numbers, not adjectives — D. J. C. MacKay
2 What should we do about Climate Change?
Carl Edward Rasmussen, July 13, 2024, 20 minute read
Our challenge is to design and implement global greenhouse gas reduction mechanisms which are genuine and politically realistic.
First, we need to be specific about what is meant by the terms in the above sentence.
Global mechanisms: the atmosphere is a global, shared resource. Emitted greenhouse gases quickly spread through the entire atmosphere, and influences the climate everywhere. The impact of climate change doesn't depend on who caused the emissions. Therefore, we need a global framework for tackling emissions. National emission reduction initiatives may be helpful, but they are never going to be sufficient. That's because weaning a country off fossil fuels is difficult: it is expensive, it is inconvenient and requires restricting certain behaviours which we don't have scalable non-fossil fuel solutions for. Therefore, any country pursuing deep cuts to emissions will ask themselves: why are we doing this? The only possible answer to this question is: to avoid additional devastating consequences of climate change. But this answer is only credible if large parts of the world join forces and cooperate. Because getting off fossil fuels is so difficult, a global framework for cooperation which guarantees climate results is necessary. Without such global mechanisms it will be impossible to get nations to commit.
Genuine: by genuine mechanisms is meant efforts which target the root cause of climate change: cumulative greenhouse gas emissions. Tackling cumulative emissions requires reducing emissions and doing it now. For cooperation to work, the efforts undertaken by participants must guarantee climate results. Therefore, we have to distinguish between genuine and aspirational efforts. To be clear, promises of reductions by 2030 or NetZero by 2050, investments in green climate funds, solar panels, or electric vehicles is all very good, but it doesn't in itself guarantee climate outcomes and are therefore aspirational in nature. The foundations for climate cooperation must be genuine efforts with immediate and evident effects on greenhouse gas concentrations.
Politically realistic: we must operate in the real world, not in a fictitious, idealised one. The real world consists of sovereign nations, who cannot be forced to do anything against their will. Therefore, the climate cooperative which we build must be made up of voluntarily willing nations. Every nation will ask: why do we want to be members? The answer must be, that being a member is a better option than not. And this will need to be true for the vast majority of nations, because climate change can only be avoided if the total cumulative emissions are significantly reduced. Each country will evaluate whether their future likely looks better if they join or if not. Because the consequences of not addressing climate change will be devastating for large numbers of people, the effective payoff for joining could be high. Since the environmental circumstances, the political systems and the wealth of nations all differ, the core principles of cooperation must have a basic universality. Every participating country has to be able to formulate a convincing narrative, making participation in global cooperation politically palatable.
Above, we've added a bit of precision to the language used, and have set out a daunting task. In the following, I'll be guided by answers to the question: what properties must proposed mechanisms necessarily have, in order to address the challenge?
2.1 Cooperating over a Common Resource
The atmosphere is a common resource. When we emit greenhouse gases, we are using this resource. You may think that this is a odd kind of resource, since strictly speaking it is the absence of something (greenhouse gases) which represents the value. But it has the characteristics of resources: it is available in limited quantity and it has value. It's available in limited quantity because any fixed global temperature is only compatible with a maximum concentration of greenhouse gases, and the dominating greenhouse gases such as CO2 stay in the atmosphere for long time periods. The atmospheric resource has value because using it lets us do things that would otherwise be less convenient, more expensive or impossible; for example, continue to use existing fossil fuel based infrastructure. Overexploitation causes global warming with disastrous consequences for large numbers of people. So the question is really one of: how do we collectively manage the global atmospheric resource?
A lot is known about the necessary conditions for cooperation about common resources. These conditions include: sharing goals, acting transparently, taking responsibility, sharing commitments, building of mutual trust and the ability to sanction participants who don't cooperate. All of these conditions are necessary, the absence of any one of them will cause cooperation to fail. Unfortunately, our current flagship international climate treaty, the Paris Agreement (PA), meet none of these necessary conditions, and will therefore fail to reach its goals (of limiting global average temperature rise to +1.5°C or +2.0°C).
