Now that all of the Western oil giants, in varying degrees, along with 61% of Republicans and, as we shall see, Wall Street (enthusiastically and for the wrong reasons) have accepted the fact that human activity is a major factor in global warming, one would think that the Republican Party would go along with its financiers and saner constituencies. But no, its leaders still characterize global warming as a “liberal fantasy” and its leading candidate for president has “yet to see the evidence.” Go figure. Eventually—hopefully sooner rather than later—they’ll have to come round, and that red herring can be laid to rest.
So too with the extent and consequences of global warming. No need for bar graphs and pie charts. Think instead of a bathtub filling with CO2, instead of water. (Metaphor thanks to John Sherman at MIT.) It’s a really big tub that tops out at about 900 billion tons of CO2, a figure that, expressed in atmospheric density, equals around 480 parts per million; or, in temperature, 2°C (3.6°F) above what it was in the early 1800s before the industrial revolution began.
Unfortunately, the bathtub has a tiny drain. That’s because the CO2 pouring in takes about 100 years to empty out. Right now the tub is over half full, the most it’s been in the last 650,000 years.
What about the spigot? It’s wide open, spewing out CO2 faster than any time in the last 1,300 years—so much that every year the level rises around 2%. At that pace, the tub will overflow between 2030 and 2035.
What happens as it does? Sea levels rise as glaciers retreat and ice sheets shrink, less and less of the earth becomes habitable as temperatures rise; floods and droughts become common, the frequency, strength and range of hurricanes and other severe weather events increase, fresh water becomes scarce, ecosystems begin to disintegrate, and mass human migrations will begin. Take Bangladesh, an impoverished, low-lying country on the Bay of Bengal, the final destination of melt from the Himalayas and already known for severe cyclones and high temperatures. Between 2080 and 2100, an estimated l0% to 20% of its predominately Muslim population—between 15,000,000 and 30,000,000—will be displaced as sea levels, surges and tides rise. Where will they go? Say half head for their Hindu neighbor, India. You get the picture.
So how do we turn down the spigot?
Personally, you can lower the thermometer, use less hot water, buy energy efficient light bulbs, and a couple of other things. By all means do it, but—sad to say—all of your efforts will amount to a drop (less) in our tub: In the United States consumer and commercial products account for just 8% of CO2 emissions, commercial and residential heating, 1%; world-wide, probably a little less.
The bulk of pollution (89% to 92%) comes from industry, transportation, agriculture and forestry. The answer is to expand the use of renewable energy, increase vehicle fuel efficiency, develop efficient energy technologies, reduce tropical deforestation, provide efficient mass transit, and protect low lands and their populations from rising sea levels. Unlike changing a light bulb or turning down the heat, those solutions—here and worldwide—require a truly enormous investment. While some of that investment will pay for itself and might well make a profit, it will not be enough, and the cost of reduction will still be immense.
When economists and scientists talk about establishing a price for CO2 that accurately reflects its true environmental and social cost, what they are really talking about is the enormous investment needed to reduce emissions. That price will, of course, increase as the medical and social consequences of increased global warming assert themselves.
CO2 knows no borders; it’s worldwide. The suffocating concentrations of greenhouse gases in Beijing and third world megacities will eventually spread over the earth. Hence, a series of UN sponsored conferences going back to 1992, the most significant held 18 years ago in Kyoto. The protocols produced there looked promising, but thanks, in large part to the Bush administration, they went nowhere. And that’s pretty much the story of the 17 subsequent conferences, but at least they have exposed the issues.
Here it is 2015. The urgent need for a meaningful solution to the climate problem could hardly be more apparent. And so the stage is set for the 21st UN Conference on Climate Change to convene in Paris on November 30th.
The goal has long been agreed upon—reduction by 2100 of CO2 levels to 2°C over their level at the beginning of the industrial revolution. To return to the metaphor, a full, but not overflowing tub. The problem is how to reach that goal. (Recent research suggests that the long-standing 2°C figure is dangerously high; 1.6°C is what’s needed.)
So what can we hope for in Paris? And what should we expect?
