Is a nickel enough to keep these bottles out of the trash? (Credit: Charles Rex Arbogast/Associated Press)
The exploration of ways to create a “sellable” approach to the daunting task of establishing a firm ceiling on greenhouse-gas emissions is important enough that I’m adding another post on this for the weekend.
A Dot Earth reader, Jay Rappoport, followed up on Peter Barnes’s proposal for a “cap and dividend” system with another take on the idea that’s worth highlighting here, if only because the central metaphor is so easy to absorb — having a “bottle bill” for climate.
Of course, one problem with most bottle bills around the United States is the fee hasn’t risen to adjust for inflation, so many bottles still go into the trash because the five-cent surcharge is a yawn. And many drink containers (like all those water bottles!) are left out in most cases. (This recent Green Counsel post about troubles with an updated bottle-bill law in New York State is worth a look.)
In the case of climate, the fee would have to steadily rise to propel a steady shift away from energy choices that come with a lot of carbon dioxide releases, and it’d have to encompass all sources (and perhaps credit “sinks,” like new forests, that sop up the gases). Is that sellable?
Here’s Mr. Rappoport’s thesis:
I have been nursing a similar concept for perhaps 25 years, which I had first conceived in a sophomore economics class back in College in the early 80’s, when the ideas of externalities and market failure came together for me.
I believe this principal is as important and fundamental to understanding the general progress of human civilization, as the concept of erosion is to geology.
Without further delay, here it is:
UEMF; Recognizing and Addressing The Universality of Environmental Market Failure. By Jay
Rappoport - 11/17/07.Introduction
The question to be addressed here is that of managing human generated global warming specifically, and more generally the larger question of sustainable growth, as all follow from the same underlying causes, and are amenable of the same solution. What follows is a brief discussion of the issues, and an effort to reframe, refine and build upon the emerging consensus view concerning the ‘cap and trade’ approach, and to suggest the minimum regulatory structure necessary to this end. The structure suggested here may be public, private, or collaborative.
Economic vs. Natural property
The fundamental underlying issue in this discussion is property rights. Everything that follows, turns on understanding the role of property rights in the market.
So to begin, consider everything in the world as a ‘good’, and falling into one of two types; as either part of ‘The Economy’ and therefore an ‘economic good’, or alternatively, ‘The Natural Environment’ and as such, an ‘environmental good’. The only difference being, that ‘goods’ in the economy have a defined property right, and that ‘goods’ in the environment do not. (Often referred to as “externalities” in economics, examples of environmental goods might be the polar ice caps, unpolluted water, the earth’s atmosphere, and so on).
An economic good can be bought and sold, only because it is owned by someone who had the
property right to sell it. An environmental good cannot be sold, because no one owns it to sell it. As an example, imagine a stranger offering to “sell you The Brooklyn Bridge”.In order to sell an environmental good, ownership must first be established, at which point it becomes an economic good, and can then be sold. So, until ownership has been established, an environmental good cannot be sold, nor hold a price in the market.
Markets, Pricing & Incentives
Because environmental goods lack a property right and are therefore unable to hold a price in the marketplace, so far as the market is concerned, their ‘pricing’ is effectively pegged at zero value. This perception of the pricing of environmental goods as being at or nearly zero has profound consequences in the economic arena.
To the extent that there is model validity in saying relative profitability can be expressed as a comparison of profit/cost, then as environmental costs are pegged at or near zero, the relative profitability of environmental goods is perceived in the market as ‘very high’, if not infinite. (Consider for example the proliferation of spam email, with a marginal cost of zero per email. How much spam would be eliminated if there were a cost of 0.001 cent per email?)
The strength of this market incentive is phenomenally powerful. If behavior is proportional to incentives at the margin, there can hardly be a stronger signal in the marketplace. The incentive to consume environmental goods raises the occurrence of environmentally consumptive behavior without limit.
I describe this condition as a ‘market failure,’ though I do not believe that markets have in any sense ‘failed’ or ceased to function. The frenzied activity of consumption is a wholly rational and predictable result of the underlying incentives to which the economy inevitably responds. I call this global incentive effect, the universality of environmental market failure.
The overall effect of this principle is as predictable as water rolling downhill. Economic activity will be directed away from the consumption and exploitation of economic goods, and flow into the sphere of environmental goods, because of the relative incentives driving economic growth in that direction.
It is this underlying landscape of incentives which directs the course of economic activity everywhere. So whether we are talking about the extraction of natural resources from the environment, or the discharge of waste into the environment, they both follow from the same underlying cause; these activities are all directed by the underlying landscape of incentives.
It is a legacy policy handed down to us historically by default, and operates at a level of efficiency undreamed of in modern planning. The excessive production of carbon, as well as deforestation, and all forms of pollution, all result from this principle of incentive driven hyper-accelerated consumption of the environment.
Any solution, in order to be fairly called ‘a solution,’ must compensate for this imbalance in underlying incentives. Because if we do nothing, the incentive imbalance remains, and the results are inevitable. The economy at large remains programmed to consume the natural environment everywhere possible, as quickly as possible, without limit. And no amount of individual goodwill or conscientious central planning can be reasonably expected to outrun the market effect of the underlying and unrecognized incentive imbalance.
The solution then, is to be found in re-balancing the underlying landscape of incentives, so that economic activity is directed towards restoring the environment, and rehabilitating the economic infrastructure towards this end.
To accomplish this, every economic decision must sufficiently recognize the true scarcity of environmental goods in its calculation. From the individual consumer, to the largest multi-national company, to sovereign nations: consuming the environment must cost, and preserving the environment must pay. The question is how much, and by what means?
The key to an optimal solution is to have the cost reflect the true scarcity of environmental goods. If the price is too high, the policy is unnecessarily restrictive. If too low, then the incentive is insufficient. For this reason, the ‘cap and trade’ approach seems most well suited to the problem, as a general proposition.
However, what are the rights to be capped and traded, and where do they come from?
To start with carbon trading as a stop gap measure, simply because the global consensus exists to move forward, makes sense as a starting point. But the amount of permits should be based in principle upon the earth’s natural ability to absorb and recycle carbon generation.
And the payment for these rights, as established through market trading, should be directed to the owners or caretakers of the environmental resources which perform those recycling functions.
I envision a web-based global system for monitoring the state of the natural environment around the world; scientifically determining how much of the environment is available for economic use; allowing those rights to be bid to their natural level in the market; incorporating those environmental costs into economic decisions; and channeling the money generated to the holders of environmental resources, who are in effect, selling their environmental goods and services to the world.
Like an enormous “bottle bill,” an environmental deposit can be paid when the environmental resource is utilized (or extracted), and returned when the resource is restored to its natural state.
I see every citizen, business entity and sovereign government having an account at a centralized web-based agency. Each member has assets, and each has liabilities. The economic payments for environmental uses can be borne and shared by governments, businesses, and citizens.
I would like to see a portion of the capital flow be made available to local citizens and municipalities through local micro-investment institutions, like Grameen.
There are any number of structures possible within this general framework. What is essential though, is that every economic agent be incentivized at the margin to participate in and support the global organization as a whole.
— Posted by Jay Rappoport
