Re: [asa] Political Economy of Carbon Trading

On 4/9/07, David Opderbeck <dopderbeck@gmail.com> wrote:
>
> Good article from the London Review of Books:
> http://www.lrb.co.uk/v29/n07/mack01_.html
>
> From the conclusion:
>
> Almost certainly, though, if there is such an international agreement
> carbon trading will be at its heart. That will again raise the issue of the
> ratchet, the need for a mechanism to stop a carbon market failing because
> the caps haven't been set low enough. Finding such a mechanism has been hard
> enough even in a partially unified polity such as Europe; it will be much
> harder globally. Furthermore, even if the world can find its ratchet, carbon
> trading shouldn't be expected to solve on its own the problem humanity faces
> in curbing emissions. Global efforts to do that are in their infancy, and it
> would be folly to neglect other policy measures that could help, such as
> direct government regulation (a small but important example is the phasing
> out of old-fashioned, inefficient light bulbs), massively increased research
> and development spending, and a well-thought-out policy for tackling the
> many practical obstacles to the uptake of energy-saving measures and the
> cleaner technologies that already exist.
>
>
>

Whenever the issue of carbon trading comes up it gets presented as a false
choice. It goes without saying that carbon trading is not the universal
answer to the problem. The issue is whether there are other mitigation
strategies that could be a supplement this to make it more successful and
were more or less successfully catalogued above.

Unfortunately, carbon trading's biggest critics fall in the adaption only
crowd. For example, the same people who opposed cap and trade were saying
that EPA shouldn't regulate green house gases or that states couldn't do it
either. Those who criticize cap and trade should present those things that
would supplement it rather than replace it. Those who promote carbon trading
may be making a type I statistical error while the adaption only group may
be making a type II error. The latter can be as far more costly from an
economic standpoint. When a Thompson Rivers University study viewed the
problem in this way it confirmed the Stern Review that estimated unnecessary
cost of around 1 percent of global GDP for the type I error versus an
unnecessary cost of around 5-20 percent of global GDP now and forever for
the type II error. You will also note that the real problem stated above is
that the cap and trade is too lenient. If there is really a type I error
this saves money. If humans are not causing the increase of CO2 then the
price of Carbon naturally crashes because doing nothing makes money (the
preferred human condition :-) ). Cap and trade is the safest route
irrespective if we are wrong or not. If we are wrong, it's cheap. If we are
right we have a cap because as the most recent IPCC report shows there are
huge consequences, especially for the poor, of going over 3 degrees C above
current temperatures.

> "[The argument whether climate change is caused by humans is] moot," says
> Peter Tsigaris, an economist at Thompson Rivers University, in Kamloops, BC.
> He continues: "The important question is the cost of these opinions being
> wrong relative to the cost of the IPCC report being wrong in its
> assessment." In a thought-provoking statistical analysis, Tsigaris has
> concluded that whether or not climate change can be wholly attributed to
> human factors, it makes strong business and environmental sense to take
> action and mitigate the effects of global warming beyond taking measures to
> adopt.
>
> He arrived at this conclusion as a result of creating the solution for a
> question he posed to his statistics students.
>
> Tsigaris asked, "A claim is made that global warming is caused by humans.
> Set up the null and alternative hypothesis for this claim. As a scientist,
> you want to test that the above claim is true beyond a reasonable doubt.
> Discuss in terms of the type I and type II errors that are associated with
> the claim, and discuss the implications of the errors in terms of their
> associated costs."
>
> The null hypothesis, considered true unless the evidence brought forward
> throws serious doubt on it, is that global warming is not caused by human
> activities; the alternative hypothesis is the claim that it is. In the
> analogy of our justice system, a person on trial is assumed to be innocent,
> the null, until the evidence indicates that (s)he is guilty, the
> alternative, beyond a reasonable doubt.
>
> Now for the interesting part. "As a scientist, in order to reject the null
> and thus accept the alternative, there has to be evidence that goes beyond a
> reasonable doubt. In statistical terms, the observed test statistics from
> the evidence pass beyond a reasonable doubt," explains Tsigaris.
>
> If the scientist rejects the null, based on strong evidence in favour of
> the rejection, there is still a small chance of making a type I error. In
> the same way, acceptance of the null might be the wrong decision. The latter
> decision would be associated with a type II error.
>
> "A Type I error implies that you have accepted that global warming is
> caused by humans when in fact it is not, while a Type II error implies the
> opposite," he says.
>
> "As one of my statistics students, Robert Guercio, wrote in his exam
> booklet, 'The cost of a type I error would mean spending a great amount of
> money and time focusing on how we can stop humans from causing global
> warming when humans are not the problem, but the cost of a type II error
> would mean spending a great deal of money and time on finding what is
> causing global warming and then continue to work on some factor of global
> warming, but not focusing on the real factor, humans."
>

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Received on Mon Apr 9 14:39:29 2007