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Saturday, June 13, 2009

Climate Plans and Carbon Markets

Jeffrey Sachs says markets alone are not enough to solve the climate change problem, we also need strategic direction from "detailed and coherent" government plans:

Still Needed: A Climate Plan, by Jeffrey Sachs, Scientific American: There is a myth in America that markets, not plans, are the key to success. Markets will supposedly decide our climate future on their own once we institute cap-and-trade legislation to put a market price on carbon emissions. But this is silly: both markets and planning are essential in any successful large-scale undertaking, whether public or private. We need a detailed yet adaptable road map for action that goes far beyond cap and trade. ...

The administration’s climate negotiator has called cap and trade "the centerpiece" of the domestic climate program. A moment’s reflection shows why that cannot be right. Cap and trade will have little effect, for example, on whether the U.S. revives its nuclear power industry, as it should to meet climate objectives. A renaissance for nuclear will depend on regulations, public attitudes, liability laws, and both administration leadership and public education much more than on cap and trade, which would play at most a supporting role.

The potentially pivotal carbon capture and sequestration technology for use at coal-fired power plants will ... require several expensive demonstration projects, all of which will need political leadership, clear regulatory standards, public financing and the active engagement of geophysicists to monitor the projects. Cap and trade will be irrelevant until the new technology is tested in a variety of settings. The national emissions-reduction targets may prove to be easy or exceedingly tough, depending on the outcome of these crucial demonstration efforts.

The future of the automobile is similar. Cap and trade or higher gasoline taxes might help nudge consumers toward more fuel-efficient cars, but the advent of a national fleet of plug-in hybrid, fuel-cell-powered or all-electric vehicles will depend much more on a large-scale public-private development effort...

The administration has ... left legislative drafting to the Congress, which has so far resulted in an ungainly and nonstrategic 648-page draft bill that has everything possible loaded into it yet little strategic direction other than cap and trade. ... A crucial question is whether the U.S. government can produce a detailed and coherent plan. ... One major plus ... is that several Obama appointees on the climate change issue are world-class leaders in the field. That expertise will be needed. ...

The Economist says government plans and strategic direction are not enough to solve the climate change problem even when those plans are supported by laws and regulations, market forces must also be used to support those initiatives:

Seeing REDD in the Amazon, The Economist: Forests lock up a lot of carbon. Cutting them down accounts for around 20% of the world’s emissions of greenhouse gases. On paper, halting deforestation should be the simplest way to cut emissions. Achieving a similar reduction by building wind turbines or nuclear-power stations, or by mandating more fuel-efficient cars and buildings, would take years and cost billions. In practice, however, halting deforestation is hard... That is because it is difficult to align the interests of people who live in forests (now 20m in the Brazilian Amazon) with those of the rest of humanity.

The best way of doing so involves a mixture of two ideas: establishing clear property rights over land and paying its owners not to cut down trees. If these policies are to work anywhere, it will be in Brazil, which possesses 60% of the world’s greatest tropical forest. ...

Brazil ... has laws that restrict deforestation... The problem is enforcing those laws over a vast area where many of the inhabitants dislike the rules (see article). The first step is a proper land registry to confirm who owns what. ...

A law approved this month by Brazil’s Congress aspires to end this mess—but at a price. It would grant title to all landholdings up to 1,500 hectares (3,700 acres) occupied before 2005 in the Amazon,... and ban further land claims. The law entrenches injustice: it risks rewarding people who used violence to obtain land, including large landholders who occupy almost 90% of the area under discussion. Brazilian greens want to limit the measure to smaller plots, and to ban their resale for ten years. Yet that risks defeating the object. ...

Lay down that axe and you will get cash At the moment it makes economic sense to cut down trees..., sell the timber and turn the land into farms or ranches. So the second idea for saving forests lies in changing economic incentives by paying people not to chop down trees—an idea known ... as “reduction of emissions from deforestation and degradation” (REDD). Since many rich countries felled their forests as they developed it seems fair that they should pay some of the cost of this.

There are difficulties, though. One is that “avoided deforestation” is hard to define and quantify. Another, raised by officials in Europe who have chosen not to include REDD in the European carbon-trading scheme, is that the carbon market would be flooded with deforestation credits that will push down the price. Companies would then buy cheap credits and continue doing business as usual... Further tricky issues abound...

REDD schemes will require careful monitoring to ensure that forests really are left intact and that carbon credits for an area are not claimed more than once. Murky goings-on in Papua New Guinea, one of the leading advocates of REDD, highlight such worries (see article).

Even so, it is worth trying, simply because avoiding deforestation is so effective in slowing carbon emissions. So REDD deserves a place in the world climate treaty to be negotiated in Copenhagen in December... REDD schemes ... have a chance of working only if ... countries ... define forest land rights clearly. Brazil’s flawed attempt to do this is a step forward.

    Posted by on Saturday, June 13, 2009 at 01:51 PM in Economics, Environment, Market Failure, Regulation | Permalink  TrackBack (0)  Comments (10)

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