. . . the Nebraska Carbon Sequestration Advisory CommitteeThank you for visiting the University of Nebraska- Lincoln, USA. Carbon Marketing Bibliography: Brief Summaries and AnnotationsJoskow, P. L., R. Schmalensee, and E. M. Bailey. "The Market for Sulfur Dioxide Emissions." Amer. Econ. Rev. 88,4 (September 1998): 669-685. This paper reflects a careful analysis of the evolutionary development and current state of the sulfur dioxide emissions allowances market. It reflects the tradition in microeconomic analysis of focusing on the motive for profit as the driving force in all human behavior. The paper notes how the Clean Air Act Amendments of 1990, U.S.Public Law 101-549 formalized the starting conditions for the evolution of this market. We need to keep this in perspective, however, in that perhaps the primary force at work was the Bush Administration's move at the time to privatize and otherwise move to using the market mechanism to help reduce regulatory influence on the economy. This U.S. domestic market trades in an emissions allowance defined as one ton of sulfur dioxide emitted into the atmosphere in a particular year. In essence, the U.S. Environmental Protection Agency sets an overall limit on emissions and one allowance is issued for each ton of limit (The way this has been implemented is well-documented in this paper). Electric utilities then trade in these allowances. Each utility has to maintain a portfolio of emissions allowances reflecting the time pattern of expected and actual emissions, with some advance auctions involving allowances useful seven years into the future. An allowance must be in the portfolio for every ton emitted. Both spot and advance auctions and trades are ongoing. This market bears watching as we consider developing a similar kind of market for carbon. Yet, it is not at all clear how a carbon (dioxide) emissions market will interact with a carbon storage market, for which the sulfur case provides little insight in that sulfur is not being purposively stored. Hahn, R. W. The Economics and Politics of Climate Change. Washington, D.C.: The American Enterprise Institute Press, 1998. Hahn notes the "ubiquitous nature of sources and sinks" (p. 24) on an international/ global-wide scale calling for a coordinated, cooperative response. Primary vehicle to promote such cooperation has been international negotiation. In June, 1992, 165 states met in Rio de Janeiro and signed the Framework Convention on Climate Change, with 160 ratifying same within 2-years (p. 25). This is a treaty calling for (Hahn citing the treaty, p. 25), "stabilization of greenhouse gas concentrations to the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system." Initial goals were set that year to reduce emissions to 1990 levels by 2000. This was modified at the Berlin Conference of the Convention in 1995, and again at the 1997 Third Conference of the Parties leading to the Kyoto Protocol specifying an ultimate goal of 5.2% below the 1990 levels in 2008-2012 (p. 26). The U.S. goal was set at 7%. Covers six gases: carbon dioxide; methane; nitrous oxide; hydroflourocarbons; perfluorocarbons; sulphur hexafluoride. Countries can meet emissions reductions by reducing fossil-fuel combustion and/or increasing the amount stored in sinks. The Clean Development Mechanism (Hahn's Joint Implementation Program, see pp. 18-19) encourages developed countries to help less developed countries use invest in and use clean energy technologies (i.e., that produce less green house gases, GHGs. The developed countries can then use the emission-reduction credits to meet their nation's emission reduction goals (p. 26). Hahn (fn. #50, p. 26) believes this program will succumb to political pressure and develop projects that are not cost-effective. Another way to address the problem, with the approaches not in any sense mutually exclusive, is to create an international emissions trading system. He also notes how the specific U. S. proposal for such a system was not accepted, although the Kyoto Protocol does "contain the principle of using flexible, market-based instruments (p. 27)." Many intriguing insights and points are made in the book, e.g., that the location (see p. 12) of the source or the sink for the stored carbon does not generally matter to the benefits of reducing emissions or storing the carbon part of the carbon dioxide, or the carbon dioxide itself stored in oceans. The location of the source and sink matters a great deal, however, on the cost side. So, the focus needs to be on cost-effective approaches to solve the problem (p. 56), with special attention to designing the institutions that lead to particular outcomes. This point suggests the question needs to be asked: Will Nebraska as a part of the U.S.A corn-belt, as well as part of the U.S. Northern Great Plains generally, be a low cost supplier of carbon storage in the U.S.A.? In the World? Intriguingly, while the carbon stored in Nebraska and the Northern Plains in contrast to somewhere else does not affect world-wide total benefits, seemingly such storage could in some cases enhance the productivity of farm and ranch land, and forestry land, in said areas, a point overlooked by Hahn. Another awfully important point made by Hahn: Property rights must be carefully defined (p. 18), whether in emissions allowances or carbon (storage) commodities else the markets will not operate effectively due to the uncertainty attached to what is being bought and sold. This points to the need to carefully characterize the allowance and the commodity stored before offering allowances or offsets for sale or actually buying same. Perhaps even more importantly, citing a study by Cooper (p. 43), Hahn notes that tradable emissions permits may not even be feasible until the world community can agree to a baseline (fixed targets for emissions in each country and world-wide), which, in turn may not be feasible. In effect, the baseline of scarcity, how many emissions allowances and how much carbon storage are really available for sale and purchase, needs to be carefully defined for each area, region, state, and country before effective marketing of either and both kinds becomes possible. Intriguingly, Hahn sees the potential for substantial transfers of wealth from the developed to the developing nations, in that the latter may have the potential for larger sinks, and also to develop with technologies using less carbon and producing less carbon dioxide (and other green house gases). With hundreds of millions of sources and sinks out there, we may simply see shifts from the developed to the less developed (p. 22). The moral dimension of the problem is implicit in several of Hahn's arguments. This is to say, emissions trading will perhaps work only with great difficulty unless all countries cut back on emissions and/or move to fossil fuel saving technologies at the outset. Yet, there is little incentive on the part of the developed countries to do so, in that less developed