TT's Lost in Tokyo — by TokyoTom

[UPDATE:  See my follow-up post.]

Cato Unbound’s new climate issue features a lead essay by Jim Manzi, who is an MIT- and Wharton-trained statistician and CEO of Applied Predictive Technologies (which uses pattern recognition and optimization models for sales and marketing).

Manzi is a newcomer to the climate commentary scene, but has made a splash in conservatives circles over the past year or so through a series of articles in the National Review and The American Scene.  Manzi’s bio at Cato states that Manzi’s position is that “global warming, while real, is a problem of limited magnitude, deserving a proportional response, not overreaction“.

Manzi’s essay at Cato is a polished rehashing of points that he has made elsewhere, tweaked shamelessly to appeal to libertarians, as in this lead-off paragraph:

“The danger of potentially catastrophic global warming is an almost paradigmatic case of decisionmaking under conditions of extreme uncertainty.  Of course, this is just another way of saying that many of the intellectual sinews of libertarianism are central to thinking through this problem.” (emphasis added)

While the essay is worth consideration, aside from this initial mention, it is painfully evident that Manzi’s “libertarian sinews” are rather flimsy; indeed, Manzi:

•  makes no mention of basic Lockean-based libertarian principles (rights to property in one’s own person, in the fruits of one’s own labor, and in resources taken from nature when mixed with one’s own labor; and duties to abstain from harming others, from taking property of others, and to leave enough and as good for others when taking from the commons) that are relevant to environmental and public policy issues (see Rothbard; Edwin Dolan has laid an application of Lockean principles to climate change here; );

• fails to acknowledge “environmental” problems as cases where resources are not clearly or effectively owned, either individually or on a community basis, so that some economic actors do not bear the costs or risks of their actions, which costs or risks are shifted to others against their will (see Cordato; Jon Adler makes similar points here); and

• provides only a rudimentary discussion of public choice issues that, while noting both the difficulties of reaching a global agreement and that government policies to prepare for climate change may be both inefficient and hijacked special interests, disregards the possibilities that effective international steps can be taken by just a few countries and completely fails to consider the role that special interests have played to date in manipulating government policies and in protecting the “GHG emissions/risk-shifting is free” status quo.

Rather, Manzi:

(1) argues that the estimates for future damages that the IPPC derives from models appear rather modest,

(2) downplays the widespread agreement by economists (like Nordhaus) and others that standard cost-benefit analysis provides ample support for carbon pricing (particularly in the form of carbon taxes) now,

(3) argues that we cannot adequately gauge the “massive uncertainties” regarding the “danger of potentially catastrophic global warming” (addressing but failing to mention Weitzman),

(4) argues that the US should not adopt “insanely expensive” measures to “force massive change in the economy” via “rapid, aggressive emissions reductions”,

(5) lumps climate change in with other, external risks (like pandemics and rogues states, which risks, oddly, we actually try to manage), and

(6) and tones down his earlier pieces by presenting an artificially weakened case that,

“if there is a real, though unquantifiably small, possibility of catastrophic climate change, and if we would ideally want some technological hedges as insurance against this unlikely scenario, and if raising the price of carbon to induce private economic actors to develop the technologies would be an enormously more expensive means of accomplishing this than would be advisable,” (emphasis added)

THEN the government might be justified in investing in “improved global climate prediction capability, visionary biotechnology to capture and recycle carbon dioxide emissions, or geo-engineering projects to change the albedo of the earth’s surface or atmosphere”.

Manzi concludes with a mix of a case for a surprisingly large government climate program (even if “rife with inefficiencies”) and a bashing of the worst case, while ignoring the middle ground:

“But consider that its costs would be on the order of 1/100th of the costs of imposing a large U.S. carbon tax. It could be massively inefficient and we would still be far better off in actually developing the long–lead-time technologies that we would want if faced with a currently unanticipated emergency.

Hedging against the risk to future generations of potential unanticipated impacts from global warming is a legitimate job for the U.S. government. Ideally, it would be tackled by the governments of the small number of countries with a sophisticated technology development capability acting in some kind of coordinated fashion. A massive carbon tax, a cap-and-trade rationing system, and the attempt to use the government to control the evolution of the energy sector of the economy are all billed as prudent reactions to this risk, but each is the opposite: an impractical, panicky reaction unworthy of a serious government.”

