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4 Who pays (to solve the problem and how much)?

Indices of allocation: a brief review
Equity and efficiency

Kirk R Smith, Joel Swisher and Dilip R Ahuja

Those advocating creation of an international programme to address global warming from greenhouse gas (GUI) emissions are required to face, among other tasks, five categories of questions (Smith et al. 1991):

1 Is there adequate theoretical and observational evidence of significant potential harm if nothing is done?

2 If so, could a feasible programme of greenhouse remediation accomplish sufficient benefits to be justified?

- 2a What part of this programme is best devoted to reduction of GG emissions or to increases in GG sinks (natural or anthropogenic processes that absorb GGs from the atmosphere)?

- 2b What part of this programme is best devoted to reduction of human vulnerability to global warming through, for example, accelerated economic growth of certain kinds in countries with large poor populations?

3 If so, is there a rational and politically acceptable way of establishing priorities among potential remediation projects?

4 If so, is there a rational and politically acceptable way of allocating the costs for these projects?

5 If so, what kind of international institutional mechanisms are needed to facilitate the financing and implementation of such projects?

Although there is by no means universal agreement, many observers believe that the answers to questions 1 and 2 are likely to be in the affirmative, that is, there could be significant risk without action and significant reduction of risk with action. In any case, it is not our purpose to address these issues directly. Rather, we focus on the last three questions, with particular emphasis on 3 and 4, the means to decide both what needs to be done and who will pay.

The most common approach to question 3 (what should be done) in both international negotiations and unilateral declarations has been uniform cuts. Several European nations, for example, have proposed to unilaterally cut their own emissions by 5-25 per cent. Alternatively, with nearly the same result, it may be proposed to limit emissions to those of a particular year, 1990, for example, in some of the UNCED discussions. These approaches are similar to that followed in the original Montreal Protocol where the signatory nations agreed to cut production of selected compounds to 50 per cent by a specified time. A uniform cut in greenhouse gases was proposed by a number of European countries at the UNCED meeting, but not accepted by the USA and Japan. There are major problems with this (two political and one economic):

• By grandfathering currently inefficient emissions, uniform emissions reductions may seem to penalize those countries, like Japan, that have been able to develop economies that already emit less per unit of economic output.

• Equal reductions based on current emissions would be clearly unacceptable to developing countries as it would not allow the growth required to meet their development needs.

• Uniform cuts, by ignoring that the marginal costs of reductions may be quite different among countries, are likely to lead to substantial economic inefficiencies, that is, to be unnecessarily expensive.

Alternatives to uniform cuts that consider both equity and efficiency are described in the next two chapters. Here, our focus is on question 4: who should pay?


Indices of allocation: a brief review

Several investigators have attempted to allocate the global carbon budget based on exogenous considerations of the maximum acceptable warming or its rate of increase (for example, Krause et al. 1992), world averages (Mukherjee 1992), economic optimization models (Michaelis 1992), or other factors (Gurney 1991)

Dividing emissions rights equally among countries, coupled with the ability to sell or lease those rights, is the simplest scheme, yet fraught with inequities because it does not link emissions to human beings or activities. Thus it has few, if any, proponents. Another straightforward basis for allocating rights is land area (Welting 1989). Since 1950, national boundaries have not changed much (leaving aside the national break-ups of the early 1990s). Its stability as a measure, the ease of measurement, the avoidance of monitoring and verification difficulties are what recommend it. (Cheating is difficult.) There was a time, according to Grubb (1989), when the United States was arguing informally in international fore that its continental land mass necessitated enormous energy expenditures in having to move goods and people. Ultimately, with the possible exceptions of those countries with large wastelands (for example, Mongolia), land area is a measure of natural resources. Using it as an index to allocate emissions rights, however, favours large but sparsely populated nations (for example, Australia) and discriminates against small densely populated nations (for example, Japan).

If it is accepted that every person has an equal right to atmospheric resources - the ultimate global commons - then the most obvious and equitable basis is to distribute emissions permits in proportion to national populations (Feiveson et al. 1988; Agarwal and Narain 1991). If rights in subsequent years continue to be proportional to contemporaneous populations, however, a perverse incentive for population growth may be created. For this reason, and to make his scheme more palatable to industrialized countries, Grubb (1989) has suggested that allocations be based on adult populations. This would have the effect of reducing net transfers from countries with rectangular age distributions to developing countries with pyramidal age structures, but could be seen as discrimination against children. Depending on the definition of 'adult,' it would provide a 15-21 year delay between births and receiving the allotment, and thus reduce the pro-natalist incentive.

An alternate incentive for population stabilization could be built into the scheme by pegging the allotment to the entire population in a recent year and not increase future allotments. Compared to an index based on adult population, this would seem to represent less discrimination against children in the first years of an international protocol and no more discrimination in later years.

Arguing that any index based on per capita emissions alone would require unacceptably huge reductions in industrial countries (up to 75 per cent) or entail massive transfer payments to developing countries, Wirth and Lashof (1990) have proposed apportionment based half on per capita and half on per GDP, all the quantities being for the current or a recent year.

Similarly a multiplicative index could be structured that is directly proportional to emissions and inversely proportional to both GDP and population, the ratio being integrated over time. It is not clear, however, if GDP should find a place in an index for allocation, since countries would have already benefited from that economic activity.



In this book, we are coming to these issues from a somewhat different direction. Rather than decide on what the ideal allocation of emissions ought to be, we first seek ways that the present and historical patterns of emissions can be used in international negotiations to determine who should pay for any needed mitigation efforts and then, in later chapters, ways that the best mitigation efforts can be chosen. Thus, rather than concerning ourselves directly with allocation, we address accountability. In the long run, of course, consistent application of accountability should lead to a desired allocation by the simple process of nations attempting to reduce their accountability, a sort of 'invisible hand'. In the interim, however, rather than putting an onus on those countries that have exceeded their allocations, a focus on accountability simply asks that nations should accept responsibility for the emissions they have made, no matter how small or large. The result can be the same, but the moral implications are different.

To make practical the concept of individual rights over time, in this book, we link accountability at any one time to the amount of atmospheric assimilative capacity that has been 'borrowed' from the natural environment, individuals' natural debt as presented in Chapter 2 (Smith 1989b, 1991). The borrowed capacity at any one time is the greenhouse gases remaining in the atmosphere from past emissions (above natural levels). This is less than what was actually emitted, since various natural and human-influenced sinks have absorbed the different gases in amounts depending on the time since emissions. The longer ago the gases were released, the less remains today. We argue that an appropriate indicator of international accountability is the amount of assimilative capacity borrowed to date, the natural debt.

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