New at Reason

November 16, 2006

"African Ronald" Bailey reports on efforts, afoot now in Nairobi, to bring together diverse interests on climate control.

Comments

|11.16.06 @ 4:15PM|#

You mean efforts are "afoot," right? Or "under way?" Unless you mean Bailey is tripping over them.

Larry A|11.16.06 @ 6:35PM|#

I think "underfoot" describes it. We'll all be tripping over them, one way or another.

|11.16.06 @ 7:02PM|#

A man without a horse is afoot.

|11.17.06 @ 3:08AM|#

Ron, you disappoint with this shallow and uninsightful piece, especially after your heftier previous posts.

Yandle's analogy is fundamentally non appropos, as I note further below, but in any case you have really failed to seriously consider Yandle's useful point about paying attention to rent-seeking in the efforts to establish - or to block - AGW-realted policies, including but not limited to a GHG emission market and to adopt other AGW mitigation/adaptation policies. This rent-seeking is one key in understanding the failures of Kyoto and other AGW policies.

Yandle was talking about rent-seeking by "special-interest groups that are positioned to gain from regulatory enforcement and stringency or that must fend off losses that spring from proposed rules. In this role we see national governments, industries, and firms." You wrongly imply that the carbon traders are the chief rent-seekers/Bootleggers. To the extent that the EU has created an emissions market, the carbon traders are just middle men and helping a new market to function better (allowing lowest cost emission reductions); they may of course be rent-seekers to the limited extent that they are trying to persuade governments to further limit the available permits, but they can hardly be considered the biggest rent-seekers out there.

Let's think about who these other rent-seekers might be. Yandle made the following observations:

1. Countries: "National governments are strategically positioning themselves to benefit." Countries like the UK and France can exploit earlier carbon reductions while raising the cost to economies such as the US that rely heavily on coal. "The United States has also played the "increase the rivals' cost game" by battling various European Union proposals to introduce trading" that would minimize the costs of emission reductions. "Other countries, including developing countries, are allowed higher emissions. These countries see opportunities for payments from the developed countries for reducing carbon emissions or for offsetting actions such as planting trees."

Yandle refers to rent-seeking in the post-Kyoto bargaining over (1) how the permit markets will be defined and operated and (2) over the enforcement of agreements within and among countries that ratify Kyoto. "Officials who manage the system will identify winners and losers in the battle over which nations will bear the greater pain of cutting back on carbon emissions."

2. Industries and companies: The previous observation also applies to how each country rolls out Kyoto domestically. "Within countries, some industries are favored by the rules and, within industries, some firms will also be favored."

Yandle refers to "alternative energy bootleggers" - such as ethanol producers - who are looking for "tax credits to spur the production and purchase of renewable energy and related technologies" or for continuing federal subsidies.

Yandle mentions "natural gas and oil bootleggers", such as Shell Oil which was eager to promote the gas industry, which emits less carbon, and BP, which expects to see an increase in demand for oil (as a substitute for heavier-emitting coal) and which announced a significant investment increase in alternative-energy technology development.

But aren't there others that even Yandle has somehow missed? Yandle states that "The economic theory of regulation asks us to consider the political arena as a marketplace where favors are bought and sold. Interest groups that have the most to gain or lose will bid the highest prices for favors. Politicians dedicated to preserving their jobs, and needing large amounts of campaign funds, auction off the favors. Under this theory, if carbon emissions are to be controlled, the politician will seek the group with the largest economic stake in the outcome (and therefore presumably the most generous with campaign funds) and favor that group. Competing groups will attempt to outbid the winner. Usually, the smaller the group, the more each member can gain by crafting regulatory rules. The larger the group, the less likely that each individual member will have a strong reward or heavy burden as a result of the rules. So small special-interest groups usually are the most actively involved in the negotiations."

Golly, can we possibly recall the Luntz memo and think about the role played by US coal producers, Exxon, the automobile industry and the manufacturers represented by NAM in influencing the Bush administration to back out of Kyoto and to start bashing libs and enviros?

And what about the US firms such as GE, Dupont and Boeing that are members of Pew and expect that AGW policies willcreate more market opportunities for them? And what about the insurance firms that are looking for government to act to lower their future risks?

BTW, Yandle's analogy, while useful, fundamentally fails because it addresses efforts to reduce supplies and increase profits with respect to existing goods and markets. Efforts to address AGW are aimed at a problem resulting from exploitation of an open-access resource for which there are no markets whatsover, leading to a "tragedy of the commons"-like phenomenon. Since there are no property rights, continuing the situation without regulation protects the interests of those who profit most directly from heavy use of the atmosphere of a GHG dump. These are the private interests that benefit from non-action. Solving the problem - if it is to be redressed and not simply passed off as a larger problem to future generations - requires the implementation of some type of regulation that creates shadow prices for GHG emissions (among other actions) and thus incentives for changes in economic behavior (consumption and investment decisions). A huge aspect of the problem is simply the gamesmanship/prisoner's dilemma issues in reaching international agreement. These are affected by domestic rent-seeking, but are not identical.

You know this stuff Ron, so your facile and one-sided treatment of the rent-seeking and non-coverage of the commons-management aspects are quite disappointing.