Climate Trades


All text Originally posted By at New Yorker Magazine.

During the recent U.N. Climate Summit, it was hard not to think of the quip, attributed to Charles Dudley Warner, “Everyone complains about the weather, but no one does anything about it.” A parade of global leaders (including Barack Obama) made all the right noises, but there was little action. So it was notable when Norway announced a deal with Liberia: Norway will give Liberia up to a hundred and fifty million dollars in aid, in exchange for which Liberia will work to stop the rapid destruction of its trees.

Liberia has much of what remains of West Africa’s rain forest, but logging is rampant. The initiative is not an act of charity but a trade: Liberia gets income, which it needs; Norway gets to preserve biodiversity and take a small step against climate change. A similar deal that Norway struck with Brazil years ago helped slow deforestation there. Economists call arrangements of this kind “payments for ecosystem services,” and they follow a rationale known as the Coase theorem. In 1960, the economist Ronald Coase argued that bargaining between parties could, under certain conditions, produce a mutually beneficial and efficient solution to problems like pollution. Trying to force Liberia to stop chopping down trees (by using, say, sanctions) would be high-handed and probably ineffective. Paying Liberia to do so makes both sides better off.

In the grand scheme of things, stopping deforestation in Liberia is a small victory. But the strategy behind it could be tremendously important to climate-change policy. One of the biggest challenges when it comes to curbing greenhouse-gas emissions is that developing countries are becoming more prosperous. And, the faster they grow, the faster their emissions grow, too. Graciela Chichilnisky, an economist at Columbia and the creator of the carbon market in the Kyoto Protocol, told me, “In historical terms, developing countries have been the victims of climate change. But in the future they could be a big part of the problem.” We want developing countries to prosper, as China has, because that’s the best way to fight global poverty. But, as Heather Coleman, the manager of climate-change policy at Oxfam America, told me, “The planet can’t stand another five or six more Chinas.”

Still, it’s unrealistic to expect developing countries to forgo growth. Instead, the developed world should follow Norway’s example and help them pay for the transition to a less carbon-intensive economy. “Developing countries are going to have to leapfrog to new technologies if we want them to reduce emissions,” Coleman said. “If you want, say, Asian countries to build the smart grids they need to make solar power really effective, we’re going to have to pony up real money for that.” There have been moves in this direction: China has begun investing in solar, using, in part, money it raised by selling carbon offsets to wealthier countries. And, in 2011, the U.N. set up something called the Green Climate Fund, earmarked for “mitigation and adaptation” in the developing world. But the scheme is badly underfunded: the U.N. is supposed to “mobilize” a hundred billion dollars annually by 2020, but, so far, the fund has received less than two and a half billion in pledges. Even the target amount is probably less than is needed. Chichilnisky believes that the world should be spending at least two hundred billion dollars a year on the transition away from carbon.

For the West, which is historically responsible for most of the carbon dioxide in the atmosphere today, paying developing countries to make the transition away from carbon is not only the right thing to do but also squarely in our self-interest. Greenhouse gases emitted in Africa harm us as much as those emitted here. “If Africa just burns the coal and oil that it has at home in order to industrialize, it’ll do trillions of dollars of damage,” Chichilnisky said. “If developing countries remain dependent on fossil fuels, it won’t matter how clean the U.S. is.” This is where the Coase theorem applies. Coase suggested that, in the case of a problem like pollution, it doesn’t matter who the polluter is: the people who pay to stop it will be those who reap the biggest benefit from stopping it. In the case of climate change, wealthy countries have an enormous amount to lose from developing-world emissions. Most developing countries, though, have neither the resources nor the incentive to reduce dependence on fossil fuels on their own: their main concern is economic growth. (Polls show that action on climate change is a much higher priority for citizens of wealthy countries than for citizens of poorer ones.) So, just as with Norway and Liberia, it makes sense for us to pay to curb emissions.

The problem, of course, is that the U.S. is not Norway. President Obama will have to scramble to come up with dollars for the Green Climate Fund. That’s not because we don’t have the money. If the U.S. were to embrace a carbon-trading system (with emissions permits auctioned off to businesses) or even a carbon tax—ideas endorsed by both liberal and conservative economists—we could funnel revenue from those plans into the Green Climate Fund. But there’s nothing that Republicans (and some Democrats) are less interested in than spending money in foreign countries to combat climate change. As Coleman put it, “You combine foreign aid and climate change, and you end up with a pretty unpopular political issue.” The economic and moral logic of paying countries to emit less is good. The politics of it are terrible. ♦


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