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Can Climate Change be Reversed under Capitalism?
Anil Markandya
ABSTRACT
This contribution seeks to examine the prospects for tackling climate change
in a world dominated by capitalist economies. Since climate change is a
relatively new phenomenon, we have to review the successes and failures of
such economies in addressing other environmental issues. This review reveals
a mixed picture, but the evidence suggests that once an issue is raised in the
public consciousness the prospects for effective action are quite good as long
as there is openness and transparency. Experience certainly indicates that the
prospects are better in capitalist than in centrally planned economies. In the
case of climate change the magnitude of the changes needed is immense and
time is now running out. Studies indicate that convergence in living standards
between the North and the South through development is possible with strict
carbon targets, but it will need agreement on the allocation of rights and,
furthermore, a system in which either such rights are traded or a common
carbon tax is imposed. Such a system must be seen as fair by all parties and
these parties must trust each other and the institutions they set up. That is
where the biggest problems still lie.
INTRODUCTION
This contribution seeks to answer the question, how effectively can marketbased capitalist economies respond to the climate change challenge? A
good point of departure is usually to look to the past, to see how such
economies have addressed previous major environmental problems. This
will be illuminating, but not revealing enough, because climate change is
arguably a much greater crisis than any we have faced so far. In the language
of economics, Lord Stern has described it as the biggest externality that has
ever existed (Stern, 2006). This means that some of what follows has to be
based on speculation on the nature of the challenges, and on how capitalist
institutions are responding to them and how they will respond in the future.
I begin with a brief review of why unregulated markets fail to address
environmental problems and how they have been modified to correct that
I wish to thank Servaas Storm and the editors of the journal for useful comments that have
improved the final version. I also thank Tim Taylor and Alistair Hunt for reading and making
suggestions on an earlier draft. All shortcomings are of course my own.
C Institute of Social Studies 2009. Published
Development and Change 40(6): 1139–1152 (2009). by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St.,
Malden, MA 02148, USA
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Anil Markandya
failure. There have been successes, and these are noted and analysed. There
have also been failures, which teach us some important lessons. I then turn to
climate change and look at its major dimensions: the long-term nature of the
impacts, the high levels of uncertainty, the need for major technological advances to solve the problem, and the fact that it is a global issue: all countries
have to contribute to solving it. Each of these raises institutional questions.
The focus here is on how ‘capitalist’ societies are able to address these.
At the start I would make the point that it serves little purpose to set up
‘straw men’ and then proceed to destroy them. In this context it is easy to
caricature a capitalist society as unregulated, uncaring and unable to resolve
the conflicts between the private and public provision of goods and services.
It goes without saying that such a society would never be able to resolve the
climate challenge. But no such society exists. All market-based economies
have major public sectors and regulate the environmental substantially. They
may differ in the extent to which they use one method or another but as a
broad generalization all combine direct controls with some fiscal incentives.
So what we really want to evaluate is how such ‘real’ economies are facing
up to the climate challenge and what measures they will have to take to meet
that challenge.
CAPITALISM AND THE ENVIRONMENT
Capitalist societies are generally characterized by two features: the private
ownership of wealth and the pursuit of profit in production. In terms of
ownership of wealth, one normally thinks of physical and knowledge capital,
but not of human capital (at least not since the abolition of slavery), nor
so much of natural capital. Of course some forms of natural capital are
privately owned (e.g. agricultural land or forests) but no one considers air
sheds, oceans, species and many ecosystems as private property. In terms of
the pursuit of profit, this remains a strong driving force for such societies,
but it is tempered and controlled by regulation. In the light of recent events,
many would argue that regulation has been insufficient in the financial
sector, and most would agree that regulation is needed to address major
environmental problems. An important argument in the opposite direction
was made by Coase (1960) to the effect that if property rights are well
defined, we do not need environmental regulations because the affected
parties will negotiate privately to determine an outcome that is optimal for
them. There is some validity to this position in certain cases, and a number
of studies have demonstrated that such negotiation does take place (see, for
example, Hoffman and Spitzer, 1982), but no one seriously suggests that the
Coase thesis is the basis for leaving major environmental problems such as
climate change or air quality control to the private sector.
If we accept that the environment needs regulation, how do we modify the
institutions of a capitalist economy to achieve that goal? Traditionally the
Can Climate Change be Reversed under Capitalism?
