Allocating the Costs of the Climate Crisis: Efficiency Versus Justice

• Publication year: 2021

ALLOCATING THE COSTS OF THE CLIMATE CRISIS: EFFICIENCY VERSUS JUSTICE

Amy Sinden*

Abstract: In the international negotiations aimed at reaching an agreement to reduce the greenhouse-gas emissions that are driving global warming, the developed and developing countries are talking past each other. The developed world is speaking the language of efficiency, while the developing world speaks the language of justice. Economic theory and the concept of efficiency are fine for answering the question of who should reduce, but that is not the contentious issue. When it comes to the hotly contested issue of who should pay, economic theory offers no guidance, and the developing world is right to insist that we look to principles of justice. This Article considers three kinds of approaches to the who-should-pay question: 1) those that take status quo emissions levels as their starting point; 2) those that allocate emissions rights on a per capita basis; and 3) those that allocate the costs of emissions reductions on the basis of ability to pay. The Article then considers three possible models for conceptualizing the who-should-pay question in light of widely shared principles ofjustice: 1) the property model views it as a problem of dividing and allocating a commonly held property right-the capacity of the atmosphere to absorb greenhouse gases; 2) the tort model views it as a question of how to allocate costs when one party causes injury to another; and 3) the tax model views it as a situation in which a group of persons or entities are all engaged in a common enterprise to promote the common good and must allocate the costs of that enterprise. The Article evaluates each of the three approaches to the who-should-pay question under each of these three models of justice, and concludes that the per capita approach is the clear winner. It comports best with the property and tort models of justice, and with respect to the tax model, it comes in a close second. A rough calculation reveals that, if a per capita approach is indeed the most just, then the recent proposals by developing countries that the developed countries each contribute 1% of their gross domestic product to adaptation and mitigation efforts in the developing world is quite reasonable, perhaps even a bargain. Finally, the Article considers and responds to several counterarguments against the per capita approach.

INTRODUCTION................................................................................294

I.ECONOMIC THEORY AND THE CONCEPT OF EFFICIENCY: MISDIAGNOSING THE PROBLEM..................298

A.Economic Theory's Answer to Who Should Reduce: Taxes or Cap-and-Trade.......................................................302

B.Distributional Implications of Taxes and Cap-and-Trade .... 304

II.WHO SHOULD PAY? THREE APPROACHES.........................307

A. Status Quo Approaches........................................................307

1.Equal-Percentages Approach........................................308

2.Allocation of Allowances Based on Existing Emissions ...................................................................... 308

3.Globally Uniform Tax..................................................309

4.Allocation of Allowances Based on GDP....................310

B.Per Capita Approaches.........................................................311

1.Prospective Equal Shares..............................................311

2.Historical Equal Shares................................................313

3.The Brazilian Proposal.................................................315

4.Contraction and Convergence......................................316

C.Ability-to-Pay Approaches...................................................317

1.Inverse Per Capita GDP Multiplied by Population.......317

2.Hybrid Approaches....................................................... 318

III.THREE MODELS OF JUSTICE...................................................318

A.A Property Model: Apportioning a Common Resource....... 319

B.A Tort Model: Allocating the Costs of Harmful Activities.. 323

1.Culpability....................................................................325

2.Causation ...................................................................... 329

3.Remedy ......................................................................... 333

a."Injunctive Relief": Mitigation Costs....................334

b."Damages Relief": Adaptation and Compensation Costs............................................... 336

C.A Tax Model: Allocating the Costs of a Common Enterprise ............................................................................. 339

D.The Per Capita Approach as the Best Approximation of Justice ................................................................................... 340

IV.A BACK-OF-THE-ENVELOPE CALCULATION......................341

V.IN DEFENSE OF THE PER CAPITA APPROACH....................345

A.Allowances Awarded to Governments, Not People............346

B.Failure to Account for Differential Effects of Climate Change.................................................................................347

C.Arguments Against a Historical Approach .......................... 350

1.Ignorance of Prior Generations.....................................351

2.Present Generations Not Responsible for the Acts of Prior Generations..........................................................352

CONCLUSION .................................................................................... 353

INTRODUCTION

As we face increasingly dire warnings from the scientific community about the perils of the climate crisis, the need to reach an effective and meaningful international agreement to reduce greenhouse-gas emissions becomes ever more urgent. The question of who should reduce is not actually that controversial. The contentious issue is who should pay both the costs of the reductions (mitigation) and the costs of coping with the damage that has already become inevitable (adaptation). On the who-should-reduce question, there is broad agreement that it will be most "efficient," and therefore best, to first implement those emissions reductions that are cheapest (many of which will be in the developing world), and then move progressively toward those that are more expensive. Most people are comfortable with the idea that efficiency, in the sense of cost-effectiveness, is an appropriate goal in this context, and economic theory usefully demonstrates that either a cap-and-trade program or a tax scheme will produce an efficient and desirable result by inducing a given amount of emissions reduction for the cheapest aggregate price.

This broad consensus breaks down, however, on the question of who should pay. On the one hand, the United States and other developed countries point to the large aggregate emissions of countries like China and India and argue that it is pointless for the developed world to take expensive steps to reduce emissions until the developing countries commit to do likewise. The developing world, on the other hand, argues the developed countries caused the problem to begin with, and should therefore take the lead in solving it and bear the lion's share of the costs. This clash of views played out in the lead up to the Copenhagen Climate Conference last fall, as U.S. negotiators balked at proposals by several developing countries that the developed countries each set aside 1% of their gross domestic product (GDP) to pay for mitigation and adaptation efforts in the developing world.(fn1) Indeed, the agreement that came out of the Copenhagen talks, under which the developed countries committed to establish a Green Climate Fund that will reach $100 billion per year by 2020, falls far short of that goal.(fn2)

This is not simply a problem of conflicting self-interests. If each side were simply arguing to promote its own selfish ends, at least they would be on the same wavelength. But the problem runs far deeper. The developed and developing worlds are speaking entirely different languages. The developed world is speaking the language of economics(fn3) while the developing world speaks the language of justice.(fn4) If we are going to make any progress in forging an international solution to the climate crisis and preserving a livable planet for our grandchildren, however, those in the developed world must come to understand that, when it comes to who should pay, the developing world is right to insist on justice, not efficiency.

Economic theory is fine for finding answers to the first question- who should reduce-because this is at bottom a question of aggregate social welfare, or "efficiency." By wisely allocating greenhouse-gas reductions, we can minimize the costs to society as a whole. But the second question-who should pay-is of an entirely different kind. It is not a question of how much aggregate social welfare we can produce, but of how that welfare should be distributed. As such, it raises questions that economic theory cannot answer. These are questions not of efficiency, but of justice(fn5) As the United States enters international negotiations in the wake of the failed Copenhagen talks, it would be prudent to recognize the limitations of...