Wednesday, September 24, 2008

Global warming calls for global commitment and local action

Emission trading will not work!

We should recognize that a global emission trading scheme will only sabotage real efforts to reduce emissions. It's a scheme designed by neocons and polluting industries, who aren't interested in reducing emissions, but who seek to exploit the situation in order to sell nuclear plants to developing countries, which will have to be paid for with emission credits that will in turn let polluters in developed countries off the hook. The neocons see this as an opportunity to send troops abroad to supervise operation of plants and shipments of uranium, nuclear waste, etc. It's a recipe for dictatorship and for global economic, social and environmental disaster.

Global commitment, local action

Instead, we should reach a international agreement that makes more sense, and we should reach this agreement soon, at the latest in Copenhagen in 2009. This agreement should merely set binding annual reduction targets that each country should meet. This agreement should let decisions how to achieve those targets be taken locally, while preparing for trade sanctions against those who fail to reach their targets.

It should be left to local communities to each decide on the technicalities of how to reduce their emissions. After all, conditions differ from place to place; some technologies will work better in one area than in another area. There are many ways to, say, produce clean and safe energy; wind turbines may be attractive in some areas, solar energy may become more prominent elsewhere, while yet another area may predominantly exploit geothermal power; many areas may also prefer to import electricity. Similarly, hydrogen may well become the dominant way to power ships, while cars will predominantly drive on battery power in future.

What policies work best?

Meanwhile, we should be discussing what are the most effective policy instruments to both discourage sales of products that cause emissions and encourage sales of better alternatives.

Feebates are most effective

A framework of feebates is in my view most effective, each with fees imposed on a specific type of product and with proceeds in each case used to fund rebates on local supply of better alternatives. Such a feebate policy only needs to insist that alternatives are clean and safe - market mechanisms can best sort out what works best where.

A framework of feebates is the most effective way to facilitate reductions, because feebates have a double impact, in that they impose a fee on whatever needs to be discouraged, while then using the proceeds of these fees to fund rebates on better alternatives. Market mechanisms can best sort out which products deserve to get rebates.

Different areas can implement feebates in different ways. This flexibility makes feebates attractive for areas with unique circumstances that make a universal policy less applicable. Feebates can target whatever product causes most emissions in the respective area and establish a shift to the better alternatives available in each area.

Feebates are budget-neutral - proceeds of fees can accumulate in a trust, thus creating a pool of money from where rebates can be paid on a first-come-first-go basis. If needed, the trust can take out loans to ensure early payment of rebates.

Implementing FeeBates

Feebates are most effective when applied locally, i.e. by using the proceeds of fees collected in an area to support the better alternatives that are supplied in that same area. That way, most money will be used to make changes where they are needed most.

Instead of prescribing a specific technology, a feebate policy should simply encourage better alternatives, e.g. by insisting that alternatives should be clean, safe and otherwise acceptable to the community. A good feebate policy will optimize market mechanisms and respect consumer choice, which will further increase the overall effectiveness of the policy and minimize bureaucratic overhead.

Fees are best calculated as a percentage added to the price of a product. Similarly, rebates are best calculated as a percentage of the sales price. This also increases the effectiveness of the policy by minimizing bureaucratic administrative overhead.

Fees can be initially low, say 10% of the sales price. Especially when alternatives still have little marketshare, such a 10% fee will create a huge pool of money from where rebates can be funded. Rebates can then be high, say 50% or even more, to facilitate a gradual but swift shift to better alternatives. Once the shift takes place, percentages could change, i.e. fees could be increased, while rebates could decrease. This way, the feebate will phase itself out as the shift eventuates.

Proposed FeeBates

Over the years, I have proposed a number of feebates, including:

- a 10% fee on sales of new gasoline cars, with rebates on local sales of zero emission vehicles;
- a 10% fee on sales of fossil fuel, with rebates on purchase and installation of local facilities that produce energy in safe and clean ways;
- a 10% fee on sales of building and construction work that uses polluting concrete (i.e. that contributes to global warming), with rebates on local purchases of clean concrete;
- a 10% fee on sales of fertilizers, with rebates on local sales of agrichar (or biochar); and
- a 10% fee on sales of meat, with rebates and vouchers on vegan-organic meals served in local restaurants.