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focus has been on direct regulation: industries were simply told they could
not pursue some methods of production that were harmful to the environment, and households were required to refrain from certain practices such as
dumping waste and burning fuels in areas where air quality was a matter of
concern. To a considerable extent, such measures have worked. Perhaps the
best example is the control of emissions from the burning of coal in Europe.
Legislation on the control of emissions from coal in the UK were introduced
as long ago as 1821 and since then there have been more than thirty-five laws
passed on this topic, almost all of which constituted ‘command and control’
regulation of the kind I have just described (Markandya et al., 2006). The
result has been a steep decline in the levels of SO 2 since 1956 (when a major
air inversion killed many people in London), without any serious impact
on GDP per capita (see Figure 1). In this case, then, capitalist institutions
certainly did respond and did so without apparently affecting the economic
performance of the country. Other examples of major improvements in the
ambient environment during the post World War II period include water
quality and reforest cover in Europe.
Figure 1. United Kingdom: Sulphur Emissions (1850–1999), Real GDP per
capita (1870–2001) and some Air Regulations
1956 Clean Air
Act
90
80
25000
1968 Clean
Air Act
1874
Alkali
20000
70
15000
1972 Envl
Action Prog
50
40
1974 Control of
Pollution Act
1926 Smoke
Abatement Act
10000
30
1994 Oslo
1995 Envt Act
20
5000
1997 National Air
Qlty Strategy
10
1999 Gothenburg
Protocol
0
1850
5
0
1875
1900
1925
Sulphur per capita
1950
1975
GDP per capita
Note: Sulphur is measured in thousands of tons. GDP is measured in 1990 US$.
Source: Markandya et al. (2006).
2000
Per capita 1990 PPP$
kilograms per capita
60
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The link between economic progress and environmental progress has now
been studied extensively under the general rubric of the Environmental
Kuznets Curve (EKC), which states that as societies get richer, they initially
cause a deterioration in the environment, but that after a certain point, they
start to devote resources to its improvement, resulting in a reversal of the
trend towards deterioration (Arrow et al., 1995; Stern and Common, 2001).
The empirical evidence supports an EKC for a number of environmental indicators, but not for all. In particular, most studies do not indicate a decline
in greenhouse gas (GHG) emissions with economic development. Furthermore, the point at which the reversal occurs and the rate of fall are affected
by policies: the more proactive a country is in this regard the quicker and
faster is the improvement in the environment.
A sceptic might accuse me of having chosen an ‘easy target’ to make this
point. She might say that there are more difficult environmental issues involving transboundary pollution, where regulations have not been so successful.
In fact that is not true either. To continue with the example of sulphur, there is
a transboundary dimension which has been addressed through agreements,
such as the 1999 Gothenberg Protocol that defines national emissions of
sulphur. Another example of an international environmental problem — in
some respects a precursor to the climate issue — was that of Ozone Depleting
Substances (ODSs). The Montreal Protocol of 1987 achieved an agreement
for the phase-out of these chemicals, which were damaging the stratospheric
ozone layer. The agreement involved special terms for developing countries
and has achieved a substantial reduction in ODSs.1
So far, then, one would conclude that the capitalist western countries have
managed to reconcile environment and growth without too much difficulty
and that they have done so through the use of laws and regulations. The
story, however, is more nuanced than that and there have also been areas of
failure. In recent years, the rate of biodiversity loss has not been arrested, and
continues at an alarming pace. Deforestation in the tropics is also continuing
at a high rate. There is a serious estimate that, unchecked, a collapse of
fish stocks is possible by 2048 (Siebert et al., 2006). In many developing
countries problems of water and loss of soil productivity are matters of grave
concern.
What factors determine success in regulating the environment? It is easier
to start by saying what does not ensure success. It is not a case of centrally
planned versus capitalist economic structure. The countries of Eastern Europe that were centrally planned did not have a particularly good record
in this sphere. The over-exploitation of the Aral Sea for irrigation of cotton is one of the worst examples (EEA, 2007), but there are also cases of
1. A similar story of at least partial success can be told for international agreements on the
Trade in Endangered Species (CITES), originally signed in 1973, and the Basel Convention
on the Control of Transboundary Movements of Hazardous Wastes and their Disposal,
signed in 1992.
Can Climate Change be Reversed under Capitalism?
