Trade Your Personal GHG Emissions Rights

Trade Your Personal GHG Emissions Rights

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


These days, with the cacophony of words, ads and noises from people and machines, one is not sure whether a certain thought is 'original', smoked out and fed back in with a minor suggestion, transmitted by 'telepathy', heard around or 'stimulated' as part of an IPR test (or is merely a regurgitation of what has already been published). Yet, these considerations should not matter when an idea is in the interest of global commons. So, hear ye, hear one, hear all!

We are already in an era where one could buy in to emissions offsets to pay for the environmental excesses of our actions. Those environmentally conscious buy emissions offsets, ie, reductions in emissions elsewhere, for their business or leisure activities, for example, flying. As an economist, I have mixed reactions. Emissions offsets are an interesting means of obtaining voluntarily participation from the population at large in containing global warming. This is particularly important when our heads of states are unable to agree to a common charter of emissions reduction strategy. But it worries the theoretician in me that the emissions offsets are not strictly the classical optimal tax on emissions-generating activities. The Offsets firm charges you for every gram of CO2 attributable to you. As to how they arrive at that estimate is a mystery. How would you 'divvy up' emissions from a plane flight across the 20 first class passengers, 30 business class and 200 economy class passengers, some of whom would not have traveled if the fare had not been discounted heavily? And what about those bags of mail accompanying your baggage? More importantly, how does the firm know how much of the externality is internalized in the fare and how much not? After all, aviation fuels and air travel are taxed and the fact that the tax is for revenue purposes does not detract from its environmental qualities. Right? So, do these offset firms compute the amount of tax reflected in the fares with different degrees of discount in them? I'd be surprised if they did. More importantly, do they achieve efficiency and global participation? I think not.

If it is truly global participation that we desire, why not consider creating a personal lifetime quota of GHG emissions – call it 'personal emission rights' (as opposed to endowing the industry with the right to emit)? Every human being could be endowed with a tradable and bankable lifetime quota of GHG emissions on birth. Those who wish to engage in emissions-releasing activities, whether individuals, industry or the government, would need to buy emissions units from the online market. Sounds interesting? It is, at least on paper. That quota could be, perhaps should be, equal for every citizen of the world. To grapple with the rising trend in global warming, it might be necessary to denominate the bequeath in the prevailing and projected CO2 concentrations. Higher the ambient CO2 concentration, the lower the initial bequeath. As an add-on rider, one could even add or invalidate an annual emissions amount from all 'quota holders' depending on the change in ambient CO2 concentration.

One may buy or sell emissions units from the online market participants much like you bank, buy or sell stocks and ETFs. Every purchase of airline ticket, cruise vacation or car rental, a bag of rice or atta and the likes would attract a deduction from your emissions quota when you swipe your card to pay. A child born to a wealthy with a lifetime quota of, say 10 tonnes GHG, could buy emissions units from a child born in Sub-Saharan Darfur, thus paying for his/her environmentally damaging lifestyle even while enriching the seller for accepting a lower standard of living. Call this an anti-poverty strategy, if you would so like to. The lifetime quota provides opportunity for parents and the child to plan important activities over a lifetime, in particular, GHG-intensive activities like weddings, vacations, or the purchase of a car. If the price of quota units were sufficiently high, one could even postpone purchases or trade the vacation in (Hey, $5000 dollars for missing out on a week's vacation ain't bad, at least for those not on the World's 100 Richest list!). Some would trade their quota units for a lumpsum at an opportune time (for tuition perhaps?). Others, like the pious in Tibet, could collect a handsome pot for their next life if they so wished, or 'bequeath' it to the aged or paraplegics wishing to fly in to the 'tequila sunrise' or the 'sunset on Santa Monica boulevard'.

As for business, clearly, industries, firms and corporations would need to buy emissions units from the general public to 'fund' their emissions-releasing activities. The price of emissions would be dictated by demand and supply in an online global emissions market. Firms would plan their investments and activities taking cognizance of their GHG-intensiveness, and the price of quota units. A basic materials refiner would pay much more than a computer chip maker, in the process internalizing his release of GHG emissions. As the public feels more apprehensive of global warming, they would have the option to 'retire' banked emissions units, thus decreasing supply and increasing the going price of emissions units. This would provide a signal to the industry to move to cleaner technology, reduce production or increase product prices – eventually resulting in moderation of economic activity and a reduction in emissions. Online global trading permits spatially and temporally efficient allocation of activities. The system puts a price on CO2 emissions – a price that is endogenously determined by the perception of participants in the emissions market. It has all the advantages of an emissions trading systems proposed by environmental economists and more. It induces a competition for low-emission activities and prods the adoption of cleaner technologies as a means to reduce costs and increase profits. It brings about global re-allocation of production and consumption and redistributes wealth in an equity-enhancing manner.

I could say more, but time is fast running out on the blue planet. To close this blog, as useful as the concept of emissions offsets is in starting a trend of voluntary participation in global warming reductions, what we need is an online global, emissions units banking and trading facility, not merely voluntary participation in emissions offset. How I wish this system were retroactive. Haven't driven a car or traveled on plane for ages now!

Hey, no cruise vacations in Alaskan waters with scantily-clad babes either!!! Hey!