Wednesday, October 31, 2007

Greenhouse gases: Demand control policies, supply and the time path of carbon prices

From VoxEU:

EU leaders don’t determine the pace of climate change. Demand reduction by some consumers only lowers fossil fuel consumption to the degree that resource owners decide to curtail their supply. Ultimately, the volume of fossil fuel burnt globally depends upon the rate of extraction and this is in the hands of oil producers who care about carbon’s intertemporal price path. Policies aimed at lowering carbon demand without concern for its price path of carbon may backfire.

What Might Work
In light of this ‘green paradox’ of environmental policies, the measures currently demanded by European governments have little in common with policy efforts that would be truly effective in reducing global warming.

Meaningful measures would include the introduction of worldwide source taxes on capital income along with a closing of tax havens so that the resource owners would lose their investment alternatives.

In addition, an emissions trading system with no loopholes that would unite all customer countries into a worldwide monopsony could force the desired amounts from the resource exporters. It would make particular sense to exploit the technical possibilities of sequestering carbon dioxide.

A top priority should be rebuilding forests, which are the largest absorbers of carbon under human control. Currently deforestation is leading to the release of more carbon dioxide than from the whole transportation sector. If reforestation were to replace forest destruction, global warming could be slowed down significantly....MORE

From CESifo:
Hans-Werner Sinn: Not Angela Merkel but the Oil Sheiks Determine the Speed of Global Warming

From Agence France-Presse:
German think-tank derides EU environment policy