I find carbon-trading an excellent idea. Well, at least it’s a good initiative. After all, our capitalist economic systems do not place much explicit value in environmental issues, since no one profits from a protected forest or from oil kept under the ground. So it’s a way of, as they say, “humanise” capitalism, I guess.
The reason why no value is given to those things (well, apart from simply not knowing that you should value them) is related to quite an interesting game-theoretic situation: the prisoner’s dilemma. The original scenario goes like this (from the Wikipedia link above):
Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies (“defects”) for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?
Now that’s the same kind of situation you face when trying to decide whether or not to save water or energy at home, say. You like your long hot showers, and you like keeping your house cold in summer and hot in winter. But we are running out of resources, and the usage of these resources is destroying our natural ecosystems and heating up our planet. So if faced with a clear-cut decision of whether to likely flood all coastal cities within 50 years but keep your air-conditioner on in the meanwhile, or avoid both things, it’s probably true that most sensible people would choose the latter.
But that’s not the choice we face. Or at least not the choice each of us believe we face. After all, my little resource consumption doesn’t really affect anything. I’m a drop in the ocean as far as global warming is concerned. And my change of habit has no significant effect in other people’s change of habits. So whether or not I keep my consumption at its current levels now, the fate of the planet seems to be settled. And therefore I might as well party on before the lights go off.
Of course you may become an activist, and then really influence people. But in any case, even Al Gore’s energy consumption only really affects the world to the extent that it makes his message more credible.
But I’m not talking about Al Gore, I’m talking about us, the everyday Joe Schmoes. For us, we are in a global prisoner’s dilemma. Thinking about it this way, it makes us realise that there is no way out (apart from an utopian belief in human selflessness) unless we can actually change the game. Now there’s three ways of changing a game: changing the available actions for the players involved, changing the probabilities of each possible outcomes given each possible action, or changing the values attached to those outcomes for each individual player.
The first two alternatives are pretty much settled. For us everyday Joe Schmoes, or even for companies facing decisions which impact in the environment, the issue is whether to consume more or less, the details aren’t important. The probabilities are whatever our best scientific theories tell us — yeah, they may change, but that’s not up to us, it’s up to Nature (well, unless we can tweak them with more science, and I agree with David Deutsch there that more science never hurts, but that’s not much of a choice we have available now for our pressing issue — we need other urgent solutions as well). So the only thing left is to change the pay-offs of the decisions of each individual.
And one way of doing that is to put a monetary value on the environment. Who decides what value the “environment” has? Well, that’s pretty hard, but it’s the same as when you make a contract and the parties decide on some arbitrary value for each one breaching the agreement. The value of breaching the contract will have to be agreed upon. It may be a small fine, or a loss of a right. Maybe even the right to liberty, if the contract we’re talking about is the criminal code. But in any case, I guess the best way to decide on this value is to look at the problem we are trying to transform.
How much should a binding contract cost so that the prisoner’s can, while still being selfish agents who just act in their best interests, agree not to defect in the original dilemma? All you need is to have a penalty for defection which looks at least as bad as the expected advantage. With the numbers in the problem above, it would suffice to have a penalty for defection which looks to each of them to be at least as bad as going to jail for six months (in case those are mafia members, the penalty may even be death — those guys are ruthless!). In that case, they might as well cooperate with their fellow gangster, even if not for true loyalship.
So finally to the carbon trading scheme, our global prisoner’s dilemma. Look at the expected outcome of global defection — complete global catastrophe. Rising waters destroy coastal cities. Ecosystems disappear. Billions are forced to migrate, including maybe me and you, but certainly some of our loved ones, from the coastal cities. We will face previously unseen levels of famine, poverty, disease. Entire economies collapse. If you could right now, put your hands in your pocket and pay to avoid that, how much would you be willing to pay? I bet you’d pay way, way, more than what a hot shower a day is worth for you! Hey, people talk about 10-30 percent of our economies. Wouldn’t you give 30% of all you have to avoid that if you thought it really would??
But it’s not enough for each of us to convince ourselves of that, because we still feel that our individual cooperation is useless. Even if I put all the money I have into global warming prevention, and avoided all non-essential consumption, it would still have a negligible impact in the end result. But if I knew that the extra I was paying was part of a global agreement to slow down the pace of our growth, so that for each carbon-dollar I save everyone else chips in as well, I’d be happy to underwrite this contract! And that’s exactly why we need to put an explicit value on the environment. And in our capitalist system, unfortunately or not, value equals price.