Right now we have pledges that don’t add up 2°C by 2100, and—more important—they are “pledges” not “enforceable commitments.” As such, there is a natural tendency for one player to hold back on its promise because it doesn’t fully trust the others. (There is an abundance of social research and historical precedent for this phenomenon.) What is needed are specified commitments which add up to 2°C., and a timetable to ensure progress along the way. What’s more, those commitments must be fairly apportioned among rich and poor nations—a mix that has proved impossible to achieve at previous UN Conferences, where apportionment discussions have frequently degenerated to name-calling. Furthermore, commitments must be verifiable by a trustworthy body or bodies, and violators must be punished with enforceable sanctions commensurate to the damage done. Finally—and this is less obvious—a fair price per unit of CO2 must be established; otherwise, allocations, measurements, reporting and penalties will become so obscure and complex that enforcement will prove all but impossible.
Frankly, that is a lot to ask. Absent a worldwide change of heart, what we’re likely to get are some iffy commitments, more but not enough transparency, maybe a rough allocation among rich and poor nations, a promise to study sanctions, and a committee of experts to come up with a unit price and report back in a year or so.
Meanwhile the tub fills and the cost of pollution rises.
That does not mean action is not already being taken to counteract global warming; indeed, the efforts underway are much the same as those that would be utilized if the problems described above were solved. The difference is that they won’t be enough.
There are four kinds, and they are not mutually exclusive: (1) voluntary reduction, (2) regulation, (3) taxation, and (4) cap and trade (along with its unseemly partner, offsets). The trouble is that the most popular—cap and trade—is risky and dangerous, and the others have problems of their own.
Voluntary reduction. It’s easy enough to turn off the lights at night at corporate headquarters and limit the use of the copy machines but going beyond simple conservation and tackling overall emissions is expensive and cuts into earnings. A voluntary program that limits profits cannot be counted upon.
Regulation. Here in the US, the EPA has begun the regulatory process and obtained a moderately favorable Supreme Court decision. The trouble is that the Court said that it will insist upon a rigorous cost-benefit analysis to justify any standard the EPA eventually adopts. The very size of the problem and the consequent difficulty of calculating precisely the environmental and social costs of CO2 invite years of litigation likely to culminate in a Supreme Court decision that additional Congressional action is required, or some other “cop-out.” Regulation might fare better in Europe, and possibly China, but without the US, the 2°C goal will fail.
Taxation is an obvious alternative. It’s straightforward and less easily gamed. Alas, a carbon tax is doomed in a country like ours, obsessed with the size of its national debt. Here’s the sort of thing you can expect: Exxon Mobile, a recent convert to the dangers of global warming, says it will happily support a carbon tax, but only if its other taxes are correspondingly lowered. Is that a solution, or what? And much the same is true in Europe.
Cap and trade is a market-based mechanism in which a governmental body sets caps, or limits, on CO2 emissions. Each polluter is assigned a cap based on (but below) its previous emissions and receives, outright or by auction, allowances (or permits) equal to its cap. It can buy, sell, or bank those allowances. All that matters is that, when it comes to demonstrating compliance, every polluter holds allowances at least equal to its assigned quantity of emissions. The price of an allowance fluctuates with supply and demand in the market.
Because projects vary in cost, a firm will sell or bank allowances when the cost of a project to reduce CO2 is less than the price of an equivalent amount of allowances. Other firms, where a project is more expensive, will buy allowances because doing so is cheaper than carrying through with the project.
Over time, caps will be adjusted downward; as a result, the price of allowances will rise such that firms will be led to spend more and more on mitigation.
Cap and trade systems normally include another way for a polluter to satisfy its cap—offsets. An offset is a mechanism that allows a polluter to receive credits against its cap by investing in outside projects—for instance paying lumbering interests in the Amazon for not cutting trees. Crucial to an honest offset plan is the requirement (known as “additionality”) that the project invested in would not have been undertaken otherwise. It is, as we shall see, a slippery concept.
