Arnold Kling  

Climate Change, Capital Mobility, and Futures Markets

Are Over- and Underestimation ... I Trust My Statistical Intuiti...

Robert Haddick writes,

Unless China, India, and other rapidly expanding economic centers in the developing world fully participate in greenhouse gas reduction efforts, regulatory schemes in the west will simply displace economic activity from the "clean" developed world to the "dirty" developing world, making the global greenhouse gas problem worse, not better.

This recent article from the Washington Post described how Europe's greenhouse gas "cap and trade" scheme shifted production from some of Europe's cleanest factories to far dirtier factories in China and Morocco. And TCS Daily's Nick Schulz told the story about how a German steel mill was disassembled, shipped to China, and reassembled, and now produces steel in China without any greenhouse gas constraints.

I think he takes a view of regulation that is too pessimistic. But the article does raise an important issue for the Pigou Club. If we are going to tax emissions of American companies, does it not make sense to levy the tax regardless of where the emissions occur, so that if you move your pollution from U.S. soil to China you still get taxed? If so, is such a tax legal?

Ron Bailey, at the panel discussion the other day, talked about a "harmonized" worldwide tax on emissions. His thinking was that that low-income countries would be exempt. A better approach, if you're thinking along these lines, is a uniform carbon tax, with the rich countries rebating some of their receipts to poor countries.

I'm not into that sort of social-utility optimization game. Moreover, I prefer climate engineering as a solution to global warming problems if they occur.

I note that my co-blogger thinks that disasters are over-predicted. It sounds like he is ready to write options to sell to Nassim Taleb.

At the panel the other day, Julian Morris of the International Policy Network suggested to me that futures and options markets in Global Warming would be helpful. For example, an insurance company could offer flood insurance to coastal properties, using the markets to hedge. They would buy derivatives that pay off if Global Warming picks up. Climate engineering companies could write options. If the market consensus is that Global Warming is going to be bad and soon, the price of those options will skyrocket, which would stimulate more investment in climate engineering.

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COMMENTS (4 to date)
aaron writes:

"I note that my co-blogger thinks that disasters are over-predicted. It sounds like he is ready to write options to sell to Nassim Taleb."

I know you're just having fun with your co-blogger, but that really mischaracterizes both Bryan's and Nassim's perspectives on risk management. Nassim's assertion is that there will be many unexpected disasters due to unexpected and compounded events. Bryan asserts that predicted disasters are few and far between.

They're hardly in discord. In fact, they're in agreement. Nassim's perspective suggests that climate will likely cause unpredictable disasters with or without AGW, Bryan suggests that global warming almost certainly won't be the cause of those disasters. They are likely both right.

aaron writes:

And Nassim's disasters seem to come, generally, from people reacting to what they think is happening that just ain't so.

Robert Speirs writes:

How would a "harmonized world-wide tax" on emissions be enforced? Does anyone really think that any Chinese or Vietnamese or Russian or African or South American regime will allow international inspection of all its factories with an eye to imposing costs on those that don't meet some sort of cleanliness standard? What delusion!

Susan writes:

For supply and demand it is cheaper to produce the goods in other countries in this case greenhouse gas. America does not control these countries, so it is hard to make them pay taxes or persuade their government to do this. As Americans we should not have to pay taxes for other countries. I personally think that we should make the economic centers as safe and clean as possible because there are natural disasters that occur. It may make the cost greater, but in the long run there would be less repairs and America would save money. We would not have to rely on other countries to pay taxes.
There needs to be equilibrium so that America is producing and selling at a price that is profitable, and meets the demand.

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