This isn't a new discovery ... can't be since we have it in our intro
textbooks ;^P
Still, worth being aware of if not already. I've intentionally included the
Rachel's info in case you chose to subscribe. ~ judie
. RACHEL'S ENVIRONMENT & HEALTH WEEKLY #628 .
. ---December 10, 1998--- .
. HEADLINES: .
. SUSTAINABLE DEVELOPMENT, PART 5: EMISSIONS TRADING .
. ========== .
. Environmental Research Foundation .
. P.O. Box 5036, Annapolis, MD 21403 .
. Fax (410) 263-8944; Internet: [EMAIL PROTECTED] .
. Subscriptions are free. To subscribe, E-mail the words .
. SUBSCRIBE RACHEL-WEEKLY YOUR NAME to: [EMAIL PROTECTED] .
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SUSTAINABLE DEVELOPMENT, PART 5: EMISSIONS TRADING
As we saw in Rachel's #625, there are 3 problems facing every
economy: resource allocation, fair distribution, and tolerable
size.
Resource allocation means deciding what the economy should make
-- more automobiles, more nursing homes, or more chocolate
truffles, for example. We can't make everything we might want, so
we must make choices. In the U.S. and other "market economies,"
allocation is handled mainly by "the market," meaning the system
of prices. Prices send signals to manufacturers to make more of
this and less of that, according to what people want and can
afford to pay for.
Fair distribution means just what the words say --distributing
the benefits of the economy with fairness and justice. The
market has no inherent ability to do this. Left alone, the
market will tend to make the rich richer and the poor poorer
until a small number of people ends up owning just about
everything. To achieve a fair distribution, people must make
political decisions about what's fair, and about how to achieve
their goal of fairness. One formula for fairness, endorsed by
economist Herman Daly, says that high-income people should only
make about 10 times as much as low-income people.[1] There are
precedents for such a limit in American society. Approximately
10-to-1 is the range of pay in federal civil service jobs, and in
our military. A general makes about 10 times as much as a
private. A 10-to-one ratio allows hard-working, ambitious people
to earn 10 times as much as people who prefer to take it easy and
enjoy life. (And fixing the relationship between the bottom and
the top would give the high-income people an incentive to favor
raising the incomes of the low-income people because it would be
the only way the high-income folks could increase their own
income without violating the 10-to-1 rule.) The way to achieve a
fair distribution (once you've decided what's fair) is
conceptually simple: transfer payments. Tax the haves and
transfer the money into the hands of the have-nots. Transfer
payments can take various forms --you could simply write checks
to the have-nots, or you could provide jobs that pay wages, for
example.
The third problem --how large should the total human economy be
--has never been considered a problem until very recently
(although British economist John Stuart Mill did write about it
in 1857). Until very recently, the world looked as if it could
support an endless expansion of the human economy. But in recent
decades, signs of serious trouble have emerged. In particular,
it has become apparent that the world is running out of (or, more
accurately, already has run out of) the capacity to absorb
industrial wastes safely. The buildup of carbon dioxide and
chlorofluorocarbons (CFCs) in the atmosphere, and mercury in
fish, are three examples of this problem. It is now apparent
that there is some optimum size for the human economy --a size
that will provide a sufficient quantity of goods (sufficient to
allow "the good life"[2]) for the greatest number of people,
world without end. If the economy grows beyond that optimum
size, it will begin to produce bads (such as toxic fish) faster
than it produces goods, and we (and future humans) will be
deprived of some of the benefits we enjoy today. There is a good
chance that the total human economy has already exceeded the
optimum size and that further growth in throughput will do more
harm than good. ("Throughput" means materials and energy flowing
through the economy --people making more stuff and using energy
to do it.)
The size of the economy has never been considered a problem for
two main reasons: 1) until recently, the world has always seemed
nearly empty from a human viewpoint; and 2) even when the size of
the economy began to cause obvious problems, people did their
best to ignore the signs, to avoid facing uncomfortable choices.
An end to growth is literally unthinkable for most people
--especially for Americans --because growth has always been our
main method for achieving a fair distribution. We have always
been able to argue that poor people would be better off next year
because their slim piece of the pie would grow a bit larger as
the total pie expanded. Thus we have advocated more growth
instead of confronting the question of a fair distribution of
benefits. In other words, throughout our history we have
substituted growth for politics. Once growth is removed as our
all-purpose problem-solver, we will have to face squarely the
problem of fair distribution. This is very likely to cause
serious disagreements and perhaps even strife. It could get
ugly.
As we (in the industrialized world) think about ways to make the
transition from our present economy to a steady-state economy in
which throughput is no longer growing, a necessary step is to
become more efficient. Efficiency is politically acceptable to
nearly everyone. Efficiency means cutting waste, learning to do
more with less. Who could be against that? For a time, improved
efficiency can give us the same benefits that we used to get from
real growth.
So how do we cut waste for the least cost? Most economists favor
a system called "tradeable pollution permits" also known as
"emissions trading." As we will see, many (but not all)
environmentalists oppose tradeable pollution permits. Most
economists, including Herman Daly, favor them.[3] However, Daly
favors them for reasons that are different from the reasons given
by most economists.
Tradeable pollution permits are a simple idea. First you decide
how much total waste (pollution) to allow in an area. Second you
create "rights to pollute" which, taken together, add up to the
desired total pollution, and you establish initial ownership of
those rights. The third step is where the market comes in. Some
people (or corporations) can reduce pollution more cheaply than
others. Those for whom reduction is cheap will proceed, thus
freeing up some number of unused "rights to pollute." Those
rights can then be purchased by firms for whom genuine reduction
would be expensive. This scheme promises to provide society with
the desired level of total waste (pollution) at the least cost.
So far so good.