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extremely serious neglect of the environmental consequences of toxic wastes
including radioactivity, with ensuing harm to the population (Almaganbetov
and Grigoruk, 2008). The problems were ‘solved’ in two ways: by hiding
the truth from the wider public and by supporting unsustainable systems of
production and resource use through transfers from richer regions. Once the
Former Soviet Union collapsed, this unsustainability came to the fore and
ecological-economic systems started to fall apart.
Neither is success guaranteed by simply passing laws and administrative
orders on what can and cannot be done. Laws have to be implemented, and
we often see failures in this regard, especially — but not only — in developing countries. A major factor ensuring success in implementation of laws has
been shown to be a strong civil society. Openness and transparency are key
factors and access to information helps greatly; the Arhus Convention on
Public Participation in Decision-making and Access to Justice in Environmental Matters, adopted in June 1998, is a cornerstone of European efforts
to ensure compliance.
Another factor that promotes success in regulation is the use of marketbased instruments (MBIs). The use of pollution or product charges or subsidies makes it possible for affected parties to respond more flexibly to an
environmental regulation. This can result in less opposition from these parties and others on the grounds that the regulations are socially costly (e.g.
in terms of employment) and can also provide stronger incentives for undertaking investment in innovation to reduce any charges or to receive a
bigger subsidy (Tietenberg, 2006). The use of MBIs has been criticized as
allowing polluters to ‘buy’ the rights to pollute in the case of charges or
getting paid in the case of subsidies. The issue here, surely, is whether we
achieve the environmental goal, and if so at what cost? MBIs have frequently
been shown to achieve a goal at a lower cost than direct controls and, as the
costs of regulation rise, it becomes more important to seek the lowest cost
solutions possible (Markandya, 1998; Panayotou, 1998). Furthermore the
use of MBIs does not imply favouring increasing inequity. Whether we use
charges (under a Polluter Pays Principle), or subsidies (under a Beneficiary
Pay Principle) can depend precisely on such equity considerations. In developed countries, where polluters are often large industrial enterprises, the
Polluter Pays Principle makes more sense on these grounds. In poor countries, where the polluters or degraders of the environment may often be poor
farmers, it may be more equitable to pay them to reduce the degradation.
Indeed a big movement that seeks to develop systems for the Payment for
Environmental Services is based on this principle (Pagiola et al., 2005).
Overall, the move to using market-based or fiscal incentives to regulate
the environment is not a particularly capitalist development. Rather, it can
be seen as part of a system of incentives that can be applied to firms as well
as households, government agencies and others, where the aim is practical
and where the instrument is to be judged in terms of how successfully it
achieves the environmental goals. Success here is measured of course first
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Anil Markandya
and foremost in environmental terms, but it is also measured in terms of the
costs imposed on society in meeting these goals.2
CAPITALISM AND CLIMATE CHANGE
Climate Risks
With climate change we face perhaps the most serious threat to planetary
survival within the human historic timeframe. If continued unchecked, the
increase in greenhouse gas (GHG) emissions could result in concentrations
that would cause global mean temperature to rise by between 1.1 and 6.4◦ C
by 2100 (IPCC et al., 2007). The upper end of this range would make many
regions uninhabitable and cause extreme social disruption to spillover to
other less affected regions. A key part of the problem is the huge uncertainty
surrounding these estimates. According to the same IPCC report, there is
a significant ‘tail’ in the distribution of possible temperature increases that
is even more threatening. Weitzman (2009) notes that under the IPCC estimates, a doubling of GHG concentrations (a plausible outcome in the
absence of action within the next century) would result in a 4.5◦ C increase,
with a probability of more than 17 per cent. The probability of an increase
of more than 8◦ C is around 2 per cent.
Required Actions
Clearly then we need to take action on precautionary grounds. Estimates of
what is needed to stabilize concentrations at around 550 ppm by 2100, which
would allow the increase in mean temperatures to be maintained at around
2◦ C (with a range of 1.5–4.5◦ C), indicate a peaking of global emissions in
2020 with declines of 1.0–2.5 per cent per annum thereafter (Stern, 2006). As
a rule of thumb one can think of emissions declining by 50 per cent relative to
2000 levels by 2050 for the planet to be on this stabilization path. This level
of stabilization has been proposed by a number of researchers (including the
Stern group), but one cannot say categorically that it is an ‘optimal’ level.
