Overcoming the Copenhagen Failure

Pretty speeches can take you only so far. A month
after the Copenhagen climate conference, it is clear that the
world's leaders were unable to translate rhetoric about global
warming into action.

It was, of course, nice that world leaders could agree that it
would be bad to risk the devastation that could be wrought by an
increase in global temperatures of more than two degrees Celsius.
At least they paid some attention to the mounting scientific
evidence. And certain principles set out in the 1992 Rio Framework
Convention, including "common but differentiated responsibilities
and respective capabilities," were affirmed. So, too, was the
developed countries' agreement to "provide adequate, predictable
and sustainable financial resources, technology, and
capacity-building" to developing countries.

The failure of Copenhagen was not the absence of a legally
binding agreement. The real failure was that there was no agreement
about how to achieve the lofty goal of saving the planet, no
agreement about reductions in carbon emissions, no agreement on how
to share the burden, and no agreement on help for developing
countries. Even the commitment of the accord to provide amounts
approaching $30 billion for the period 2010-12 for adaptation and
mitigation appears paltry next to the hundreds of billions of
dollars that have been doled out to the banks in the bailouts of
2008-09. If we can afford that much to save banks, we can afford
something more to save the planet.

The consequences of the failure are already apparent: The price
of emission rights in the European Union Emission Trading System
has fallen, which means that firms will have less incentive to
reduce emissions now and less incentive to invest in innovations
that will reduce emissions in the future. Firms that wanted to do
the right thing, to spend the money to reduce their emissions, now
worry that doing so would put them at a competitive disadvantage as
others continue to emit without restraint. European firms will
continue to be at a competitive disadvantage relative to American
firms, which bear no cost for their emissions.

Underlying the failure in Copenhagen are some deep problems. The
Kyoto approach allocated emission rights, which are a valuable
asset. If emissions were appropriately restricted, the value of
emission rights would be a couple trillion dollars a year -- no
wonder that there is a squabble over who should get them.

Clearly, the idea that those who emitted more in the past should
get more emission rights for the future is unacceptable. The
"minimally" fair allocation to the developing countries requires
equal emission rights per capita. Most ethical principles would
suggest that, if one is distributing what amounts to "money" around
the world, one should give more (per capita) to the poor.

So, too, most ethical principles would suggest that those that
have polluted more in the past -- especially after the problem was
recognized in 1992 -- should have less right to pollute in the
future. But such an allocation would implicitly transfer hundreds
of billions of dollars from rich to poor. Given the difficulty of
coming up with even $10 billion a year -- let alone the $200
billion a year that is needed for mitigation and adaptation -- it
is wishful thinking to expect an agreement along these lines.

Perhaps it is time to try another approach: a commitment by each
country to raise the price of emissions (whether through a carbon
tax or emissions caps) to an agreed level, say, $80 per ton.
Countries could use the revenues as an alternative to other taxes
-- it makes much more sense to tax bad things than good things.
Developed countries could use some of the revenues generated to
fulfill their obligations to help the developing countries in terms
of adaptation and to compensate them for maintaining forests, which
provide a global public good through carbon sequestration.

We have seen that goodwill alone can get us only so far. We must
now conjoin self-interest with good intentions, especially because
leaders in some countries (particularly the United States) seem
afraid of competition from emerging markets even without any
advantage they might receive from not having to pay for carbon
emissions. A system of border taxes -- imposed on imports from
countries where firms do not have to pay appropriately for carbon
emissions -- would level the playing field and provide economic and
political incentives for countries to adopt a carbon tax or
emission caps. That, in turn, would provide economic incentives for
firms to reduce their emissions.

Time is of the essence. While the world dawdles, greenhouse
gases are building up in the atmosphere, and the likelihood that
the world will meet even the agreed-upon target of limiting global
warming to two degrees Celsius is diminishing. We have given the
Kyoto approach, based on emission rights, more than a fair chance.
Given the fundamental problems underlying it, Copenhagen's failure
should not be a surprise. At the very least, it is worth giving the
alternative a chance.