Interest Rates and Climate Change: Realigning our Incentives through the Power of the Commons

False Choices: Cap and Trade Vs. Carbon Tax

During the past several decades, humanity has emerged as a perilous
force of nature. Through its technological, economic and political
choices and activities, modern civilization has produced destructive
economies of scale, powered by exponential growth and fossil fuels. Our
consumption of vital resources is already exceeding the carrying
capacity of the planet. By 2030, as world population increases to 8
billion, we will witness dramatic new increases in global demand for
food, water, land and energy and the right to release greenhouse gases
through industry, transportation and deforestation. From our
petrol-guzzling urban economies to our tree-burning subsistence
economies, world society is rapidly changing the physical, chemical and
biological systems of Earth, creating widespread pollution and global
heating. The science of climate change is daunting, but the facts are
clear. “If humanity wishes to preserve a planet similar to that on which
civilization developed and to which life on Earth is adapted,” says
James Hansen of NASA, “paleoclimate evidence and ongoing climate change
suggest that CO2 will need to be reduced from its current 385 ppm to at
most 350 ppm.” To make this radical adjustment, the world must decrease
global emissions significantly over the next 5–20 years to limit
temperature increases to 2°C (3.6°F). An increase above that would lead
to a cascade of disasters.

Although global heating is the result of both natural and human
causes, it is the human sources that are critical since they are largely
preventable. Anthropogenic climate change poses a classic tragedy of
the commons: without restraints on the use of the atmosphere,
civilization captures the benefits of industrial emissions while the
producers and consumers of oil, coal and natural gas use the sky commons
as an open sewer. Every day, industry disposes 90 million tons of waste
products into our shared atmosphere at no cost. This is an enormous
collective action problem. Yet the world has a long and varied
experience in meeting similar challenges of smaller scale. Many local
communities collaborate in sharing the burden of resource protection.
Whether their commons are traditional (rivers, forests, indigenous
culture) or emerging (energy, intellectual property, internet), people
are successfully managing these common resources. But the failure of the
2009 Intergovernmental Panel on Climate Change (IPCC) discussions
underscores the need for a global framework that allocates the use of
the atmosphere and introduces incentives necessary to sustain our
natural life support systems. In searching for answers, society is
trapped in a false dichotomy: we believe that only markets and
governments are capable of providing solutions for climate change, even
though these institutions were never designed to internalize the costs
of negative externalities like carbon emissions.

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Interest Rates and Climate Change: Realigning our Incentives through the Power of the Commons