This text is supposed to be constructive, and not focus on the failures of alternative ideas, but because of its dominating status, and the necessity of avoiding similar failures, it's worth briefly examining the failures of the PA. The signatories to the PA do share goals, but the responsibility for reaching the goals are shared collectively. When the global temperature breaches the agreed limits, it will be nobody's responsibility in particular. Anyone with practical organising experience will know that collective responsibilities are a recipe for failure. The PA doesn't contain real emission commitments; Nationally Determined Contributions (NDCs) carry no consequence whatsoever if they're not honoured. Which leads to widespread mistrust. Because of the long timeframes involved in the PA, such as NDCs by 2030 and NetZero by 2050, the framework lacks transparency. A nation cannot know whether a partner can be trusted for long times, except by waiting to see (and we don't have time for that), which further builds mistrust. Finally, there are no mechanisms to sanction non-compliance (beyond possible reputational damage). Thus, the PA is devoid of properties necessary for cooperation.
It may be helpful to be very specific about what is meant by "the PA will fail". When can we be completely sure, that the PA will fail? Logically, we would have to wait until the breach of the global temperature limit (by whatever precise definition was adopted) to know for sure. But in practical terms, this would be a really bad strategy, because while we were waiting our problem would have grown significantly more urgent. The empirical evidence shows that atmospheric carbon dioxide concentrations have continued undiminished to grow by 2.5 ppm/y (parts per million per year) the highest growth rate in modern times since the start of the PA. And on the theoretical side, we have outlined its multiple fundamental strutural deficiencies. Therefore it is impossible to conclude anything other than that the PA is completely inadequate to address climate change in any meaningful way. But surely, the PA must have done some good? It's difficult to know. On one hand, it is possible that it has raised awareness of climate change. On the other hand, the annual COP meeting's repeated flogging of the dead horse may have effectively blocked any progress towards mechanisms that may actually work. It really depends on what would have happened if we hadn't had the PA. But these are all difficult to evaluate hypotheticals, and at this point mostly irrelevant. We must look forward, at actual solutions.
In conclusion, it should be clear that the climate change problem is a collective one. That is just the nature of the problem, whether we like it or not. But where we do have a choice is how we respond to the challenge. We can chose to either focus on separate national policies, and simply hope that different national strategies will somehow align by chance to coalesce into a global, efficient strategy. Or, we can actively use our insights about principles of cooperation to forge an global cooperative framework for an equitable and effective approach to climate change.
2.2 Practical framework for Cooperation
A cooperative must build trust. One impediment is that the time horizons necessary to change infrastructure, which is required to get off fossil fuels, are long. But long time horizons undermines trust, because you cannot easily verify that your partners live up to their commitments. For this reason a succesful cooperative must work with a rapid timeframe, even though the ultimate changes will take longer to implement. An annual cycle may be appropriate.
What should be the nature of the annual cooperative member commitments? There are two main ways to reduce greenhouse gas emissions: cap and trade, and carbon fee. Cap and trade sets an overall cap on emissions and creates a market for emission permits. A carbon fee is simply a fee on greenhouse gas emissions, levied on fossil fuels. In both cases, the idea is to incentivise greenhouse gas emission reduction economically. In their pure forms, these two schemes specify how income is generated, but not how the funds are spent, which we will discuss separately (although a variant of cap and trade involves giving away permits for free). The two schemes are not really that different, except that cap and trade entails uncertainty about the price, whereas a carbon fee leaves uncertainty about total emissions. Both schemes create economic incentives to reduce emissions, the higher the carbon price or the lower the cap, the stronger the incentive. Which is most suitable for an annual commitments for a global cooperative? The carbon fee has the advantage of superior transparency. Agreeing to a certain price is a clearer commitment than agreeing to pay the price which a market mechanism determines. The carbon price has the further advantage from a global perspective that emission permits and their markets don't have to be created and their application enforced (fees and monitoring associated with fossil fuels already exists in most parts of the world).
Historical note: During the Kyoto Protocol negotiations, difficulty was encountered in what was essentially haggling over national allowances in a capped emission system. Failure of this negotiation lead to the death of the Kyoto Protocol. How can we avoid repeating this failure? The problem with the Kyoto Protocol negotiations was that the starting point for the discussion was the status quo, rather than a fundamental principle of equity. The negotiators divided the world into developing and developed nations, and focussed on relative reduction targets. In fact, the very language of relative reductions is heavily loaded: a relative reduction has a baked in assumption that large historical emissions legitimises future emissions. Which is hardly an equitable view. Developing nations would not agree to relative emission reductions because they argued that their absolute emissions were much smaller than those of developed nations. Conversely, some developed nations insisted that all nations should contribute. And this created the unsurmountable deadlock. If instead, absolute per capita emissions had formed the basis, this dilemma would not have existed. The same absolute per capita emissions would put more pressure on developed nations, but all nations would agree to identical rules.
