Calibrating Credulity for Copenhagen

By Phil Levy

Amidst the dire warnings and the pledges and the general cacophony coming out of the global climate talks in Denmark, how can we separate real progress from — forgive me — hot air?

It can help to set up our own scorecard. Let’s set aside qualms about the way scientists have handled questions of global warming and stipulate that the goal is to reduce worldwide emissions of greenhouse gasses. Because these gasses float across national boundaries, this is a global problem.

We can ask the question dear to the hearts of secular economists: WOOPS — What would an Omnipotent and Omniscient Planner Support? In this case, a wise and benevolent social planner would balance the costs and the benefits of global emissions reductions, set global targets, then allocate the reductions across countries so as to minimize the total costs. If the resulting burdens fell more heavily on China than on the United States, the U.S. Treasury would just cut Beijing a check to ensure an equitable outcome.

This does not seem terribly far removed from what the Copenhagen conference is trying to achieve, nor Kyoto before that. The problems lie not in the grand concept but in some familiar and gnarly political and international relations hurdles. Here are four.

1. Two-level games. Robert Putnam introduced the idea that any agreement must win over both international negotiators and their domestic constituencies. Senator Jim Webb (D-VA) just helpfully reminded President Obama of this in the climate context, warning in a letter that emissions reductions were not to be set through presidential promise, that “only specific legislation agreed upon in the Congress, or a treaty ratified by the Senate, could actually create such a commitment on behalf of our country.” Bon voyage, Mr. President. As it happens, the Senate has expressed little enthusiasm for pending cap-and-trade legislation. If it is any comfort, our Australian friends are having similar issues.

2. Observability and Verifiability. If the United States and Europe restrict their emissions, but China and India do not, then global emissions might not fall, and could even increase. In any scenario, every nation would have a strong incentive to free-ride on an agreement, forgoing the costs of abatement while enjoying a cooler global clime. Yet verification is a particularly difficult issue. First, these emissions can be widely dispersed and difficult to measure. Much of the discussion has focused on the more manageable task of verifying specific emission reduction projects, but these will do little good if the emissions reemerge elsewhere in the country. Second, there is strong reluctance among developing nations to accept even a limited verification program. According to a New York Times report today from Copenhagen:

[A] document was said to be framed by Brazil, South Africa, India and China. It made no mention of specific commitments on their part and rejected outside auditing of projects to reduce emissions financed by those countries on their own.

In other words, no checking up on overall emissions, no checking up on home-financed schemes, just oversight on foreign-funded projects.

3. Intertemporal Commitment. Much of the climate discussion involves long-range targets, such as the promise that U.S. emissions in 2050 will be 83 percent below 2005 levels. In 2050, Barack Obama will turn 89 years old and even Robert Byrd may no longer be in the U.S. Senate. It is notoriously difficult to make such commitments across time. The United States Congress annually undoes its past promises to cut Medicare spending and to apply the alternative minimum tax more broadly. One way to make painful emissions reduction promises credible would be to front-load the pain, but that seems highly unlikely in the midst of the current recession.

4. International Payments. In the study of international trade, it is taken as given that countries will not just hand over money to each other. They may tweak tariffs, quibble about quotas, or rejigger regulations, but they will not just hand over cash. We assume this because such payments are relatively rare. There is aid, U.N. dues, and the occasional instance of reparations, but overall very few instances where large credits and debits are settled between governments. More specifically on the minds of developing negotiators is the observation that “past commitments under earlier climate pacts have largely gone unpaid.”

Our benevolent social planner would likely find cutting developing country emissions more globally efficient than cutting in the developed world.  But that then brings demand for high-stakes compensation, which can be politically challenging. From the Wall Street Journal:

U.S. climate envoy Todd Stern has called a developing-country suggestion that industrialized countries contribute as much as 1% of their gross domestic products “untethered from reality.”

Instead:

The U.S. and the European Union have said they are willing to provide their “fair share” of a total global figure of $10 billion a year from 2010 to 2012.

That amount “would not buy developing countries’ citizens enough coffins,” said Lumumba Stanislaus Di-Aping, Sudan’s U.N. ambassador, who represents the Group of 77, a body that includes China, India and Brazil.

The challenge for Copenhagen is to overcome not one but all of these major political obstacles. My favorite expression of skepticism was in the Financial Times:

When questioned, most Danes expressed enthusiasm for the conference even if some are cynical about the likely outcome. “They will do just enough to make it look like they’re doing something,” said Christian Jensen, a student.

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