What Money Can't (Shouldn't) Buy: Part. 3. Tradable Pollution Permits
The distinction between a fine and a fee is also relevant to the debate over how to reduce greenhouse gases and carbon emissions. Should government set limits on emissions and fine companies that exceed them? Or should government create tradable pollution permits?
The second approach says in effect that emitting pollution is not like littering but simply a cost of doing business. But is that right? Or should some moral stigma attach to companies that spew excessive pollution into the air? To decide this question, we need not only to calculate costs and benefits, we have to decide what attitudes toward the environment we want to promote.
At Kyoto conference on global warming 1997, U.S. insisted that any mandatory worldwide emission standards would have to include a trading scheme, allowing countries to buy and sell the right to pollute. For example, U.S. could fulfill its obligations under Kyoto Protocol (by either reducing its own greenhouse gas emissions or paying to reduce emissions someplace else). Rather than tax gas-guzzling Hummers at home, it could pay to restore an Amazonian rain forest or modernize an old coal-burning factory in a developing country.
I worried that letting countries buy the right to pollute would be like letting people pay to litter. We should try to strengthen, not weakened, the moral stigma attached to despoiling the environment. I also worried that, if rich countries could buy their way out of the duty to reduce their own emissions, we would undermine the sense of shared sacrifice necessary to future global cooperation on the environment. Economists suggested that I failed to understand the virtue of markets, or the efficiencies of trade, or the elementary principles of economic rationality. Amid the torrent of criticism, I did receive a sympathetic email from my old college economics professor. He understood the point I was trying to make, but he also asked a small favor: would I mind not publicly revealing the identity of the person who had taught me economics?
I've since reconsidered my views about emissions trading to some extent -- though not for the doctrinal reasons the economists put forward. Unlike tossing litter out the car window onto the highway, emitting carbon dioxide is not in itself objectionable. We all do it every time we exhale. There's nothing intrinsically wrong with putting CO2 into the air. What is objectionable is doing so in excess, as part of an energy-profligate way of life. That way of life, and the attitudes that support it, are what we should discourage, even stigmatize.
One way of reducing pollution is by government regulation: require automakers to meet higher emissions standards; ban chemical companies and paper mills from dumping toxic waste into waterways, require factories to install scrubbers on their smokestacks. And if the companies fail to abide by the standards, fine them. That's what the U.S. did during the first generation of environmental laws, in early 1970s. The regulations, backed by fines, were a way o f making companies pay for their pollution. They also carried a moral message: shame on us for spewing mercury and asbestos into lakes and streams and for befouling the air with choking smog. It's not only hazardous to our health; it's no way to treat the earth."
Some people opposed these regulations because they dislike anything that imposes higher costs on industry. But others, sympathetic to environmental protection, sought more efficient ways of achieving it. As the prestige of markets grew in 1980s, and as economic ways of thinking deepened their hold, some environmental advocates began to favor market-based approaches to saving the planet. Don't impose emission standards on every factory, they reasoned; instead, put a price on pollution and let the market do the rest.
The simplest way of putting a price on pollution is to tax it. A tax on emissions can be seen as a fee rather than a fine; but if it's big enough, it has the virtue of making the polluters pay for the damage they inflict. Precisely for this reason, it is politically difficult to enact. So policy makers have embraced a more market-friendly solution to pollution -- emissions trading.
In 1990, President George H.W. Bush signed into law a plan to reduce acid rain, which is caused by sulfur dioxide emissions from coal-burning power plants. Rather than set fixed limits for each power plant, the law gave each utility company a license to pollute a certain amount, and then let the companies buy and sell the licenses among themselves. So a company could either reduce its own emissions or buy extra pollution permits from a company that had managed to pollute less than its allotted amount. Sulfur emissions declined, and the trading scheme was widely regarded as a success. Then, later in 1990s, attention turned to global warming. The Kyoto Protocol on climate change gave countries a choice: they could reduce their own greenhouse gas emissions or pay another country to reduce theirs.
The second approach says in effect that emitting pollution is not like littering but simply a cost of doing business. But is that right? Or should some moral stigma attach to companies that spew excessive pollution into the air? To decide this question, we need not only to calculate costs and benefits, we have to decide what attitudes toward the environment we want to promote.
At Kyoto conference on global warming 1997, U.S. insisted that any mandatory worldwide emission standards would have to include a trading scheme, allowing countries to buy and sell the right to pollute. For example, U.S. could fulfill its obligations under Kyoto Protocol (by either reducing its own greenhouse gas emissions or paying to reduce emissions someplace else). Rather than tax gas-guzzling Hummers at home, it could pay to restore an Amazonian rain forest or modernize an old coal-burning factory in a developing country.
I worried that letting countries buy the right to pollute would be like letting people pay to litter. We should try to strengthen, not weakened, the moral stigma attached to despoiling the environment. I also worried that, if rich countries could buy their way out of the duty to reduce their own emissions, we would undermine the sense of shared sacrifice necessary to future global cooperation on the environment. Economists suggested that I failed to understand the virtue of markets, or the efficiencies of trade, or the elementary principles of economic rationality. Amid the torrent of criticism, I did receive a sympathetic email from my old college economics professor. He understood the point I was trying to make, but he also asked a small favor: would I mind not publicly revealing the identity of the person who had taught me economics?
I've since reconsidered my views about emissions trading to some extent -- though not for the doctrinal reasons the economists put forward. Unlike tossing litter out the car window onto the highway, emitting carbon dioxide is not in itself objectionable. We all do it every time we exhale. There's nothing intrinsically wrong with putting CO2 into the air. What is objectionable is doing so in excess, as part of an energy-profligate way of life. That way of life, and the attitudes that support it, are what we should discourage, even stigmatize.
One way of reducing pollution is by government regulation: require automakers to meet higher emissions standards; ban chemical companies and paper mills from dumping toxic waste into waterways, require factories to install scrubbers on their smokestacks. And if the companies fail to abide by the standards, fine them. That's what the U.S. did during the first generation of environmental laws, in early 1970s. The regulations, backed by fines, were a way o f making companies pay for their pollution. They also carried a moral message: shame on us for spewing mercury and asbestos into lakes and streams and for befouling the air with choking smog. It's not only hazardous to our health; it's no way to treat the earth."
Some people opposed these regulations because they dislike anything that imposes higher costs on industry. But others, sympathetic to environmental protection, sought more efficient ways of achieving it. As the prestige of markets grew in 1980s, and as economic ways of thinking deepened their hold, some environmental advocates began to favor market-based approaches to saving the planet. Don't impose emission standards on every factory, they reasoned; instead, put a price on pollution and let the market do the rest.
The simplest way of putting a price on pollution is to tax it. A tax on emissions can be seen as a fee rather than a fine; but if it's big enough, it has the virtue of making the polluters pay for the damage they inflict. Precisely for this reason, it is politically difficult to enact. So policy makers have embraced a more market-friendly solution to pollution -- emissions trading.
In 1990, President George H.W. Bush signed into law a plan to reduce acid rain, which is caused by sulfur dioxide emissions from coal-burning power plants. Rather than set fixed limits for each power plant, the law gave each utility company a license to pollute a certain amount, and then let the companies buy and sell the licenses among themselves. So a company could either reduce its own emissions or buy extra pollution permits from a company that had managed to pollute less than its allotted amount. Sulfur emissions declined, and the trading scheme was widely regarded as a success. Then, later in 1990s, attention turned to global warming. The Kyoto Protocol on climate change gave countries a choice: they could reduce their own greenhouse gas emissions or pay another country to reduce theirs.
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