In order to cooperate over the global atmospheric resource, we must start from equitable principles. Essentially, the question is: who owns the atmosphere? Not in a legal sense, but from a moral and ethical view. The only serious answer to this question is: all of us. The implications are straight forward. The unit of negotiation must be greenhouse gas emissions per capita. We need a mechanism to fix a price per ton of CO2e. The proceeds raised should be paid to the owner of the resource, ie all of us. In this way, users of the atmospheric resource would pay for what they use, just like with most other resources. We're left with two major questions: how would the cooperative fix the price, and why would nations want to become members? Before answering these, a more explicit proposal for a cooperative is provided.
2.3 The Equitable Atmospheric Climate Cooperative
The Equitable Atmospheric Climate Cooperative (EACC) is a proposal for a simple, global, transparent cooperative, built to honour the requirements discussed above. Because transparency and trust necessitates rapid timelines, the EACC operates on an annual cycle. The description of the proposal will be divided into three steps. First, a slightly impractical personal variant, with a focus on the underlying principles. Secondly, the actual proposal which lifts these principles up to a practical, national level. And thirdly a few refinements are added.
Initially, we think of a cooperative of individuals. All have identical rights to the atmospheric resource. The cooperative will be governed by two quantities: the price per ton of CO2e, we call it p, and the average annual emission of all cooperative members. The price per ton of CO2e is set to a fixed value, agreed by members (more about how that works later). The average member emission, is just the average of whatever those members happen to emit. Once a year, the cooperative settles with each member, according to their emissions and the price p. As a concrete example, let's say the price is p=100€ per ton of CO2e and the average emission per member per year is 3 tons of CO2e. This means that if you only emitted 2 tons that year, the cooperative would pay you the difference (ie 1 ton) times the price p, ie 100€. You would be payed because you consumed less than your fair share. Conversely, a member who emitted 6 tons, would have to pay 3 tons times p, ie 300€ to the cooperative. In total, the income and expenses of the cooperative would be identical, it would neither loose or accumulate funds. Note, that both the low emitters and the large emitters will feel an economic pressure to emit less. This suggestion may sound nice, but it would be totally impractical. Primarily because most people don't know their CO2 emissions, and secondly it would be difficult to manage the many members. For this reason, we have to implement the scheme on a national level.
In the national variant of the cooperative only exists for a single year, membership involves no mandatory long term commitments. During the annual cycle, the cooperative performs 4 tasks, before dissolving itself prior to next years reincarnation, here in slightly simplified form:
- At the beginning of the year, every nation is invited to join the cooperative at the predefined fixed price, p, per ton of CO2.
- At the end of the year, every member reports their per capita CO2 emissions (using UNFCCC reporting rules).
- Nations settle, by paying the difference between their national per capita emissions, and the cooperative average per capita emissions, at the already agreed price, p.
- Finally, member nations vote on next year's price by open ballot vote, one vote per member nation. Next year's price is the median (the middle value) of all the price votes.
The price, p, in the initial year is set to zero. This means that every nation can join, free of any obligation or commitment whatsoever (except for having to report their per capita emissions). If a nation joins, they will have a vote at the end of the year (but no obligation to join the following year).
What would be the consequences of the existence of the EACC? Nations which have smaller than average per capita CO2e emissions will be net beneficiaries, whereas nations with higher than average emissions will be net contributors. But all members will feel an economic pressure to emit less. The sum of contributions and payouts will be zero, the cooperative doesn't loose or accumulate funds. It is up to individual nations to decide how to raise the necessary funds or how to spend the proceeds; the cooperative would not meddle with nation's internal affairs. This is a global carbon fee and dividend system, as opposed to national variant, where the money stays within the nation.
What price would nations vote for? Countries with small per capita emissions who are likely to be net beneficiaries, would prefer a high price. But it wouldn't be in their interest to increase the price too much, thereby risking to discourage larger per capita emitters from joining. Similarly, large per capita emitters may prefer a lower price, but not so low as to undermine the climate effect of the cooperative. Because the price is chosen to be the median (middle value) of the voted prices, it is not possible for single nations to significantly influence the price by an extreme vote. The votes are open ballot, so fully transparent to everyone.