I hope to address later various aspects of Manzi’s piece, but I think it is fair to conclude initially that it is not libertarian nor, ultimately, a balanced discussion, but rather a somewhat strange conservative position that we ought to worry about climate change and so the government should throw even MORE money at it, while refusing to harness markets to accomplish the research tasks Manzi wishes to fund or to ask those who are generating climate risks to internalize or shoulder any of the burden.

While this stance might please fossil fuel interests and their defenders, it’s hard to see what, exactly, in Manzi’s analysis – other than his opposition to “massive” carbon taxes – will appeal to libertarians.

Thomas Friedman has an op-ed at the New York Times that describes some of Denmark’s energy taxation and alternative energy policies.

No doubt these policies created distortions and in some ways left Denmark less wealthy than if such policies had not been adopted – particularly as high energy prices may discourage domestic industry to invest abroad – but as I have noted previously, a wide range of economists, businessmen and think tanks support carbon taxes in the US, particularly if they are accompanied by reductions in taxes on labor and capital.

My question, in connection with Friedman’s piece, is whether recycled carbon taxes, if coordinated by leading industrial nations (to reduce geographic shifts in capital investment), would decrease welfare globally?

I observe that the difficulties of coordination and enforcement make it highly unlikely that nations, absent dramatic climate change, will agree to very high carbon taxes.

I also observe that policies in the US to keep energy prices low bear some relation to both the health of the US auto industry and to our ruinous military engagements abroad.  Further, Denmark’s investments in energy independence have certainly spared it costly expenditures on foreign wars, and position it to make money as demand for clean energy grows. 

The right-wing Business & Media Institute has published a rather confused piece by Chris Horner, senior fellow at the Competitive Enterprise Institute, in which Horner, while noting China’s progress along the environmental Kuznets curve (as I discuss here), prefers to wring his hands that the West, in order to deal with climate change, may feel compelled to adopt the same strong-arm approach that China has taken to trying to partially clear its filthy skies over Beijing during the Olympics. 

But Horner has his paradigms all mixed up. Environmental Kuznets curves are discussed with respect to particular countries – and for good reason, as a society’s response to externalities is largely dependent upon the particular mix of property rights and other institutions which such society may rely on to protect its people and their property from harms generated by economic activity.  But despite Horner’s worst nightmares, there is no “world government” (even as growing trade and wealth is gradually bringing different countries together and establishing a very interconnected world, a world that encourages China by allowing it to host the Olympics), much less a red-handed governing elite that can impose its will on the rest of a powerless world.

Indeed, while one might very well conceive of a global Kuznets curve, it’s quite obvious that information and transaction costs, political disunity and differences in wealth and perspective across the nations of the world make it very difficult indeed for self interested countries to reach meaningful and enforceable agreements with respect to shared resources like the atmosphere.  Even so, we are more likely to see such a political agreement or resource-management much earlier than we are to see the establishment of a unified global government that is capable of exercising a monopoly on force the way the Chinese government does.

It’s the very difficulty in reaching such agreements that underlies some of the pessimism among many that man is capable of addressing in a coordinated and meaningful way various global and regional problems, from those relating to unowned or open access resources to those relating to development and poor/kleptocratic governance (from Zimbabwe to the USA).

Further, on climate change discussions, the effort has stumbled not because of strong-arming of the kind that alarms Horner, but because Western nations have tried to craft overly sophisticated and bureaucratized trading mechanisms (based in large part on US insistence and experience) that were intended to reduce costs overall.

Accordingly, Horner’s “alarmism” is rather surprising.  One would think that the difficulties that the enviros have encountered in trying to coordinate global climate change policy would hearten Horner, who is a strong climate change skeptic, both on the science and on policy grounds.  Is Horner secretly concerned that maybe the enviros are right, and that delay on the policy front is buying us unavoidable future costs – in which case governments might decide to act with greater alacrity that they have shown to date?  If not, what is he worried about?

We’ve encountered “beam me up” Chris Horner before; as previously, I find his views to be puzzling – unless Horner, like “skeptical” scientists Pat Michaels and Chip Knappenberger, is becoming a warmer.  As Michaels and Knappenberger wrote in January:

“First off, it will take nothing short of a miracle for the 50% reduction to take place, and secondly, it probably wouldn’t stop the temperature from rising 2ºC above “natural” levels. …

“But the targets won’t come close to being met as a bits-and-pieces solution will not achieve the goal of halving current global CO2 emissions by the year 2100—much less any year before then. In fact, more than likely, these legislative efforts will not, to any noticeable degree, even begin to separate the blue and the red curves for a long time to come—far too long to avoid elevating global temperature 2 degrees above “natural” levels. 

