Environment & Climate Change

Robert Stavins argues for an economic approach to solving environmental problems and explains why "environmental economics" is not an oxymoron.

"...[C]limate change is essentially unobservable by the public. On a daily basis, we observe the weather, not the climate. This makes it less likely that public opinion will force action the way it did 50 years ago when black smoke rose from industrial smokestacks, and chemicals and raw sewage were dumped untreated into rivers, famously causing one to catch fire."

The United States has considerable tax administration and cap-and-trade expertise that could highlight potentially successful carbon pricing approaches. Although this experience is not climate-related, the United States deploys an efficient and highly compliant excise tax system, and it could assist developing country efforts to build their own capacity to tax carbon. The United States also has long experience with cap-and-trade systems for criteria air pollutants, much of which is transferable to greenhouse-gas emissions trading.

"...[I]t remains true that cap-and-trade is still the most likely domestic policy approach for CO2 emissions reductions throughout the industrialised world, given the rather unattractive set of available alternative approaches.  This makes it important to think about the possibility of linking these national and regional cap-and-trade systems in the future.  Such linking occurs when the government that maintains one system allows regulated entities to use allowances or credits from other systems to meet compliance obligations."

The Kyoto Protocol establishes a very complex and ambitious regime, in architecture if not stringency. The problem is that relatively few states, representing only about a quarter of the world's emissions, have been willing to assume emission targets under Kyoto....The future of the Protocol thus seems doubtful at best. Even in the most optimistic scenario, a new round of emissions targets couldn't be agreed in time to prevent a legal gap between the first and second commitment periods. A possible middle ground would be to establish a transitional regime that would be political in nature, but that could evolve over time into a legally-binding regime.

The climate change talks in Cancun, Mexico, didn't solve all the world's climate problems. But they were hugely successful. Through the Cancun Agreements, 194 countries reached landmark consensus (even the US and China) to set emissions targets and limit global temperature increases.

With regard to developing a new international framework, developed countries should acknowledge how grave the consequences would be to easily give in to a Kyoto extension. Merely extending the Kyoto Protocol would surely delay mitigation actions on the part of developing countries and discourage the U.S. from making serious efforts to reduce its large energy consumption. In other words, no country should end up being a "climate-killer" in its attempts to avoid being called a "Kyoto-killer."

"It is often argued that if cap-and-trade is dead, enacting renewable or clean electricity standards is better than doing nothing at all about climate change. While that argument has some merit, since the risks of doing nothing are substantial, there is a real danger that enacting these standards will create the illusion that we have done something serious to address climate change. Worse yet, it could create a favored set of businesses that will oppose future adoption of more efficient, serious, broad-based policies — like cap-and-trade."