure.

Mark Pennington bolsters this view in his essay, "Liberty, Markets, and Environmental Values: A Hayekian Defense of Free-Market Environmentalism," when he writes, "Transaction costs are not the sole preserve of the market system...and we commit the "nirvana fallacy" if we suggest the alternative to an imperfect market is a government immune from the same sort of problems."

I completely agree with these two authors, and Gregory, in saying that ill-defined and unenforced property rights are at the root of most (if not all, depending on your definition of "property rights") of the problems associated with climate change.

Further, I agree that the free market can solve some of the inadequacies in the process of enforcing justice, but often only if allowed to work without interference. Pennington writes:

Although proponents of free-market environmentalism recognize that environmental markets have limits owing to the prevalence of transaction costs, they contend that these problems are more like to be overcome within an institutional framework supportive of private contractual arrangements. In this perspective, all environmental externalities represent potential profit opportunities for entrepreneurs who can devise ways of defining private-property rights and arranging contracts (via technological innovations, for example) so that those currently free riding on collective goods or imposing negative external effects (for example, water pollution) on their neighbors are required to bear the full costs of their actions.

That being said, I do think that we oversimplify if we simply suppose that the market will find a way to handle the problem in an acceptable manner, and leave it at that. In issues of justice, the "There are many ways to skin a cat" approach taken by the free market might not be acceptable. Improper conceptions of property rights are not simply inefficient, they are unjust. In his speech, "Another Take on Free Market Environmentalism: A Friendly Critique," David Roodman highlighted this idea when he said:

Fine, I own my car. And you own your lungs. Property rights are allocated, seemingly. So now can we reach happy agreement about how to resolve the conflict? Fat chance. More likely, thousands of drivers and breathers will end up suing each other and then the problem will end up in the lap of the court, which would have to decide precisely where the right to free enjoyment of one's car stops and the right to free enjoyment of one's lungs starts.

Later, he quipped, "Judges did not free the slaves; in fact, they tightened the bondage."

I don't mean to imply that libertarian judges would be unable to come up with a decent solution. I'm only suggesting that the answer might not be as simple as Rothbard made it sound when he wrote, in chapter 13 of his Egalitarianism as a Revolt Against Human Nature:

...it would not be a very difficult task for Libertarian lawyers and jurists to arrive at a rational and objective code of libertarian legal principles and procedures based on the axiom of defense of person and property, and consequently of no coercion to be used against anyone who is not a proven and convicted invader of such person and property. This code would then be followed and applied to specific cases by privately-competitive and free-market courts, all of whom would be pledged to abide by the code, and who would be employed on the market proportionately as the quality of their service satisfies the consumers of their product.

The problem, in addition to the simple fact that this could be difficult to do, is that this group of Libertarian lawyers and jurists would need to arrive at decisions somehow. Either they could do so in accordance with majority opinion or some other procedural way, or (as I suspect Rothbard is aiming at) they could do so in accordance with the true principles of justice. If the former were the case, then I see no reason why we would call the result "rational and objective." And if the latter, then we should be able to replicate the activities of these lawyers and jurists on our own. But as those who have been keeping up with my work have undoubtedly seen, the task is not quite as simple as Rothbard makes it sound.

One approach would be to take a somewhat left-libertarian angle and say that climate change represents injustice due to an over-enclosure of the atmospheric commons. Edwin Dolan took this approach in his essay, "Science, Public Policy, and Global Warming: Rethinking the Market Liberal Perspective." Dolan wrote:

Liberalism in America, in particular, grew up in a Lockean state of nature where it was really true, or at least seemed true, that homesteaders, loggers, grazers, and industrialists could take what they needed while leaving "enough and as good for others." What the environmentalist side of the global warming debate is telling us is that we no longer live in such a world.

Because those responsible for climate change have, according to Dolan, taken more than their fair share, they must be subject to the demands of justice. He insists, "Defending the rights of property that has been unjustly acquired is a conservative position, not a liberal one."

But this approach has its difficulties. One problem is the fact that the atmospheric CO2 sink is not really a limited resource. The problem is not that "...the atmospheric commons - namely, the Earth's carbon absorbing capacity - are finite and depletable," as Tariq Banuri and Erika Spanger-Siegfried characterized it in their essay "Equity and the Clean Development Mechanism: Equity, Additionality, Supplementarity." As far as we're concerned (though technically this isn't true), we can dump as much CO2 into the atmosphere as we want. It's not like one day we'll light a fire and the CO2 won't go into the atmosphere. The thing that's available in limited quantities is the atmosphere's capacity to absorb CO2 without causing any harm.