The simplicity of the cooperative will be key to its success. At no point in the annual cycle is there any room for negotiation. Nations are faced with a binary choice to join or not; every aspect of membership is clear and explicit.
Before discussing the EACC further, we need to make a four practical improvements. The first one is that in practice it takes time to record and report emissions, this cannot be achieved instantaneously at the end of the year. So, in practice, emission data from the previous year is used instead. Since per capita emissions don't tend to change dramatically from one year to the next, this concession won't change things much in practice. Secondly, it is important that the cooperative respects reciprocity, or "I will if you will". Accordingly, we should allow nations to join conditionally. For example, the UK may join only if France and Germany joins, or only if nations responsible for at least 50% of emissions join, etc. This will help avoid so-called prisoner's dilemmas. Thirdly, we need to avoid the tendency for large emitters to postpone membership to future years. To achieve this we need to make the amendment that if a nation hasn't previously been a member, then in order to join, they would have to pay their fees right back to the inaugural year. This will discourage nations from postponing membership, which would add to the already troubling problem of historical inequalities. And finally, in practice we need a mechanism to discourage free riding. Countries may decide not to take part in the cooperative, but they will still benefit from the climate results. This sort of behaviour would undermine the cooperative, and should be discouraged, for example by erecting trade barriers towards non-members.
2.4 Why would nations join the EACC?
Why would nations join the cooperative? Nations with very small emissions would join because they would be guaranteed to benefit economically. Nations with slightly higher emissions may join in anticipation (or conditioned on) that other slightly higher per capita emitters also join, even though they wouldn't be sure of an immediate economic benefit. But why would medium or high per capita emitters join? The answer can most succinctly be expressed by modifying slightly a line from Andy Summers, aka Sting:
I hope my neighbours love their children too
If you don't value the conditions of the next generation(s), then, depending a little bit on your age, climate change is possibly not a serious concern. But for the rest of us it is. If we value the conditions of the next generation, then presumably this means that we're willing to make some sacrifices, if the engagement is more or less guaranteed to achieve the desired results, and if it's based on a equitable framework which can be justified.
A significant hurdle is that the necessary investment in tackling climate change is immediate whereas the payoff is delayed, typically by longer than a political cycle. This challenge is typical for most types of investments, large infrastructure, education etc, all take a long time to bear fruit. Some of these investments are motivated by explicit estimates of possible return on investments. Such estimates may be difficult to provide with high accuracy for climate change, because it's difficult to predict the large number of effects that climate change may cause, and because the magnitude of the consequences will depend crucially on the time horizon. Carbon dioxide stays in the atmosphere for hundreds of years, for how many generations do we value people's conditions? Since these are difficult questions to answer, the annual voting mechanism of the EACC is taken as a reasonable substitute, which can adapt over time, as more consequences of climate change get more widely known.
To really impact climate change, the price per ton of CO2e needs to be high. But any price is better than a zero price, and you have to start somewhere. It may be unrealistic to expect a very high price right from the beginning of the EACC, but over time confidence in the cooperative may grow, and the price be pushed up. Although formal commitments only extend within a year, nations may well predict that the price will grow, crating additional pressure to further reduce emissions in anticipation. Nations may of course also voluntarily announce a minimum price vote further into the future, if they wish to eliminate some of the cooperative uncertainty. But there is no collective requirement to do so.
The EACC has been designed to be maximally transparent and involve a minimum of commitments beside the essential one. Its rapid annual cycle allows cooperating partners to build trust. The EACC is not necessarily a replacement for other initiatives, rather it can coexist and even support other efforts such as the EU Emissions Trading System and others. The EACC also doesn't interfere with internal affairs of participating nations. Each member is completely free to raise the payments or spend the proceeds from EACC membership in any way they like.
2.5 How will the EACC come into existence?
How could the EACC be created? The UN may seem like an obvious place to get started. However, the UN has a reputation for being slow and their processes are generally driven by unanimity, which is not required for the EACC. On the contrary, the whole design is driven by individual choice. Of course, the EACC would work best with a very large membership, but universal membership is not required. The logical minimum non-vacuous size would be two nations, which would in itself be ineffective but the EACC's mere existence would pose a real question for other nations, on what conditions they would join. The EACC proposal comes with a zero price point for the first year. This will mean that the EACC will have no real consequence in its first year, but it has the advantage that every nation in the whole world has a completely risk-free way of engaging a cooperative climate process. What better offer could there be?