That’s what the future holds in store. Get used to it.”

Paul Krugman reaches the above conclusion in his August 1 New York Time op-ed, which asks “Can This Planet Be Saved?”, while discussing the latest work by economists on the cost-benefit analsys of taking action to mitigate potential climate risks – this time by Harvard`s Marty Weitzman, whose work I have discussed several times before).

The op-ed certainly shows the frustration of Krugman, who was one of more than 2500 Nobel Laureate and other economists who in 1997 signed  the “Economists’ Statement on Climate Change” that  acknowledged the conclusions of the preceding IPCC report (that man was having a discernable influence on climate), asserted the economic feasibility of greenhouse gas reductions without harming the American economy, and recommended market-based policies.  Key parts of the op-ed are the following:

What’s at stake in that fight [over environmental policy], above all, is the question of whether we’ll take action against climate change before it’s utterly too late.

It’s true that scientists don’t know exactly how much world temperatures will rise if we persist with business as usual. But that uncertainty is actually what makes action so urgent. While there’s a chance that we’ll act against global warming only to find that the danger was overstated, there’s also a chance that we’ll fail to act only to find that the results of inaction were catastrophic. Which risk would you rather run?

Martin Weitzman, a Harvard economist who has been driving much of the recent high-level debate, offers some sobering numbers. Surveying a wide range of climate models, he argues that, over all, they suggest about a 5 percent chance that world temperatures will eventually rise by more than 10 degrees Celsius (that is, world temperatures will rise by 18 degrees Fahrenheit). As Mr. Weitzman points out, that’s enough to “effectively destroy planet Earth as we know it.” It’s sheer irresponsibility not to do whatever we can to eliminate that threat.

Now for the bad news: sheer irresponsibility may be a winning political strategy.

Mr. McCain’s claim that opponents of offshore drilling are responsible for high gas prices is ridiculous — and to their credit, major news organizations have pointed this out. Yet Mr. McCain’s gambit seems nonetheless to be working: public support for ending restrictions on drilling has risen sharply, with roughly half of voters saying that increased offshore drilling would reduce gas prices within a year.

Hence my concern: if a completely bogus claim that environmental protection is raising energy prices can get this much political traction, what are the chances of getting serious action against global warming? After all, a cap-and-trade system would in effect be a tax on carbon (though Mr. McCain apparently doesn’t know that), and really would raise energy prices.

The only way we’re going to get action, I’d suggest, is if those who stand in the way of action come to be perceived as not just wrong but immoral. Incidentally, that’s why I was disappointed with Barack Obama’s response to Mr. McCain’s energy posturing — that it was “the same old politics.” Mr. Obama was dismissive when he should have been outraged.

(emphasis added)

I think that Krugman has a legitimate concern about pandering to voters on energy prices, even as Krugman`s a bit too close to the political struggle to acknowledge that environmental policies of course affect energy prices, and that “sheer irresponsibility” has been a winning political strategy for as long as – well, for as long as there have been politicians.

As I have noted elsewhere, there is an extremely wide array of opinion that carbon taxes would be the most effective and least damaging approach, and, if rebated or applied to reduce taxes on income or labor, would find long-term political support, yet politicians refuse to mention them, but instead present us with monstrous giveaways like those included in the Warner-Lieberman bill (which McCain`s bill resembles).  Heck, even Exxon, AEI, RAND and the American Council for Capital Formation have come out in favor of carbon taxes! 

Krugman explores Weitzman a little more closely in a July 29 blog post at the New York Times.  That post, and the further discussions it links to, is well worth exploring.  However, one can see Krugman`s train of thought at the very end, where he asks:

The question is, can we mobilize people to make modest sacrifices to protect against low-probability catastrophes in the distant future?

He`s obviously decided over the past few days that the way to mobilize people is to let his dander fly.  While I believe that a little more sophistication is needed, I would note that Gene Callahan, at least, has argued that swinging a moral club is an appropriate weapon, even for libertarians.  I applaud Krugman for letting not only McCain but also Obama feeling some of his lash.

