RE: [asa] Political Economy of Carbon Trading

Is not Carbon Trading the closest thing to "having your cake and eat it
too?"

Moorad

________________________________

From: asa-owner@lists.calvin.edu [mailto:asa-owner@lists.calvin.edu] On
Behalf Of Rich Blinne
Sent: Monday, April 09, 2007 2:39 PM
To: David Opderbeck
Cc: asa
Subject: 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, 9 Apr 2007 14:56:35 -0400