Cancun and global cap and trade
Just as we move onto the topic of international public goods and multilateral negotiations on trade and climate, a significant negotiating meeting is happening in Cancun Mexico (this follows on the heels of a meeting in Copenhagen a few years ago).
What's being discussed and negotiated is how to put in place a global cap and trade agreement to limit global emissions that are believed to contribute to global warming. Under a cap and trade system a global cap on the amount of emissions (measured say in billions of tons of CO2 gases) is set and tradable emission permits are set equal to that amount. Loosely, if you want no more than say X billion tons of CO2 gas emissions in a year only X billion permits are issued. Each country is allocated a quota of permits, and these are allocated within each country and are made tradable on international markets. Then if say a coal-fired electricity generator has only enough permits for 1000 tons of CO2 gas but it wants to emit 1500 it would have to buy 500 on the market. This would raise their cost of producing electricity in ways that economists would say force them to internalize externalities, and this should encourage the entry of new cleaner ways of producing energy and lead countries to become more energy efficient generally, since countries that use less than their allocated quota of permits can sell them for cash.
That's the general conceptual idea. Cap-and-trade market systems have been tried and work well in many contexts, for instance they have been used in the United States for decades now to cap the level of sulphur dioxide emissions which had been contributing to so called 'acid rain.' Lots of problems remain to be resolved in practice however before this can be brought to a global scale. Points of disagreement include how to measure and monitor emissions and, most significantly, how to initially assign the pollution permits across countries.
Time magazine wrote a recent update as the Cancun conference was getting started. Some excerpts:
"CopenCún That's what World Resources Institute president Jonathan Lash has called the upcoming meetings, because Cancún first needs to deal with the hangover from the Copenhagen Accord. The accord was drafted as a way to sidestep the problem of dividing up emissions reductions, which has plagued international climate negotiations for nearly two decades. Instead of agreeing to mandatory emissions cuts, the agreement lets countries — developed and developing alike — declare what they'll do on a national level. (So the U.S. declares it will cut emissions 17% below 2005 levels by 2020, while China pledges to reduce its energy intensity — the amount of energy used per unit of economic output — 40% to 45% from a 2005 baseline.)
This is progress but...
... it's hardly the same as a global carbon market — a long-standing dream of greens — and a recent report by the U.N. Environment Programme found that even if every country fulfilled its pledges under the accord, it would represent only 60% of the carbon cuts needed to keep warming from reaching dangerous levels....[and] it's not at all clear if even that limited promise will be fulfilled. China had to be dragged kicking and screaming into the accord, mostly because it opposed the American insistence that all pledges be "measurable, reportable and verifiable." While China has moved forward with green actions — aggressively investing in renewable power and energy efficiency — it has steadfastly resisted making those efforts binding on the international level. At the same time, with cap and trade dead and a Republican House preparing to convene, it's far from clear how the U.S. will live up to its own promises. If this isn't settled at Cancún, the accord could be headed for discord.
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