I note that there are some commentators already wringing their hands over Krugman`s moralizing, but they very curiously fail to comment on the very real rent-seeking (and climate risk-shifting) and PR manipulation by fossil fuel interests that lies at the core of the policy deadlock.

PS:  Some of my thoughts on the current policy deadlock are as follows:

– many fossil fuel firms want to be compensated – in the form of new pork for gigantic and iffy “clean coal” projects – for budging from their current free ride on our common atmosphere;

– fossil fuel interests, including their customer chain, have great political pull in both parties (for example, nobody is yet willing to let American car manufacturers suffer their deserved fate, and Byrd and Rockefeller have alotof pull);

– financial firms – other than insurers – all looking for a cap and trade scheme, so they can profit from carbon trading;

– many firms who see opportunities in new technologies are busy fighting for advantage in the draft legislation; 

– not least, politicans are looking for legislation that promises the greatest flow of pork and campaign contributions, and have little interest in being open or hoinest with taxpayers;

– Democrats have little stomach for leadership – at least until the American people finish hanging the Republican party over its disastrous foreign policy and obvious corruption;

– there are considerable opportunities for policies that improve our tax system and regulation of energy resources and infrastructure.  I look for Republicans to start offering them after they have completely squandered their turn at the wheel of state, and are locked again into minority status in Congress.

On July 17, Al Gore challenged our nation to produce “100 percent of our electricity from renewable energy and truly carbon-free sources within 10 years“.

Ron Bailey, science correspondent of Reason online, has examined whether Gore’s proposal is at all practically achievable.  Bailey reviews the main options mentioned by Gore (solar, wind and geothermal) and the chief option implied but unmentionable – nuclear power – and concludes that low ball estimates of the costs for realizing Gore’s target are on the scale of $1 trillion to $6 trillion, with nuclear being by far the cheapest.  Concludes Bailey:

Curiously, nowhere does the “N-word”—nuclear—appear in Gore’s speech. Currently, 104 nuclear power plants generate about 20 percent of America’s electricity. Once a nuclear plant is up and running, it is essentially carbon-free. Westinghouse claims that it can build a third generation 1,000 megawatt nuclear power plant for around $1.4 billion. Assuming this estimate is right, all U.S. carbon-emitting electricity generation plants could be replaced with nuclear power at a cost of about $1.2 trillion by 2018. …

“Of course there are those who will tell us this can’t be done,” warned Gore. I am not one of those people. I am sure it can be done. But before embarking on his “generational challenge to re-power America,” I would like the former vice-president to sketch out a few more details on how it’s going to be paid for and who’s going to be stuck with the bill.

These numbers – roughly on the scale of our out-of-pocket and committed costs for our Iraq and Afghanistan adventures (largely corporate welfare for the defense/logistics industry, good friends of Republicans) – help us get a bit of a handle on the opportunity costs of those wars, which have undermined rather than improved our security and jacked up oil costs.

Bailey also comments on the costs of shifting our automobile fleet to one that is powered by electricity.

Bailey’s piece is here: “Al Gore’s Curiously Cost-Free Plan to Re-Power America“. 

Jerry Taylor, a senior fellow at the Cato Institute, published a pithy criticism in last week’s Financial Post of T. Boone Pickens’ plan to get wind subsidies and other favors from Congress;  said Taylor:  “Virtually every claim made by T. Boone Pickens to justify the lavish subsidies he is seeking for his wind energy investments is flat wrong.”

Jerry also had a few interesting things to say about about carbon taxes:

Fourth, if reducing our carbon footprint is the goal, then the most direct and efficient means of reducing that footprint is to impose a tax on carbon emissions and then leave it to the market to sort out how to most efficiently order affairs under those new prices. Maybe it will mean windmills and CNG [compressed natural gas], but maybe not. Perhaps it will mean more nuclear power, new hydrogen-powered fuel cells, “clean” coal, the emergence of cellulosic ethanol, battery-powered cars or hybrids — or a continuation of the existing energy base but less consumption as a consequence.

(emphasis added)

I agree with Jerry, but note that Jerry he has not explicitly accepted that reducing our carbon footprint SHOULD be a goal.  Rather, he has simply concluded that, should such a goal be adopted,  that carbon taxes are the best policy tool.  And that might be as much as we can expect, from the time being, from a long-time advocate of limited government such as Jerry.