Estimating the costs and benefits of further reductions is extremely difficult,
with such large uncertainties that some argue the exercise itself to be flawed
(Weitzman, 2009). In these circumstances one can only go by judgements
of what is required and what is feasible. A lower target, such as 450 ppm,
2. The use of MBIs is growing not only in Europe but across the globe. The EU website
http://www2.oecd.org/ecoinst/queries/index.htm records the use of many instruments in
member states and wider applications are reported in World Bank (2005). There is now a
strong movement that promotes Green Fiscal Reforms, whereby public expenditures are
increasingly funded by taxes on pollution, and taxes on labour and goods and services are
reduced in compensation.
Can Climate Change be Reversed under Capitalism?
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Figure 2. Stabilization Targets and Eventual Temperature Changes
Stabilization and Commitment to Warming
5%
400 ppm CO2e
95%
450 ppm CO2e
550 ppm CO2e
650 ppm CO2e
750 ppm CO2e
Eventual temperature change (relative to pre-industrial)
0°C
1°C
2°C
3°C
4°C
5°C
Source: Stern (2006).
would reduce the risks of exceeding an acceptable temperature threshold
(see Figure 2), but it would require GHG emissions to peak in the next few
years. Given the trends in these emissions, no one seriously believes this is
possible. Hence the focus on a target of 550 ppm, which is believed to be
the lowest credible target.
Costs of Actions
Can this be achieved with the institutions we have at present, especially the
capitalist economic systems? The first thing to note is its technical feasibility:
many experts are agreed that such reductions are possible without imposing
too high a cost on our economies. Taking data from a large number of studies,
Stern (2006) concludes that the 550 ppm stabilization target would impose a
cost of between −3 per cent and +3.5 per cent of GDP per annum in 2050.3
Assuming world GDP increases by around 2.8 per cent per annum from now
to 2050, that would imply an upper bound of US$ 7,800 billion, or US$ 846
per capita,4 when per capita global income is estimated at US$ 24,165. At
3. In these studies one finds that the ‘engineering’ bottom-up models result in lower costs of
achieving a given target reduction rate, while macroeconomic models with less technological detail generate higher cost figures. It is likely that the correct figure is somewhere in
between the two and a newer generation of hybrid models supports that.
4. Based on World Bank Data for 2006 and UN medium population projections, taking world
population from 6.5 billion in 2006 to 8.9 billion in 2050. The world GDP growth rate is
the long-term base case used in EC planning models such as POLES.
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Anil Markandya
the same time new markets to the value of US$ 500 billion would be created
by that year.
In the shorter term, estimates of actions that would keep us on the path
towards this goal are also relatively manageable. Golub et al. (2006) report
the range of costs for the US, had it complied with the Kyoto Protocol
Target as initially negotiated (but which it did not ratify) of 302 million tons
of carbon in 2010. The pessimists claimed a cost in the range of up to 4.6
per cent of 2002 GDP, if there were no trading in emissions rights, and if
reductions through ‘sinks’ were not allowed. With some trading in emissions
rights and inclusion of sinks, even they concede that the costs would not
exceed 2.2 per cent of GDP. Furthermore, as Golub et al. show, allowing
for a number of other factors such as market reforms in the energy sector
that would pay for themselves, as well as including the collateral benefits of
reductions of GHGs (through reduced local pollutants), the estimated costs
amount to less than 0.5 per cent of GDP and even become negative in some
cases.
All the above, of course, is based on models and not on actual performance
in reducing emissions, evidence on which is limited but not totally absent.
The UK and Germany, for example, reduced emissions over the period
1990–2000, by 11 per cent and 3 per cent respectively. At the same time,
they have achieved real GDP growth over that decade of 20 and 29 per
cent. To be sure, part of this reduction was due to the switch away from
coal and into gas, which may not be available for all countries, and which
will not offer the same potential in Germany and the UK in the future.
Nevertheless, options do exist and there are some cases of them being used
effectively to reduce emissions without influencing growth. Of course, the
fact that the ‘carbonization’ of these economies, measured as carbon per unit
of GDP, has declined while the economies have grown is not surprising. As
Nakicenovic (2002) shows, the decarbonization rate for the US from 1800 to
2000 was about 1.3 per cent per annum, while the annual per capita growth
was about 1.7 per cent. The 1990s saw a decline of 2.8 per cent per annum
for Germany and the UK which is the kind of rate of decarbonization needed
for all countries, and for a sustained period, if we are to stabilize global
carbon emissions in the future.