Right now the size of the CO2 market is around 100 billion dollars, but it is expected to rise to one or two trillion dollars, larger than any existing commodity market. As it does, serious risks and dangers will surface. Carbon markets, both here and abroad, will be dominated not just by world’s largest polluters, but also by the world’s largest investment banks. JP Morgan Chase, Goldman Sachs, Morgan Stanley and their European counterparts will handle the trades, fashion instruments to be traded, and create opportunities for investment. Hedge funds will likewise be involved. This will occur not only in formalized markets, like the US Commodity Futures Trading Commission and the EU Emissions Trading System, but also in private over-the-counter transactions where parties fashion their own unique deals.
What about derivatives? Those tied to future prices will certainly be needed to ensure liquidity and to provide necessary hedges; other sorts may follow. Unfortunately, legitimate derivatives—like the futures contract an Iowa pork farmer buys to protect himself against unforeseen price changes—can, thanks to the “creativity” of Wall Street and the “miracle” of leverage, easily morph into vehicles for speculation, immensely profitable for bankers who hawk them, but risky and dangerous for the rest of us.
Then there are offsets—new, different, and, as such, especially suited to fraud and abuse; so much so that California’s cap and trade system took care to restrict them to 8% of its CO2 market and to provide careful oversight. It is easy, for example, to find a project in a developing country which would have been undertaken anyway and, with a little influence or bribery, slip it into one of the corporate entities designed by investment banks to undertake offset projects. Again, big profits for the bank and the polluter, but no net gain in CO2 reduction. And that is just one scam. Think how easy, and profitable it would be, absent stringent oversight, to inflate the predicted CO2 reductions of a third world project which has yet to be undertaken (and, perhaps, never will be) and sell that false promise as a legitimate offset. And so on.
Little wonder that Pope Francis in his recent encyclical Laudato Si’ went out of his way to condemn cap and trade (see Section 171).
On the positive side, we have learned something from the subprime mortgage debacle. Proposed legislation to create a formal cap and trade system in the United States (The Waxman-Markey Bill) contains limitations that were not present back then. So do the provisions of the Dodd-Frank Act directed at the Commodities Futures Trading Commission and the proposed regulations issued by the CFTC to implement those provisions. Europe, too, after a shaky start, has adopted some protections from weird derivatives and excess leverage. Still vulnerable to manipulation, because proposed regulation is less severe than for other markets, are over-the-counter transactions.
It’s anyone’s guess whether the new protections will be enough. Will new loopholes be found? Will speculators get away with admittedly fraudulent transactions? Perhaps we should listen to one of the world’s most successful arbitrage investors—George Soros—when he says, “The system [cap and trade] can be gamed….That’s why financial types like me like it—because there are financial opportunities.”
Sad to say, it may be too late to rid ourselves of cap and trade. If so, we have no choice but to tolerate the lesser evil to avoid the greater, and allow the very industrial/financial institutions which got us into this mess to try, by hook or by crook, to get us out—and in the process make hundreds of billions more for the rich which, under alternative solutions, could benefit the environment. But, for goodness sake, let’s not be proud of it.
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1 Comment
2 C has not been a long time agreed upon target; there’s a lot of evidence this could be too much (among others, the current .85 C increase climate).
The WWII buildup was not considered in terms of “cost” and “investment”… this is likely the only mindset that would allow a timely, needed difference.
It is strange the precautionary principle is not mentioned. With 400 ppm we are seeing unexpected phenomena. As the, apparently republican, Richard Alley points out, there’s a chance things could get worse very quickly, but above all we don’t know.
If we (humans) want to, as the WWII mobilization has proven, can go to negative emissions in 5 years. With conservation, Wind, Water, Solar and Geo-thermal, paired with methods of taking CO2 out of the atmosphere, we can do it.
It can be done in a market system, but seems very unlikely. With leading R’s talking about going back to gold standard, and how crushing the debt is, the fixation with “costs” and “investments” will prohibit timely action.
And of course the odds of establishing a non-market system in time seems far fetched at this point.
It seems evolution has a new asteroid.
Let’s hope we experience the middle of curve and this asteroid misses.