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The impressive Warwick McKibbin
Peter Martin, Blog
…Warwick McKibbin [is] arguably Australia’s busiest, quite possibly Australia’s most brilliant, technical economist …
…McKibbin says the Kyoto Protocol cannot and will not work. For one thing it requires international governments to trust each other to do the right thing. And even if they did the flows of capital across borders as emission permits were traded would massively distort exchange rates.
And there’s something else. Treaties lock governments into targets that they lack the political ability to meet. “In a democracy, a policy doesn’t become credible simply by being written into law. Every subsequent government will have the ability to repeal the law or to relax enforcement until it is irrelevant. Why would an energy company want to make a long-term investment knowing that? It’d easier to lobby to neuter the law.”
McKibbin says what is needed is a scheme that will create a constituency with a strong financial interest in keeping the climate change policy on track: “Bluntly, you’ve got to create a powerful lobby group that will vigorously resist backsliding.”
Here’s how it work for Australia. Carbon emissions would be illegal without a permit. But the government would issue lots of them, enough to cover somewhat less than Australia is emitting now. The permits would allow the emission of one tonne of carbon each year for the next 100 years. (“About the lifespan of a Canberra lease,” he says).
The government would hand them out for free. But – it would hand out only half of them to carbon emitters. The rest it would give as a gift to each Australian household – probably two permits per household, worth about $1000 each. Polluters will need them and they will try to buy them from households.
“But $1,000 doesn’t sound like much money”, I suggest. What sort of incentive is that going to give households?
“If you hold on to it, it would be like being given Microsoft shares. Eventually as the price of carbon emissions climbs those permits would be worth an enormous amount of money,” McKibbin says.
Households will find it worthwhile to lease their permits out to business rater than sell them. Each year the government will set a new price of carbon (“in the same way as the Reserve Bank sets interest rates”) and if that price is higher the value of the permits will increase. A constituency will be created that wants the government to increase the price of carbon every year.
If the government ever tried to walk away form the scheme or water down its enforcement, it would have a mutiny on its hands. Householders, businesses and superannuation funds would be ropeable at the prospect of seeing the value of their investments plunge to zero.
No-one could ever corner the market in permits because the government would always supply on demand a permit for one year’s worth of emissions at the price it had set. Businesses would always be able to pollute if they really wanted to, at a price that ordinary citizens would be pushing to have increased.
Because the government could vary the “spot price” for each year’s emissions of carbon as it wished, it wouldn’t be locked into anything. If the evidence about climate change became more compelling, it could push up the price. If it became less so it could push the price down.
When other countries saw that the system worked they might adopt it too. But they wouldn’t have to. And Australia’s participation in the scheme wouldn’t depend on other countries.
The McKibbin scheme is carbon trading without a carbon target and without Kyoto, the sort of thing likely to appeal to Australia’s Prime Minister. As might the notion of a nation of carbon-permit capitalists. John Howard has talked often of his pride in helping create the world’s biggest share-owning democracy. McKibbin’s idea might help him go further.
Peter Martin is the Economics Editor of The Canberra Times. He also writes about economics for New Matilda and is heard on NightLife on ABC Radio. He is a former Economics Correspondent for Australia’s ABC radio and SBS television.
(15 Dec 2006)
Contributor GD writes:
I thought this might make a good submission to EB. It’s about a different kind of carbon trading scheme, and the economist behind it has a pretty good track record. The paper on this subject “A credible foundation for long term international cooperation on climate change” is available online.
CAP’s Joseph Romm calls conservatives ‘deniers and delayers’ on warming policy (video & transcript)
Monica Trauzzi, E&E TV
Author and Center for American Progress senior fellow Joseph Romm says if aggressive action on climate change is not taken soon, the effects on the planet will be dire. In his new book, “Hell and High Water: Global Warming — the Solution and the Politics — and What We Should Do,” Romm explains why he thinks a state of “planetary purgatory” is inevitable. During today’s OnPoint, Romm, a former Department of Energy official under President Clinton, discusses what he believes to be the most viable solutions for addressing and stopping the effects of climate change. Romm also challenges media coverage of global warming, saying too much attention has been paid to climate change skeptics.
(16 Jan 2007)
The Insurance Climate Change
Karen Breslau, Newsweek
Coastal homeowners in the East are losing their policies or watching premiums skyrocket. Carriers say that global warming is to blame.
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…Up and down the Eastern Seaboard, hundreds of thousands of policyholders like the Aschettinos are being dropped by their insurers; many more have had to swallow double-, even triple-digit increases in premiums and deductibles. While discontinued policies and rate hikes are nothing new in hurricane-battered Florida and the Gulf Coast, insurers are now dinging homeowners in the Northeast and mid-Atlantic states. Allstate Insurance recently announced it wouldn’t take new homeowner policies in New Jersey, Connecticut and Delaware-or the five boroughs of New York City. The company also won’t renew 30,000 of more than 600,000 policies it carries in and around New York City. A host of other firms are refusing to insure properties along the Atlantic coast from Maine to the Carolinas.
Why the sudden rash of cancellations? An increase in “extreme weather events” that many scientists-and now insurers-believe are linked to climate change. It’s not just Category 4 hurricanes that have insurers worried. Around the country, companies have been racking up record property losses from freakish weather, such as the ice storms last week that paralyzed much of the Great Plains and froze California’s citrus crops. In recent years, wildfires in the Northwest, drought and hail in the Midwest, windstorms, lightning strikes on power grids, soil subsidence and other calamities of nature have led to cumulative property losses that exceed those caused by hurricanes. “There’s a shift going on to more frequent, extreme weather events,” says Evan Mills, an environmental scientist at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory. “It’s as much an issue in the heartland as on the coast.”
Global warming is the culprit, claim many-including several insurers who are canceling policies.
(29 Jan 2007 issue)
Contributor Hudson Shotwell writes: “How’s this for a disaster recipe? 54% of all Americans live within 50 miles of a coastline.”