The main conclusion one can draw from the above is that the goal of
climate stabilization at a level that entails a possible risk is technically and
economically feasible. Given wide (though not total) consensus on this from
the scientific community, why then is a global agreement to such a reduction
path proving so difficult?
Sharing the Costs
Perhaps the most difficult question is how the costs of reduction should be
shared. Even if they are estimated as being low in total, this does not mean
Can Climate Change be Reversed under Capitalism?
1147
that all divisions of the costs will be low, or even if they are not very high, it
does not follow that they will be acceptable to all the parties concerned. In
Game Theory, experiments using ultimatum games have shown that parties
prefer no deal to a deal they think is unfair, even if it leaves them better
off (Oosterbeek et al., 2004). In some cases they could go for ‘strategic destruction’ when they are offered a bad deal. So the deal has to be perceived
to be fair and that is proving to be a stumbling block. Developing countries see the problem as one created during the industrialization of the now
developed countries and feel the latter should bear the greater burden. At
the same time, developed countries (especially the USA) counter by saying
that without reductions in emissions from developing countries the problem
cannot be solved and anyway a fair solution requires all to share the burden.
The issue comes down to the allocation of emissions rights. While it is
undoubtedly true that reductions will have to be made in the developing
countries if we are to achieve a halving of emissions by 2050, this is not the
same as saying that emissions rights should be allocated for 2050 so that each
country has half the rights it has today. In one sense (based on equality per
capita), present rights are unevenly allocated with the ‘North’ having much
more than the ‘South’. A capitalist system is based on well-defined property
rights but as far as GHG emissions are concerned no such rights exist. In other
areas where scarcity has arisen as a new phenomenon, capitalist economies
have developed regulations and created implicit rights in ways that work.
Where they have applied the Polluter Pays Principle, for example, they have
allocated rights to the ambient environment to the pollutee, in many cases
quite effectively; where they have applied the Beneficiary Pay Principle the
rights are effectively allocated to the polluter.
With climate change we can see the magnitude of the changes by looking at
the implications of different allocation rules that would get us to a 50 per cent
reduction in emissions by 2050. Table 1 is based on the POLES model, which
analyses different energy and climate change scenarios with a very detailed
Table 1. Projections for 2050 under Development Convergence and Climate
Regulation
Growth in GDP p.a. (1)
GDP Per Capita in 2050
Emissions Allocated
Emissions Used
Net Transfer
Price of CO2 (2)
Units
USA
EU27
INDIA
CHINA
WORLD
%
US$ 95
MT CO2
MT CO2
US$ 95 Bn.
US$ 2005
2
65,217
543
1,738
502
420
1
50,079
640
1,599
403
420
3
19,295
2,231
1,462
−323
420
3
45,847
1,860
3,324
615
420
2
24,166
12,156
12,156
0
420
Notes:
(1) Growth rate for the last twenty years.
(2) The POLES model reports the price in Euros. We have converted this into US$ using the exchange rate
for 2005, when the Euro/US$ exchange rate was US$ = 0.823.
Source: Author’s calculations based on the POLES Model.
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Anil Markandya
specification of the energy sector and changes in that sector over time (Criqui
et al., 2008). Essentially it estimates the energy needs for different countries
under assumed growth scenarios, compares these with available supplies
and then adjusts prices to match supply and demand with various constraints
on local and regional energy flows.
Table 1 reports the results of growth scenarios that would allow convergence between the fast growing developing countries and the developed
countries by 2050. GDP is measured in PPP terms and for China the 2050
level goes up to 70 per cent of that of the US, whereas it is estimated at 24
per cent in 2010. Without going into the details, what is important is that
the scenario assumes some degree of convergence between developing and
developed countries. At the same time the model assumes a carbon market
of the kind that would allow emissions reductions to be made where they
are cheapest, thus exploiting market opportunities. Table 1 assumes that
allocations are made on a pro capita basis, taking population increases into
account.
