The problem is not so much Big Carbon as it is dedicated environmentalists. They have not been able to agree on anything substantial in 20 years. There are three reasons for this impasse (see also carbon price.com):
- Environmentalist are trapped by their moralistic command-and-control thinking.
- Economists are trapped by their fixation on narrowly defined efficiency.
- The resulting negotiation game is a prisoner’s dilemma with 100+ prisoners.
Consequently the Paris climate conference in 2015 will fail (China’s pledge shows zero ambition, and the US pledge is flimsy). Environmentalists and economists have the best of intentions, but the consequences can still be tragic. Fortunately, the three top US climate economists are now pointing the way out of this impasse, and the World Bank is not far behind in advocating a carbon price. The essential breakthrough has two parts. First, realize that if you need a strong outcome, one price is much easier to negotiate than 100 quantities. Second, realize that price does not mean cap-and-trade and it does not mean carbon tax. It just means price. So we should stop the cap-vs-tax fight — just have all countries agree on one price. Then let them implement that price as they want.
For an in-depth view of these ideas, see Carbon-Price.com. (spoiler alert: the three top climate economists are Nordhaus, Stiglitz and Weitzman.)
Jan 31, 2015. History is the key. In 1980, the Saudi's oil minister, Yamani, warned OPEC it was trying to keep the price too high. They didn't listen, and all agreed to cut production. The Saudis did, but the rest cheated. To hold their cartel together, the Saudis cut supply even more than promised, but the high price reduced demand and called forth North Sea and Alaskan oil. By 1985, the Saudi's were pumping at about 30% of capacity and [Read more...]
Dec 28, 2014. Climate negotiations are a sort of prisoner's dilemma, so we need to find a way to change the game or change the outcome of a prisoner's dilemma. Hofstadter proposes that if we can induce players to be "super-rational" we may get a more cooperative outcome. Does this make sense? [Read more...]
Dec 17, 2014. Had the players noticed the red flag thrown onto the climate field shortly before the Lima conference, they might not have continued to play a meaningless game. The flag was the joint US-China climate pledge, which will cover 40% of global emissions under the upcoming Paris agreement.
The US pledge is a mere aspiration, and China's pledge, as explained below, shows no climate ambition whatsoever. [Read more...]