Jerry Taylor joins Ron Bailey (Reason), George Will, AEI and a long list of others in favoring carbon taxes over any other AGW-directed policies.

On the main Mises blog, Bob Murphy has just advocated opening ANWR and the OCS to oil and natural gas exploration and development, for the purpose of providing “rapid relief at the pump”.  As my comment has been held up – it only had two links for Pete’s sake! – I’ve decided to post a back-up copy here.

My comment (with minor tweaks) follows:

Bob, I agree generally with your analysis, but you really fail to address or answer the question of WHY the government should open up ANWR or the OCS – you state that the best reason to do so is because opening up more federal lands for drilling will “alter current behavior, leading to rapid relief at the pump.”

Interesting, but unexamined.  Is it the government’s job to open up lands that political decisions, on the basis of competing values, have kept off the market, simply to provide relief to the complaining parts of the market (fuel users)?  If so, should the government also open up the SPR whenever markets climb and users complain?  Are there other markets that the government should also try to manage for the benefit of consumers?  And how do we choose between what markets and market segments to listen to – what happens if, say, environmental demands rise suddenly after an oil spill – should the government then rapidly move producing areas off lease and into reserves?

You also conclusorily state that it is an “absurd situation where 94 percent of federal land, and 97 percent of federal offshore waters, are not being leased by energy companies.”  How is it that you have the wisdom to know how much and where the unidentified oil and gas resources lie, so you know what percentage of federal lands SHOULD be under an energy company lease?  And what about the small consideration of other values for the land in question – have you decided that energy trumps all?

Finally you conclude that “the ideal solution would be to completely privatize federal lands, so that the decision of whether or not to drill would no longer be a political one.”  As my initial questions to you may indicate, I actually agree with you on this, but the reason for privatization is NOT to provide relief to consumers and other users at the pump, but in order to end incompetent and politicized and sometimes logjammed federal management, while improving management of both environmental and other resource values.

Not only have I done a more thorough job of explaining WHY the feds and our Congresscritters ought to open up ANWR and the OCS, I’ve also explained HOW we can move past the existing deadlock – in a proposal I laid out last week in my blog here:  “Breaking the senseless impasse on ANWR and OCS exploration and development – a tax and rebate proposal”.

A deal on OCS seems easier to do than ANWR, because all that is needed to get the coastal states to agree is greater revenue-sharing with the states.

An ANWR deal should happen just out of fairness to the Inuit who own some land that is now bottled up in ANWR. [If they were given fee simple, then they could start drilling immediately, and while they’d have a right to access and transport across the wildlife reserve, they’d carry the liability for all environmental damage.  Sitting on ANWR makes it more likely that environmentally riskier OCS exploration and development in the Arctic Ocean will proceeed.]

By the way, has it ever occurred to you to wonder how much COAL leasing would occur if private parties and not the federal (and state) government owned the Western lands on which production is occurring?  With all of the royalties flowing into the coffers of federal and state governments?

Or to wonder how much extremely destructive coal production would occur in West Virgina and the rest of the Appalachians, if the governments were not being paid tremendous sums to turn a blind eye and to deny justice to those who are suffering all of the costs of the ongoing violation of private health and property rights and the transfer of costs and risks?  I addressed some of those issues here:  “Almost levelled, West Virginia: Crooked justice allows mountain-top removal practices to freely injure homes and health“.

Regards,

Tom

As I noted on my related post, enviros should move on ANWR because they can get a better deal – on federal resource management generally, and even on climate change – than by sitting pat.  And Austrians and others ought to support both such movement, and the type of changes in federal resource management that I’ve outlined.

It’s long been obvious that:

(1) government policy concerning the use of public lands is highly bureaucratized, often inept and subject to behind the scenes sweet deals favoring insiders;

(2) discussions about how the public lands should be used often very politicized;

(3) politicization is especially prominent with respect to public lands that have potentially high commercial value but where development requires additional approvals from legislators or others outside of the Administration/regulatory bureaucracy – such as the Arctic National Wildlife Refuge (ANWR) and the native lands within it, which cannot be explored without Congressional approval, and the Outer Continental Shelf (OCS), further development of which has been blocked both by Executive Order and by annual moratoria imposed by Congress, with the strong backing of many coastal states that wish to protect their tourism industries; and

(4) supporters on both sides – whether for development of ANWR and OCS or for the continued preservation of wildlife, recreation or tourism values or protection of other objectives – have perfectly legitimate interests, and excellent arguments to make (and some not so excellent) in support of those interests.