In light of this fact, the right way to allocate the resource in question is somewhat unclear. In a world in which we do exceed the total CO2 emissions we could release without causing objectionable climate change, what is the real significance of the amount of CO2 which we could have emitted without causing harm? This, I think, is a problem which reflects the fact that climate change is an emergent problem, and is therefore sort of different from other problems we normally face.

Of course, even if we figure out the significance of this "harmless sink capacity," there still remains a boatload of work to do in order to determine exactly who is responsible for what emissions, what rights are violated by climate change, whether non-rights-violating actions can be justly interfered with, what exactly we should hold people accountable for, who should bear what burdens, what accountability entails, what our accountabilities to future people are and how they should be enforced, and how we should administer all of this (I'm sure I'm leaving stuff out). Never mind the scientific uncertainty plaguing every step of the process.

At the end of the day, we can talk all we want about the market figuring out the answers to climate change through incentives for the enforcement of justice, but someone's going to have to figure this stuff out. If it can be done, hopefully I'll be able to figure out how, or at least set the process in motion for other people. I really hope that answers your question somehow!

Can the Free Market Solve the Problems Posed by Climate Change?

Donny with an A — Thu, 20 Mar 2008 22:22:00 GMT

[Cross-posted on the parent blog]

When confronted by the possibility of climate change, many libertarians default to the position that the free market, with its ability to mobilize the ingenuity of the economy for the satisfaction of the desires of the people, will provide the solutions we desire. I want to discuss this view, because I think it is the result of a mistaken understanding of the nature of the free market. For an example of this view, consider George Reisman's comments in his essay, "Environmentalism in the Light of Menger and Mises":

The appropriate answer to the environmentalists is that we will not sacrifice a hair of industrial civilization, and that if global warming and ozone depletion really are among its consequences, we will accept them and deal with them--by such reasonable means as employing more and better air conditioners and sun block, not by giving up our air conditioners, refrigerators, and automobiles.

In his essay, "Global Warming Is Not a Threat But the Environmentalist Response to It Is," Reisman elaborates:

...if global warming is a fact, the free citizens of an industrial civilization will have no great difficulty in coping with - that is, of course, if their ability to use energy and to produce is not crippled by the environmental movement and by government controls otherwise inspired.

He goes on to say that global warming

...would certainly not be too great a problem for tens and hundreds of millions of free, thinking individuals living under capitalism to solve. It would be solved by means of each individual being free to decide how best to cope with the particular aspects of global warming that affected him.

Reisman makes an important point. When it comes to allocating resources efficiently, the free market is unparalleled in its effectiveness. In his essay, "The Use of Knowledge in Society," Hayek explained:

...knowledge of the circumstances...never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all...separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources--if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality.

Hayek points out that

...there is...a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation.

He concludes:

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization.

This decentralization is the free market. Hayek explains that

...in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.

And indeed, it's been demonstrated in practically every instance that the free market has the capacity to satisfy the wants of the population better than centrally organized alternatives. So I think Reisman is largely right in saying that when it comes to adapting to new problems, the market does do great work.

But when we talk about the free market, we generally have two things in mind. The first, which Reisman focuses on, is a system in which property titles are traded voluntarily in a mutually beneficial way, resulting in a continuous progression towards a more efficient allocation of resources. But the second, which underpins the first, is a system in which rights are enforced, so that individuals who infringe on the rights of others are punished, and those whose rights are infringed are compensated for the harm they suffer. It is my contention the Reisman's argument breaks down by completely brushing off this second feature of the market.

Imagine if we were trying to discuss the proper social response to a particular theft. It might be true that of all social systems, a victim of theft would be best equipped for dealing with her loss in a capitalistic free market. She would not need to consult a central planning board in order to replace the things that were taken, and her higher purchasing power, enabled by her participation in a thriving market economy, would enable her to afford the replacement with comparative ease.

And yet we would obviously not be satisfied with this "solution." The reason is simple. The thief did something wrong, and therefore, the thief ought to be held responsible for fixing it, never mind that we should perhaps have tried to stop the theft from happening in the first place. Accordingly, by suggesting that we simply allow the free market to operate so that adaptation will be easier, Reisman is smuggling in the claim that we do nothing wrong to the victims of climate change.

This seems obviously contentious. The question should not be, as Reisman seems to want to make it, whether or not the free market is the best system for facilitating adaptation to changing conditions. The question is whether we do something unjust by contributing to climate change. To be fair, Reisman briefly addresses this issue, as I discussed here. But my point is that by glossing quickly over the issue of justice, many libertarians have completely missed the point. If the free market is to be relied on to provide a "solution" to climate change, it must be through a strict adherence to the principles of justice. If we simply ignore injustice, and define fairness in terms of mere participation in the market, then we cannot claim to be advocating libertarianism.