Herman Daly likes this plan for one main reason: the process of
issuing tradeable pollution requires society to confront each of
the three economic problems separately: sensible allocation,
fair distribution, tolerable size.
The problem of tolerable size must be confronted first: how much
total pollution is tolerable? The market has nothing to say
about this question. It is a political question. How many sick
people is acceptable? How much crop damage caused by air
pollution is OK? How many mercury-poisoned fish will we
tolerate?
Once that question is settled, then we move to the matter of fair
distribution. How should initial ownership of "rights to
pollute" be distributed? What is fair? Here again, the market
provides no help. This is strictly a political question that
citizens must decide among themselves, based on ethics.
Should polluters automatically receive the right to pollute at
their current level? This rewards polluters by freely giving
them a public good (the capacity of the ecosystem to absorb
wastes). Furthermore, it provides the biggest rewards to the
biggest polluters. This hardly seems fair. (This is the system
that Congress, with help from the Environmental Defense Fund [a
mainstream environmental organization], wrote into the Clean Air
Act, and this is the system that the U.S. government favors in
negotiations over the Kyoto agreement on global warming.)
Another way to distribute pollution rights would be to declare
them, collectively, a public good and auction them off to the
highest bidder. This has the disadvantage of favoring the
wealthy (many of whom made their fortunes by polluting). This
doesn't seem completely fair either.
A third way to distribute pollution rights initially would be to
give a small pollution right to each citizen in the affected
area. Citizens could then dispose of their personal right any
way they wanted --they could sell it to a polluter who could use
it, or they could retire their right and thus provide a little
cleanup.
After the political problems have been solved (establishing the
total pollution desired, and making a fair distribution of
initial pollution rights), then the market can handle the problem
of allocating pollution in the most economically efficient manner
(as firms and individuals buy and sell each other's rights
according to their circumstances). At least that's the theory.
On paper it looks good and Herman Daly is right: tradeable
pollution permits expose three separate economic questions to
public scrutiny, in the process revealing that the market has a
relatively minor role to play in the overall scheme. The
political questions are much larger and more difficult than the
question of buying and selling pollution rights, and the market
has nothing to do with them.
In actual practice, however, tradeable pollution permits have
proven to be a very unfair way to allocate pollution,[4] and
there is evidence that they do not always reduce pollution. In
some instances, they may actually increase it.[5]
Here are some obvious problems with pollution trading schemes in
actual practice:
** Emissions trading moves pollution from one location to
another. In practice, this often means dumping more pollution on
the poor and on people of color.
** Setting the total desired amount of pollution assumes that
risk assessors can determine how much pollution is "safe" for
humans and for the ecosystem. Risk assessors have a notoriously
poor track record of making such estimates.
** Pollution trading requires careful monitoring and accounting
of who is emitting what. Governments, including the U.S. federal
government, typically rely on self-reporting by the polluters
themselves, who have a large monetary incentive to issue false
reports.[4] Internationally, there are no government agencies
capable of accurately monitoring thousands or millions of
polluters. Monitoring by citizens would appear to be the only
practical solution to this problem, but no examples of such a
system exist on a large scale.
** Emissions trading will complicate a permit enforcement system
that already does not work. Until government can show that it
can monitor and enforce limits, emissions trading should not be
implemented.
** An emissions trading system has no inherent, built-in
incentives to reduce pollution. Unless the system requires an
annual decrease in the total pollution allowed, emissions trading
will simply lock in today's pollution levels. Polluters need a
constant incentive to reduce their discharges toward zero, but
emissions trading inherently offers no such incentives.
** In accord with the principle that the polluter should pay,
polluters should be required to absorb the costs of the entire
pollution control system. Present systems give away the store to
the polluters.[6]
--Peter Montague
(National Writers Union, UAW Local 1981/AFL-CIO)
===============
[1] Herman E. Daly, BEYOND GROWTH (Boston: Beacon Press, 1996).
ISBN 0-8070-4708-2. See pages 202-203.
[2] Daly (cited above in note 1) never precisely defines the
"good life" but on pg. 14 he says, "...most would agree with
[British economist Thomas] Malthus that it should be such as to
permit one to have a glass of wine and a piece of meat with one's
dinner. Even if one is a teetotaler or a vegetarian that level
of affluence is desirable, and would serve by itself to rule out
populations at or above today's level. What really must be
stabilized is total consumption, which of course is population
times per capita consumption. Both of the latter factors must be
reduced."
[3] Daly, cited above in note 1, chapter 2.
[4] Michael Belliveau, "Smoke and Mirrors: Will Global Pollution
Trading Save the Climate or Promote Injustice and Fraud?"
available at
www.corpwatch.org/trac/feature/climate/pollution/belliveau.html.
And see Michael Belliveau, "Trading Places --Lethal Lessons from
Los Angeles," and "Beltway Bandits --Pollution Trading as
National Policy," at
www.corpwatch.org/trac/feature/climate/pollution/box.html.
Michael Belliveau directs Just Economics for Environmental
Health, P.O. Box 806, Montara, California 84037; telephone (650)
728-5728.
[5] Arjun Makhijani, "A Gamble on Global Warming," WASHINGTON
POST November 3, 1998, pg. A17. Arjun Makjijani is president of
the Institute for Energy and Environmental Research, Suite 204,
6935 Laurel Avenue, Takoma Park, MD 20912; telephone (301)
270-5500. Dr. Makhijani describes a situation in India in which
a pollution permit program might increase, not decrease,
pollution.
[6] Our thanks to David Zwick, the director of Clean Water
Action, for sharing an insightful internal memo titled "Pollution
Trading" that he co-authored with Paul Schwartz, in October,
1998.
Descriptor terms: pollution trading; emissions trading;
tradeable pollution permits; edf; economy; herman daly;
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