But it has not been so obvious that the different interests are in fact irreconcilable, especially when one notes how well conservation groups that own land have been able to balance their conservation objectives with active resource extraction – which can be done carefully while providing revenues for other activities.  In fact, I suppose that if any of the major environmental groups had been given title to ANWR, development would have been well underway years ago (as I have previously suggested).  Likewise, the states that have until now blocked further OCS development have done so in good part because the federal government takes the lion’s share of the royalty revenues, while leaving the states and local communities with the short end of the stick and the risks of feared development disasters.

So – for the rather simple reason that there is no private owner of the resources at stake, but instead a politically-controlled legal owner (the U.S. citizens via their government) and an array of shadow owners (the various interest groups and bureaucrats) who have been unable either to conclude any deals or to force their preferences down the throats of those they disagree with – we have deadlock, with valuable resources sitting in the ground, and possibilities for mutually beneficial deals lost.  This is a rather basic analysis that has been recognized by libertarian thinkers and free market environmentalists like John Baden for quite some time.

Recently, in response to a proposal by Iain Murray of CEI that ANWR and the OCS be opened to development, I indicated some further thoughts on possible paths forward:

The key is to end politicized control, not to run roughshod over conservationists.  If we are serious about ANWR, we ought to simply cede it to the Sierra Club or The Nature Conservancy.  They would certainly pump from it AND protect it, and use the revenues to support more important conservation projects.   As for the OCS, exploration is limited only because states don`t want to bear the burden of pollution risks with a slim share of revenues.  With more generous revenue sharing, more OCS development will occur.

However, I’d like to change tack a little bit, as these disputes are part of the bigger problem of federalized management, and we are unlikely to see Congress act in the near future to privatize ANWR or other federal lands, or even to turn them over to environmental groups to manage.  We face a real problem with respect to most of federal lands that revenues from resource extraction go into the big black hole of general funds, with very little ability of the resource managers to capture the benefit of managing well, and very little incentive by American taxpayers to make sure that resources are well-managed, priced to receive good returns and do not leave taxpayers generally holding the bag for environmental risks.  A litany of horror stories could easily be assembled on these points. 

How can we get started on improving incentives on our government resource management projects?  Well, a small idea occurs to me:

I’ve recently reviewed a slew of recent arguments on the climate change front and noted wide-ranging support (driven by equity, efficiency and expedience) for a federal carbon pricing scheme (whether by carbon taxes or by emission rights under a cap and trade scheme), particularly if all of the funds raised by the tax or permit sale are passed through to Americans on a per capita basis.  Why couldn’t we apply the same concept to ANWR and the OCS lands, with a small percentage being kept by the relevant oversight agency to fund and incentivize oversight? 

If royalty revenues are passed through to citizens, Americans will directly benefit from moving ahead (without encouraging government bloat), so that development will not be seen as simply a giveaway by politicians to evil oil and gas companies.  Further, citizens (and entrepreneurial prosecutors) will have greater incentives to monitor government performance (as in not giving away the resources too cheaply, and actually collecting revenues owed), and will able use the dividend checks to fund, to their hearts’ content, further environmental protection.  In the case of the OCS, clearly a greater cut of the royalties ought to go to citizens in the relevant coastal states to compensate them for the relatively higher environmnetal risks they bear.

To incentivize the environmental groups to support this type of approach, as well as to provide better assurance of environmental oversight, I would suggest that new leases to explore or develop in ANWR and the OCS include as a contracting party an environmental group, either as the direct lessee (subcontracting to a preferred oil and gas company) or as environmental risk manager, in either case capturing a share of the royalty.  The environmental groups will reap some benefit (that they can use for other projects) and will be subject to oversight by their members, and to competition from other environmental groups to protect wildlife and other values.

Such schemes would incentivize all stakeholders to work together in a win-win manner, while minimizing environmental risk, and directly rewarding citizens and leading to improved resource management.

Maybe the strong desire of many to see carbon pricing at the federal level can be leveraged to enhance both environmental protection AND economic growth, while streamline government and rewarding good resource management, at least in the case of ANWR and the OCS.  (Next up, federal lands – forests, hard rock mining and oil and gas – generally!)

