The topic of discussion at the Becker-Posner blog for the week is Climate Change. Posner and Becker both agree that there is a problem and some action needs to be taken. While Posner supports the U.S. joining the Kyoto protocol, Becker does not think that it would be a good idea. Usual reasons such as design of Kyoto protocol, non-participation of developing countries apply. Posner argues in favor of stiff taxes on CO2 coupled with public subsidies for R&D. Becker, the economist of the duo suggests that an international tradable permits scheme would pull in developing countries and lower the costs of reducing CO2 emissions and would be in effect similar to CO2 taxes.
Commenting on the Becker-Posner posts, Arnold Kling writes on the EconLog:
One of the reasons that the climate models show that the required reduction in emissions is so large is that the coefficient on emissions is so small. That is, the response of temperature change to emissions is relatively small, so that in order to reduce global temperatures, we have to make dramatic cutbacks in emissions--and then pray that the models are indeed correct.
What Arnold does not understand is that the climate change is a stocks problem and not a flows problem. The effects of CO2 on climate are dependent on the atmospheric concentrations of CO2 and not on emissions of CO2. So long as we continue to emit CO2, whether at a small or a large rate, the atmospheric concentrations would keep rising. Thus, there is no substitute for drastic reductions in emissions if one wants to address climate change seriously.
What skews up the discussion of climate change issues is that the long time lines involved make it very difficult to estimate the worth of undertaking a technology or policy action. At even a very small discount rate, the net present value of future benefits amounts to close to nothing when the time period involved is of the order of a hundred years.
Another problem is that many a times, people try to link the issue of climate change with possibility that petroleum may be scarce in the future. Economists have a ready answer that other technologies will come in to substitute of petroleum when the prices rise. Now, while there are some indications that petroleum may get more expensive in the coming decades, we are by no means running out of it.
The issue should really be framed differently instead of belaboring over the relative merits or demerits of incentive based or regulation based approaches. What is our vision of our energy system for the future? If we can indeed visualize a clean energy future and find it technically feasible, then how do we get there at the lowest cost and least disruptions? There are many opportunities underlying these fundamental questions, and we must learn to exploit these possibilities before it is too late.