Should Greenhouse Gas Permits Be Allocated On a Per Capita Basis?

 

Suppose that a climate treaty is negotiated and that (as is expected) the treaty provides for a cap-and-trade system: every state will be allocated permits that can be auctioned off or given to firms. Only firms that have permits may emit greenhouse gases. If the correct quantity of permits is created, then (in principle) the socially optimal level of greenhouse gas emissions can be ensured.

One question that has received a great deal of attention is, if this system is put into place, how should permits be allocated? Under the Kyoto model (very roughly), countries that currently emit the most greenhouse gases would receive the most permits; in other words, current emissions are used as the baseline, and states are required to reduce their emissions by a constant amount or not increase them beyond a fixed year. For many people, especially those living in the developing world, this system seems unfair. Why should the richest countries receive the most permits? If poor countries like India receive a small number of permits, then they will have to pay a lot of money to receive permits necessary to develop to rich-country levels, while people in the rich countries do not.

The most popular alternative to the business-as-usual approach is to distribute permits on a per capita basis. Because India’s population (1.13 billion) is 3.3 times the United States’s population (304 million), India receives 3.3 times as many permits. By contrast, under the business-as-usual approach the United States would receive almost 5 times as many permits as India—more than 15 times on a per capita basis. The per capita approach thus seems fairer in a divide-the-pie sense. And because India is much poorer than the United States (U.S. per capita GDP is about 45 times higher than per capita GDP in India), the per capita approach seems fairer on redistributive grounds. India can sell the permits it does not need to U.S. companies and use the money to feed the poor.

In fact, per capita distribution of greenhouse-gas emissions permits has little to recommend it. The argument (written with Cass Sunstein) is here. In simple terms, there is no reason to think it is fair (once one takes into account the treaty benefits as well as the costs), distributively just (nations with larger populations are not poorer than nations with smaller populations), welfare-maximizing (it is not likely to produce good incentives), or feasible (unless you think that the United States is willing to pay hundreds of billions of dollars per year to countries like China). The business-as-usual approach is not necessarily better than the per capita approach, to be sure; but the tremendous enthusiasm for the per capita approach is hard to understand.

In a recent blog post, Larry Solum takes us to task for misunderstanding the following argument for the per capita approach (though Solum himself does not appear to agree with it).

From our paper:

There is another type of fairness argument, to the effect that the atmosphere, with its beneficial carbon-absorbing characteristics, is common property, belonging to everyone in the world. A climate treaty closes a commons, converting it into private property. It is only fair to distribute the parcels of property to the former users of the commons, namely, everyone in the world, on a per capita basis. One might draw an analogy to minerals discovered in the sea bed under the high seas, which are outside the sovereignty of any country. The Convention on the Law of the Sea provides that revenues from exploitation of these minerals should be distributed “equitably.”

But the analogy is at best partial and in fact reveals the limits of this argument. A climate treaty, like a treaty allowing for the exploitation of minerals, has two effects of present interest. First, both treaties generate revenues—for permit sellers, in the climate case, and for mining companies, in the mineral case. Second, both treaties generate benefits for consumers—people who benefit from abatement of climate change, and people who benefit from the lower price of, say, oil. Because virtually everyone benefits from lower oil prices, the effect is spread around the world. Thus, the only remaining question in the case of the mineral treaty is how to distribute revenues fairly. In the climate case, the climate effects are extremely variable—hurting some people very badly, others not all, and benefiting still others. From the standpoint of fairness, it would be stranger to ignore these latter effects while considering only the revenue effects. The analogy to property is not helpful; it distracts from the relevant question, which is the distribution of all treaty effects across the world’s population.

Solum’s reply:

This argument seems to miss the mark. The common-property argument (when articulated in its strongest form) claims that there is a moral entitlement to equal shares in rights to the atmosphere as a commons. When the commons is converted to private property, each and every person with rights in the commons is morally entitled to an equal share in the private property. The second of the two paragraphs quoted above simply misses the point--addressing the question of fair distribution of the benefits of conversion. If the moral entitlement claim were correct, then the fair distribution question is beside the point. The deep version of this point can be made with respect to ownership of one's body and labor: if each individual has a moral entitlement to their own body and its labor, then the question of fair distribution does not arise. (I am not taking a position here about whether the moral entitlement claim is correct; my only point is that Posner and Sunstein have missed the point of the claim.)

-- For my part, I find it hard to understand the common-property argument as plausible unless the idea of common property in this setting is morally attractive. Otherwise, it is just a metaphor. The question is whether conceiving of the carbon-absorbing feature of the atmosphere as common property is more morally attractive than conceiving of it as non-property. One cannot answer this question without appealing to ethical intuitions. “Ownership” of one’s body and labor is also a metaphor; it turns out that this metaphor is useful rather than misleading because the rights we associate with “ownership” can, roughly, be applied to how we feel about the proper use of bodies and labor. Where the ownership metaphor has morally unattractive implications, we do not use it or we circumscribe it. So a person owns his body but nonetheless cannot sell it; a person does not own ideas that he does not reduce to an expression.  Solum continues:

Assuming that I am right that Posner and Sunstein's argument is not sufficient, do they have an alternative line of reply? Let me suggest the following. The global atmospheric commons is not currently "owned" by individuals. Rather, as in the case of the ocean floor mineral rights, the system of international law assumes that the moral entitlement (protected by international law) vests at the level of the nation state. Each and every nation state has an entitlement to unlimited use of the atmospheric carbon absorption commons; and termination of this right requires an agreement, e.g., a treaty establishing the regime of tradable permits. Precisely because the parties to the treaty (the nations) are the holders of the entitlement, their agreement that is the necessary and sufficient condition the justice of the treat insofar as preexisting entitlements are concerned. That is, the flaw with the global atmospheric commons argument is that there is no moral entitlement at the level of the individual.

-- This is a legal argument, not a moral argument. Even if it is true that under international law “each and every nation state has an entitlement to unlimited use of the atmospheric carbon absorption commons,” nothing follows from that proposition as a matter of morality. That is why people can reasonably argue that a climate treaty “should” distribute permits on a per capita basis. Clearly, this argument does not deny that states can, if they want, stand on their rights and refuse to agree to such a distribution. The point is that this would be the morally wrong thing to do.

Solum has more to say about our argument; check out his post.

Comments

[Nasir]

Shouldn't be calculated based on the utility of the emitting source. The goal of reducing green house gasses should be eliminating excess. Where we can reduce, we should; however, if there is utility to the emitting source.