In light of this, let me tell you why the Kyoto Protocol is bad public policy.
The Kyoto Protocol is essentially a licensing regime of states designed to reduce emissions of specific gases. We want to reduce, or abate, emissions of the gases because they create a "greenhouse" effect that influences world temperature, and changes in world temperature could be harmful.
I am not disputing that certain gases have a greenhouse effect. Nor am I disputing that human activity adds these gases to the atmosphere. But I do want to point out that we are uncertain about many aspects of climate change, both scientific and economic.
Significantly, we are uncertain of the marginal cost and marginal benefit of abating emissions. In a very interesting article, Warwick McKibben and Peter Wilcoxen describe how the relationship between the slope of these two functions in large part determines the relative efficiency of the two basic regimes, taxes or licences (if we weren't uncertain of the relative slopes, then the two regimes are equally efficient). McKibben and Wilcoxen focus on a particular scenario, where they assume a relatively flat marginal benefit and fairly steep estimated marginal cost. They then illustrate how, if marginal cost is higher than anticipated, a licensing regime is much more inefficient than a tax. As my professor pointed out, it is the relationship between the slopes of marginal benefit and the tax that makes the tax more efficient.
This is partly why the Kyoto Protocol is bad public policy: by fixing the quantity abated, the protocol ignores the inherent uncertainty of the problem.
McKibben and Wilcoxen also discuss the political difficulty of implementing a tax on emissions, which would involve a large transfer of income from firms to governments. Eventually, they propose a domestically regulated hybrid system of long-term and short-term permits (long-term permits are tradable by firms). They claim that this policy has the advantages of a tax at the margin and is easier to implement than a tax on quantity emitted because it does not involve huge transfers of wealth between firms and government.
McKibben and Wilcoxen's proposed hybrid system has its own problems, but on first reading and after brief reflection, it seems a better policy than Kyoto. Here's the reference to their article in Journal of Economic Perspectives:
McKibben, Warwick J. and Wilcoxen, Peter J. "The Role of Economics in Climate Change Policy." Journal of Economic Perspectives. 16.2 (2002): 107-29.
This is an example of the type of issue my classmates and I discuss. Thanks to Erin Weir for helping me to better understand McKibben and Wilcoxen's assumptions.
All this, of course, ignores that Kyoto is in place and alternative ideas are not. And I don’t really understand how you can implement an international treaty based on a taxation measure — what is agreed upon to ensure reasonably balanced contribution from the signatories? (I’m not suggesting there isn’t a way, I’m simply ignorant on the matter.)
While fixing the quantities to be reduced is somewhat simplistic and inflexible, it’s also simple and clear. Presumably there was some degree of conscientious decision-making in choosing those levels such that they were not believed to be beyond where the marginal cost makes sense.
It’s also a bit ineffective to try to constrain it strictly in terms of economic arguments. What is the cost of being wrong? How do we cost despeciation? How do we cost changes in climate that help some countries and harm others? Too much is brushed under the rug in the answers to these questions, and the answers are naturally anthropocentric.
Further, accepting and working towards Kyoto increases the chances that a Pareto-superior option will be accepted.
-Rob (likes Kyoto, imperfections and all)
I think you take a narrow view of economics. But I agree that answers to economic questions are anthropocentric.
Jesse, is it not up to the participating states to implement measures that will bring their gas emissions below a set maximum? Couldn’t Canada implement this taxation system–which admittedly I know very little about–as an incentive to hit our national target?
Hi Jesse,
you are a pretty interesting person, I ended up on your site by googling McKibben and Wilcoxen, which is a paper I need to read for my environmental economics class…and I cannot find it on Jstor etc. By reading this debate I am even more curious to read this paper. By the way I am Russian and I was very happy that everyone bribed Putin to make him sign Kyoto…and maybe the idea of McKibben and Wilcoxen could be applied for a second commitment period, but please, let at least the first period start! Some weak policy is better than no policy.
Could you me so kind to send me the paper by mail. Thanks
Natasha,
I’m not sure that, in this case, a poor policy is better than no policy. In the context of the problem, a few more years at the status quo isn’t a huge change from the current situation. But I take the point that something should be done.
re: Russia, as I understand it, Russia is well below its 1990s emissions levels, so Kyoto won’t have much impact on Russian industry.