Just a thought.

David Zetland’s libertarian-environmental blog, Aguanomics, has recently been carrying on some excellent discussions on resource and environmental economics, with interlocutors like Bob Murphy, Gene Callahan and others.  In the context of two recent posts on government approaches to climate change, I commented on one thread (An Ounce of Prevention…) that

As for the setting the level of carbon taxes, you and Gene keep assuming that there is a global government that sets taxes in a vacuum. Instead, we have a multi-player game, where any politically sustainably prices are set at levels that the chief emitters are willing to agree to.

This is analogous to ranchers, lobstermen or shrimpers deciding to close a range or fishery. No single one of them is setting a price.

On an earlier thread (Pigouvian Libertarians), I noted to the effect that:

Bob, the standard objections to Pigovian taxes don`t apply to climate change, as there is no single government administering the world. Rather, we are engaged in multi-player negotiations as to how to regulate a commons.  The taxes (or other schemes) that individual governments may impose will ultimately be coordinated, and much more resemble a Coasean trade among nations with respect to a shared resource.

David has kindly made this point the subject of a new post:  How to Set a Carbon Tax.

Allow me to elaborate my point.  A C Pigou, is often trotted out by supporters of government economic regulation, for the proposition that governments should regulate or impose taxes in order to force economic actors to internalize the “external costs” of their actions (costs that are imposed on others outside of that transaction without their consent).  This use of Pigou is a bit unfair, as Pigou himself noted that taxing authorities would always lack the information needed to determine the correct tax, but nevertheless the perception that externalities are ubiquitous has helped to justify a wide range of governmental regulatory interventions.

Other objections to Pigou can of course be raised, as Ronald Coase prominently did when he argued that, when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial distribution of property rights.  Pigou and those using him did not consider the real world dynamics of self-help among economic actors, and many ignored Pigou’s acknowledgment that governments are seldom positioned to calculate external costs.  Coase noted that because transaction costs are NOT zero, many bargains would not be reachable, so that the initial distribution of property rights would affect ultimate outcomes in resource allocation.  Coase properly turned the focus of the debate over “externalities” towards a focus on the use of bargaining between parties to accommodate differences in personal objectives, and to fruitful discussions of how property rights and bargains are defined and enforced and whether information and transaction costs can be lowered.  Austrians have further criticisms of Pigou and Coase, but those can be set aside for the moment.

In ongoing discussions over at Aguanomics, Bob Murphy and others have trotted out that standard Coasean attacks on the proposals by economists (such as Robert Nordhaus and other members of Gregory Mankiw’s “Pigovian Club”) for carbon taxes, i.e., that government can’t know at what level to set carbon taxes, that such carbon taxes will prevent private transactions among parties that might fully address climate concerns at less costs, etc.

In the context of this discussion, I ask that people step back from the theoretical and observe the pragmatic – that we are in the midst of a multi-decade multinational negotiation of a GLOBAL resource that no one nation controls, in which there are no private property rights or common legal systems and in which transaction costs for private transactions are enormous and swamp individual economic benefits that may be achieved by them, and that in this context, our governments are essentially our negotiating proxies who can more efficiently negotiate for us and come to terms with others than can any private entities or groups.  Given these circumstances, even though our governments are all subject to domestic rent-seeking pressures, because no effective approach to climate change can be reached without the voluntary agreement of all major emitters, is it not the case that the discussions that our governments conduct – including the possibility of coordinated Pigovian taxes at the national level for implementation purposes – ARE efforts at Coasean bargaining?

Any thoughts?

In response to my comments last month to Bob Murphy‘s June 4 blog post, Cap and Trade Is Not a “Market Solution”, Bob has kindly noted on the blog thread his intention not to let my comments on his post remain the last word:

Just following up on an old thread here: TokyoTom, I have to pass right now on answering your (good) objections. As with Silas [aka Person], I can’t take the time to give you a really good answer, just to post on a blog.

For what it’s worth, I do plan on doing a formal response to Weitzman’s work on fat tailed uncertainty vis-a-vis climate change. And re: Silas’ objections, I might be able to justify using “work hours” to write up something for the QJAE or JLS on a free market response to AGW.

Published: June 30, 2008 2:23 PM

(link and emphasis added)

I look forward to your response, Bob.