Apportioning climate change costs.

AuthorFarber, Daniel A.
  1. INTRODUCTION II. BACKGROUND ON CLIMATE CHANGE III. HOLDING EMITTERS RESPONSIBLE A. Who Should Pay? B. Designing a System to Shift Costs to Emitters IV. FOUR QUESTIONS ABOUT APPORTIONING RESPONSIBILITY AMONG EMITTERS A. Total or Excess Emissions? B. Average or Marginal Effect? C. Current or Cumulative Emissions? D. Current or Projected Harms? E. The Restitution Measure as an Alternative F. Lessons on Apportioning Responsibility from CERCLA V. CONCLUSION I. INTRODUCTION

    As most people now realize, our society can no longer postpone serious consideration of how to respond to climate change. Most public attention has been focused on the issue of mitigation--that is, how to reduce greenhouse gas levels and by how much. However, society also needs to consider methods of adapting to climate change. Adaptation will not be cheap. While it is too early to make confident cost estimates, it is clear that the expense for the U.S. will reach the billions of dollars threshold annually over the next few decades. (1) In addition, some of the harms of climate change cannot be avoided by adaptation, and these too may be expensive.

    The most immediate question is what to do about climate change, but a very closely related question is who should pay. This article is the third in a trilogy addressing the question of how climate change costs should be allocated.

    The previous articles in the trilogy addressed related aspects of this problem. The first article considered how we might design a scheme where emitters would compensate victims of climate change. Compensation for adaptation costs was a key part of the solution, because of the relative administrative manageability of using this measure of damage. The second article considered the question of how to allocate climate adaptation costs, and concluded that at least some of these costs should be allocated to emitters. Thus, via different paths of reasoning, the two articles converged on the same destination - that emitters should bear at least part of the burden of adaptation costs.

    A related issue is how mitigation costs should be allocated. Dealing with climate change requires that we reduce total greenhouse emissions to much lower levels. In effect, this goal dictates a cap on emissions. Within that cap, it might be appropriate to allocate emission rights solely on the basis of economic efficiency, or to consider taking other factors into account. Even if emission rights are allocated on the basis of efficiency, side payments could be arranged based on equity or other considerations. Thus, allocation of emission costs could be an issue.

    The cost allocation issue could arise under any mitigation scheme. For example, if a carbon tax is used to limit emissions, there could well be claims that current emitters deserve to have some compensation from past emitters, on the theory that mitigation is only required because of the cumulative effects of past and present emissions. Similarly, if a cap-and-trade scheme is used to limit emissions, permits might be allocated so as to require emitters with large amounts of past emissions to purchase more permits on the open market. Thus, there could potentially be efforts to shift adaptation costs, mitigation costs, and costs that cannot be avoided through either mitigation or adaptation. In each case, the claim would be that the costs in question should be allocated on the basis of responsibility for climate change rather than falling where they may.

    Assuming that we did decide that some costs should be shifted to emitters, there are some difficult problems about how to allocate responsibility among the emitting parties. Those problems are the focal point of this paper. Emissions differ greatly between sources. For example, the U.S. was responsible for twenty percent of the world's emissions in 2000, which was about equal to its share of Gross Domestic Product (GDP). The European Union (EU) was responsible for only fourteen percent of the emissions (but received about as much of the world's GDP as the U.S.). (2) Emissions are not equally attributable to all economic sectors: over sixty percent come from energy consumption. (3) Globally, motor vehicles (and hence petroleum derivatives) account for about ten percent of total emissions, while power generation accounts for twenty five percent. (4) To complicate matters, past emissions that remain in the atmosphere were emitted from different sources or in different proportions between sources. Thus, the cost apportionment question presents difficulties.

