Sidepayments, Please

How do we get around this?

How do we make sure that in Copenhagen and beyond, everyone commits to CO2 reductions, to abate climate change as much as possible at all?

In the logic of this game, we have to pledge the net exporters sidepayments, extra rewards to accept the losses incurred by lower fuel prices. The redistributive effect of a global ETS would then be offset, and it would be individually as well as collectively rational for everyone to adopt CO2-reducing policies.

How would this work in practice? Within a cap-and-trade regime, the net-exporting countries could just be allocated a greater number of emission rights which they could then sell.

A personal Green Paradox. Southern California, Summer 2008.

Sidepayments to Whom?

Who are these countries?

First, a note of caution: determining who stands on which side of this game is not straightforward, and positions are actually continuous rather than dichotomous. They depend on the ratio of costs and benefits from abating climate change and carbon demand reductions, respectively.

For oil, some countries are obvious net importers: the Gulf States, Venezuela, Iran, Norway, Russia, Mexico, or arguably, China.

Many of these countries, particularly the rich ones, already blessed by nature, may not easily warrant further redistribution from an ethical point of view.

Oil extraction in the Niger Delta. Via Flickr, originally uploaded by Sven.

No Oil, No Development?

And yet, for many of these, the revenues raised from selling of oil are the one hope for economic development and prosperity. These countries will not easily accept a deal that would negate these opportunities.

In addition, foregoing an additional unit of CO2e may be much harder for transition economies, with their insatiable demand for fossil fuels, that are so direly needed at their stage of development, resting on heavy industry, manufacture, and a massive expansion of infrastructure (think China).

Oil is in fact a very unique substance. No other material readily available has such a high energy density. Sinn even argues that it is the very discovery of oil which enabled economic modernization, saving humanity from a Malthusian world of linearly constrained resources, always outstripped by geometric population growth.

Getting the Genie Back in the Bottle

Is oil then the only way to prosperity and modernity?

For all our sakes, we can only hope that it is not. This planet surely would not endure another development path fueled by exploitation and waste – that road that the industrialized world was free to choose, and has learned to take for granted.

But for the time being, and given the technologies we command today, we cannot exclude the developing world from the carbon-fueled growth that we have enjoyed. At the least, if we, the rich world, have already exhausted our ecosystem’s ability to absorb CO2 without damage, we have to compensate those, who have not enjoyed that privilege.

The Case for Per-Capita Emission Rights: It’s What’s Right, and What Will Work.

From this inequity alone, we believe, emerges a strong rationale for per-capita-emission rights. Particularly if complemented by intelligent development policy, per capita-emission rights could help to also tackle gross inequalities unrelated to global warming, but enabled, in part, by a carbon-fueled industrialization.

But per-capita emission rights may also be the one solution to solve the cooperation problem towards a universal emission reduction regime, much like a redistribution between net importers and exporters of fossil fuel. Ethically, a redistribution based on the inherent equality of human beings seems more justifiable than instrumentally rational redistributing resources to fossil fuel-rich societies, some of which are generally affluent, too (Saudi Arabia).

To see how per-capita emission rights may also help to largely solve the cooperation problem with oil-exporters, consider again the above list of countries. Of these, some of the largest also stand to potentially benefit from per-capita emission rights: China, Venezuela, South Africa, other African countries, Iran and possibly also Russia.

What remains is a small, and potentially negligible set of rich gulf states, whose carbon consumption may be deemed suciently negligible so as to create a de-facto demand cartel, powerful, fair and well-equipped to save the planet’s climate.

Let’s not forget to distribute the chips equally in Copenhagen. For a fair play. But also, to make everyone a winner.

You can download the entire expose here, also including references.