countries could likely absorb a great deal of the emissions, both in the sense of sinks to hold the carbon, and to not move to heavy emissions, given enough financial incentive to do so. So, we face the potential for a buy-off by the more developed without substantive changes within same, which could make a great deal of sense from a self-interest perspective on the part of both the developed and less developed countries perspectives. Yet, we are left with the sense that perhaps this is not the right thing to do. So, alternatively, we could instead put more attention to doing the right thing, i.e., focusing on the moral dimension of carbon emissions, with domestic policies in all countries devoted to reducing emissions. We also might put more serious attention to reaching a common accord across all countries on baseline emissions. In somewhat different terms, we perhaps need more attention to the moral dimension (i.e., the others-interest) jointly pursued with the self-interest (see metaeconomics, for a theoretical understanding of this joint pursuit, leading to a distinct kind of outcome that is neither and both moralistic and self-interested). Hahn's perhaps most important contribution in this book is in pointing to the need for institutional (including market mechanisms) design and testing work. He suggests that a case study approach be used, perhaps one or more case studies organized in each of several countries. Hahn also calls for following a broad and shallow approach to the emissions problem, i.e., involving all countries and not reducing emissions too quickly or deeply, in contrast to the narrow and deep approach (focusing on a few countries and asking for large cuts almost immediately), which is arguably the tenure and tone of the 1997 Protocol (see Shogren, 1999, below, for a related view, that the Protocol calls for "deep, then broad" action, i.e., asking a few countries to make substantive reductions in emissions very soon, with others simply not much involved in the whole matter, and then bringing in these countries at a later time). Seemingly these case studies would also need to focus on the value system, with the moral dimension a key part, underlying the emergence of alternative institutions. Lynne, Gary D. 1997 Kyoto Protocol: Summary and Annotations. Lincoln, NE: Department of Agricultural Economics and School of Natural Resources Sciences, August, 2000. Article by article summary and annotations of the 1997 Kyoto Protocol (need free Adobe Acrobat Reader). Shogren, J. The Benefits and Costs of the Kyoto Protocol. Washington, D.C.: The American Enterprise Press, 1999. Shogren contends that the Kyoto Protocol is misdirected in the sense that it goes to fast, and it lacks sufficient attention to incentives. He finds that the benefits of the "deep, then broad" approach of Kyoto are the same as the "broad, then deep" moderate approach he finds favorable, with the costs of Kyoto substantively higher. So, it would follow that (Benefits - Costs) will be lower for the Kyoto Protocol approach. The "broad, then deep" idea is that all countries, developed and less developed, would be given incentives to reduce emissions of carbon dioxide (and other greenhouse gases, although the book focuses on the carbon problem). The overall goals to reduce emissions to 1990 levels would still be pursued, but achieved more gradually. The appeal would be to the self-interest, consistent with standard microeconomics reasoning. He questions that "we all have a vast untapped morality buried within waiting to emerge with the right direction (Shogren, 1999, p. 36)," i.e., with the direction of the Kyoto Protocol in the "deep, then broad" approach that focuses on the developed nations first doing the right thing by cutting emissions immediately. The less developed countries are, in turn, recipients of substantial payments for storing carbon (the developed nations buying offsets from the less developed), and also receive technical and financial help to develop using carbon more efficiently. The Shogren argument needs serious consideration: The Kyoto Protocol may indeed be misplaced in trying to move too fast, as well as leading to substantial movement of money and wealth from the developed to the developing nations by the "deep, then broad" approach. The Protocol, e.g., calls for using what is called the Clean Development Mechanism, wherein capital from the developed nations would be used to fund lower carbon using technologies in less developed nations. Yet, the outright rejection without empirical support of the possibility that people (and nations) want to do the right thing, soon, and thus do not want the Kyoto Protocol (at least as currently written), also needs serious attention. Whether a stock of "untapped morality" indeed exists is really an empirical question. It may be quite inappropriate to simply assume that it does not exist as the Shogren analysis offers. The book provides an excellent overview of the essential elements of the Kyoto Protocol that need to be understood in order to seriously consider how carbon storage markets might be designed. For example, Shogren (1999, p. 37) makes the awfully important point related to storage of carbon in sinks of all kinds (including, then, agricultural land) that "We must quickly examine the nature of sinks to sort out whether the costs of measurement, verification, and enforcement exceed the benefits. . . ". As he notes, "little is known with certainty about the net uptake of the terrestrial sinks..." (Shogren, 1999, p. 9), referring specifically to North America, but a statement that perhaps applies more widely. Also, he calls for test studies on emissions markets. Such markets are recommended in the Kyoto Protocol. Seemingly, we need the same test studies for carbon storage markets, perhaps simulating same using the World Wide Web or in experimental (economics) laboratories, as well as in using survey techniques to actually contact and improve understanding of potential buyers and sellers of carbon storage. Through such studies, empirical tests for the extent to which a "vast untapped morality" is, or is not, buried within could also be considered. The ultimate answer for the process started in motion by the Kyoto Protocol will likely lie somewhere between the Shogren (1999, p. 36) admonishment that only "real incentives will be needed" and only relying on the possibility of "vast untapped morality buried within (which seems closest to the tone of the Kyoto Protocol)." Studies have shown that individuals pursue both an others-interest. . . reflecting the morality within. . . jointly with the self-interest that requires incentives (See Metaeconomics Papers). This suggests that some mixture of incentives and appeals to doing the right thing will produce the largest (Benefits - Costs) outcome. The scientific question shifts to discovering and analyzing the balance of the two forces and focusing on the convergence of the approaches.
Last update: October, 2001 |