    After Part I of this article presents background information about climate change, Part II summarizes the arguments of the previous articles for requiring emitters to bear some of the costs of climate change. Part III then goes a step further by asking how the costs should be allocated among various emitters. Part III considers four questions: (1) Should emitters be responsible for the impact of all of their emissions, or only those that fall above some optimal control strategy? (2) Should liability be based on the marginal effect of adding an extra ton of greenhouse gas, or on the average impact per ton of climate change at a given time? (3) Should liability be apportioned on the basis of current or cumulative emissions? (4) How should we account for the future impacts of current emissions?

    These are not simple questions, but we do not need perfect answers in order to formulate a cost apportionment scheme. Given the variety of legitimate goals that a cost apportionment system may serve and the cross-cutting arguments that favor different solutions, we can only expect to do rough justice among emitters. An imperfect solution to the problem is better than no solution, because the alternative is to allow impunity for emitters, whereby they will not be held accountable for the problems that their past and present acts have inflicted and will continue to inflict on the rest of society.

  2. BACKGROUND ON CLIMATE CHANGE

    In a few years, it will probably no longer be necessary to preface an article like this with a general discussion of climate change and its impacts. Hopefully, individuals will be exposed to this information at increasing levels of sophistication from the time they are children. But, climate change is still a new issue for many people, and some background is still in order before discussing more technical issues.

    Skepticism about climate change seems to be fading out rapidly, but some readers may still be unsure about the solidity of the evidence. Thus, it behooves us to start by asking how sure we can be that climate change is a genuine threat.

    The most reliable source is the Intergovernmental Panel on Climate Change's (IPCC) 2007 Report, which explains the scientific consensus that:

    Global atmospheric concentrations of carbon dioxide, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined from ice cores spanning many thousands of years. The global increases in carbon dioxide concentration are due primarily to fossil fuel use and land-use change, while those of methane and nitrous oxide are primarily due to agriculture. (5) The IPCC report is the result of an exhaustive review process. (6) Notably, because of improvements in modeling and data, the 2007 Report was able to eliminate some concerns that had previously been raised about the evidence on climate change. The IPCC's conclusions represent the best "sound science," and to demand further research is to give up on the idea of reality-based social policy entirely. Governments, firms, and individuals have to make the best decisions they can today on the basis of available information.

    Even those who are aware of the strength of the evidence supporting the reality of climate change may not realize that it has already begun, nor may they be aware of the inevitability of further change in the coming decades. Mitigation may affect the degree of adaptation that is ultimately required, but it will have little short-term effect. The reality is that, regardless of whatever mitigation measures are adopted, a significant degree of climate change seems unavoidable. (7) As the IPCC explains, "[a]nthropogenic warming and sea level rise would continue for centuries due to the timescales associated with climate processes and feedbacks, even if greenhouse gas concentrations were to be stabilized."(8)

    The evidence indicates that a doubling of carbon dioxide from pre-industrial levels would result in a temperature increase between 1.5 [degrees]C and 4.5 C (1.8 [degrees]F - 5.4 [degrees]F) by the end of this century.(9) For this reason, even in the best-case scenario, we will be faced with a number of adverse impacts from climate change. Indeed, those impacts may already be occurring. "Examples of observed changes caused by human releases of greenhouse gases (GHG) include shrinkage of glaciers, thawing of permafrost, later freezing and earlier break-up of ice on rivers and lakes, lengthening of mid to high latitude growing seasons, poleward and altitudinal shifts of plants and animal ranges, declines of some plant and animal populations, and earlier flowering of trees, emerging of insects, and egg-laying in birds." (10)

    Sea level rise is one of the most predictable (and to some extent least avoidable) consequences of climate change. (11) As the IPCC explains, "[o]bservations since 1961 show that the average temperature of the global ocean has increased to depths of at least 3000 m and that the ocean has been absorbing more than 80% of the heat added to the climate system. Such warming causes seawater to expand, contributing to sea level rise." (12) Moreover, the IPCC reports that "[m]ountain glaciers and snow cover have declined on average in both hemispheres. Widespread decreases in glaciers and ice caps have contributed to sea level rise (ice caps do not include contributions from the Greenland and...

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