Bush is right

Shock tactics to get your attention. I know it sounds unlikely. But really, he is.

He is calling for a "new framework" to replace the Kyoto Treaty (which comes to an end in 2012). David Miliband helpfully clarified on Radio 4's The World Tonight, that he didn't really mean it in the sense of a replacement for Kyoto, because he had acknowledged that the new framework would also be under the auspices of the UN. I'm sorry David - you might want to look for signs of continuity, but in no sense does this imply the continuation of Kyoto, any more than your second wife would imply continuation of your first marriage, just because you are still living in the same house.

What Bush means, in particular, is that any replacement for Kyoto must not be based on the failed cap-and-trade approach, as embodied in the European Union Emissions Trading Scheme (EU-ETS). And it is this that he is right about. Cap-and-trade is the wrong approach, in principle and in practice. What follows is a long and technical paper I have prepared (PDF version here) explaining why it is wrong, but let me first summarise it for those of you who have got better things to do with your time.

  1. The reasons why Phase 1 failed have not gone away. The EU-ETS is failing to deliver sufficient savings from the sectors and countries covered by it to make their contribution to a target which, if achieved, might reduce temperatures by 0.06°C relative to what it would otherwise have been in 2050.
  2. Is it anyway possible to devise a rational basis for allocating emissions-rights? Looking at the current allocations, there is (presumably) method to these allocations, but not logic. This is a central-planner's wet-dream, and a libertarian's worst nightmare.
  3. One of the problems with the EU-ETS is its failure to deliver long-term price signals. It is typical hubris of politicians to imagine that they can reduce this uncertainty by declaring their intentions for a time when they will almost certainly not be in power, and for a market over which they have only partial control. It is likely that not even increased federalism would be sufficient to deliver greater certainty, and only a Napoleonic solution would suffice.
  4. Even if the EU-ETS could be made to work efficiently, fairly and on a long-term basis, it would disadvantage European nations for as long as other nations did not impose similar costs of carbon on themselves. We will be suckers in a rigged global market for hot air.
  5. The allocation of emissions rights to existing players rewards dirty incumbents and disadvantages their cleaner and newer competitors. The role of government, almost the only real role in the anti-trust/competition area, should be to prevent incumbents from erecting barriers to entry, not to institute those barriers for them.
  6. All carbon emissions have an equal impact and should be valued accordingly. Our incentives are upside down, and they are largely so because there is not a single carbon-price applying equally to large and small installations and to the fuelling of electricity, heat and transport. And the reason that we do not have such a simple, integrated pricing mechanism is largely because we fetishize a discredited cap-and-trade system that is not only wrong in principle and practice, but cannot practically be expanded to cover all sectors.
  7. Even if cap-and-trade mechanisms like the EU-ETS could be broadened to cover all emissions sources from all locations and tightened to provide meaningful savings through tight and strongly-enforced targets, they would be the wrong approach:
    1. Cap-and-trade produces an irrational, discontinuous demand curve.
    2. All current cap-and-trade schemes focus only on gross emissions, and usually only from particular sources.
    3. They apply a positive price to non-carbon rather than a negative cost to carbon, which has unavoidable ramifications for the misvaluation of the contribution of various solutions.
    4. Cap-and-trade assumes that there is any rationale for an arbitrary cap. The balance between investing in adaptation and mitigation should not be decided for us by scientists, but discovered in markets that establish people's preferences and perceptions of the balance of risks.

There is no way of adapting cap-and-trade mechanisms to satisfy these objections. We should carry through with Phase 2 of the EU-ETS, because the market had a reasonable expectation that it would be implemented. But we should agree now to put it out of its misery after that, and to use the period before 2012 to negotiate an alternative system to replace Kyoto – one that provides a more rational price, reflecting all sources and sinks, and taking account of adaptation as well as mitigation, and that is agreeable to all nations, or at least all major emitters. There are alternatives, if Europeans are prepared to open their minds.

Anyway, the full paper follows below. You might want to make yourself a cup of tea before you set to work on this.


International disinterestedness

What do the following have in common?

  • The top 16 in the Eurovision Song Contest consist of 14 former communist-block countries, plus Greece and Turkey. As usual, regional block-voting dominated the outcome.
  • Zimbabwe was elected to head the UN's Commission on Sustainable Development, thanks to the African block choosing to put African solidarity and contempt for the first-world ahead of responsibility.
  • Every member of the EU except Britain defrauds the first phase of the EU Emissions Trading Scheme by overestimating their potential emissions and setting themselves targets that are so easy to meet that they can profit from excess emissions rights without having to make serious efforts to reduce emissions. The value of carbon in EU-ETS collapses as a consequence, and no significant reductions of emissions are attributable to the first phase.
  • Concerted action on Darfur is undermined by the self-interest of countries like China, India and Malaysia.
  • Concerted action on Iran's nuclear programme is undermined by Russian self-interest.
  • Russia is trying to put together a gas cartel along the lines of OPEC, in order to control the price of gas to its mainly Western customers.
  • Progress on reform of agricultural support and protectionism at the WTO is hampered by regional blocks trying to maximise their advantage. Rich countries like France are quite prepared to sabotage the process in order to protect the profits of the 3% of their population now engaged in farming. Their old, supposedly right-wing government has refused to countenance any reduction of support under the EU Common Agricultural Policy. Their new, supposedly right-wing president has called for Europe to be more protectionist.

Lies, damn lies and UNICEF reports

Britons have been indulging in a bout of self-flagellation over our bottom-ranking in a recent UNICEF report on childhood well-being. Each person, of course, chooses to blame the result on their personal bête noire. No doubt there are many things wrong with British society and many complex causes, but before rushing to our knee-jerk reactions, no one seems to have bothered to consider how much water this report holds. It's from the international body representing children, so it must be impartial and accurate, right?

Well, not exactly....