The results show that convergence can indeed be supported by the energy
system, even under a tight carbon constraint. It requires the price of carbon
to rise to around US$ 420/tCO2 (in today’s prices). While this may seem
high, it is worth noting that such a price would amount to US$ 1 per litre
of gasoline or US$ 3.2 per US gallon. This would amount to a doubling
of the present US retail price, something that could surely be contemplated
over the next forty years, given all the expected developments in efficiency,
renewable sources, etc.5
Table 1 also reports the transfers different regions would need to make to
purchase the required emissions rights. The USA, for example, would need
to buy 1,200 Mt CO2, at a cost of US$ 500 billion (about the size of the 2009
base US defence budget). The EU27 would spend about US$ 400 billion,
but more interestingly China would need to buy emission rights to the value
of US$ 615 billion to support the level of development given here. Of these
countries/regions only India would be a net recipient (of US$ 323 billion)
but of course since net transfers are zero, other regions with lower growth
and emissions needs would also benefit.
Can these Changes Be Supported Institutionally?
The most difficult question we face is whether institutions can be formed to
support such large carbon markets and the creation of such a large number
5. It was noted by one referee that such a price increase would be significant for developing
countries. I agree that if it were introduced today it would be quite unacceptable. However,
we are talking about an increase in 2050. We hope two things will have happened by then:
first, countries that are now poor will be much less poor; second, we will have developed
alternatives to fossil fuels. Indeed if we have not, the future will be very bleak and the target
reduction will not be achieved.
Can Climate Change be Reversed under Capitalism?
1149
of rights that become increasingly valuable as targets are tightened, but that
also lose value as alternatives to a carbon economy are developed.
There is a considerable debate in the climate change literature as to whether
the ‘market- based’ system for meeting the carbon targets should be a carbon
tax or a permit trading scheme. Those who favour a permit scheme argue that
it ensures a given environmental goal (emissions are reduced by the reduction
in allowances, while with a tax the amount of reduction is uncertain) and it
avoids the problems associated with increased taxation (politically difficult to
agree upon even at a national level, let alone an international one). Those who
favour carbon taxes employ essentially five arguments: (a) taxes will result in
more predictable energy prices; (b) they can be implemented sooner and can
apply more widely than cap and trade systems, which are easier to implement
with large emitters; (c) they are transparent and more easily understandable
to the general public; (d) they are less amenable to manipulation by special
interests; and (e) taxes can be rebated to the public though dividends, while
cap and trade systems are more likely to result in a flow of benefits to market
participants, especially when the rights are not auctioned.6
The debate continues and shows little sign of being settled. At the end
of the day, it probably matters less which of the instruments is chosen than
that at least one of them is implemented. In fact it may well be possible to
have both, with cap and trade applied to large emitting parties and carbon
taxes applied to small emitters. Within the EU there is already a mixture
of the two in some countries (the UK has both a carbon tax — a climate
change levy — and is participant in the EU Emissions Trading Scheme,
ETS). Ultimately, a kind of Gresham’s law is likely to prevail, with the more
workable instrument dominating.
It is important to have some kind of carbon market, for without it the costs
of achieving the stringent reduction targets mentioned above will be much
higher. All models that have been used to examine this question come up
with the same conclusion: costs are likely to be halved if trading is restricted
to ‘Annex I’ countries (broadly speaking, those that are developed now),
and halved again if trading is opened up to all countries. Some might argue
that experience to date has not shown such benefits, for example in the EU
ETS. The ETS is, however, an early prototype; in the first trading period,
participating enterprises were given (free) a generous allocation of rights,
with little need to take measures to reduce emissions. As we enter the second
trading period and as partial auctioning comes into force, the role of trading
and the cost effectiveness of the scheme will become clearer.
6. A strong supporter of carbon taxes is Professor Stiglitz. His views are summarized in http://www.carbontax.org/blogarchives/2007/12/15/joseph-e-stiglitz-stands-upfor-carbon-tax/ (accessed 1 June 2009). An opposing view is expressed by other eminent
economists such as Professor Sachs, Professor Stavins and others. See http://e360.yale.
edu/content/feature.msp?id=2148 (accessed 1 June 2009). Views in favour of carbon taxes
are also found in Nell et al. (2009).
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Anil Markandya
There is also a concern that prices will be volatile (especially if a cap
and trade scheme is adopted), resulting in disruptions and uncertainty in the
economic system. However, governments can take measures to help stabilize
such markets (for instance by holding a buffer stock of rights) and most large
corporations are now sophisticated enough to use forward markets to hedge
risks of fluctuations.7
The bigger problem in my view is agreement to a rights allocation scheme.
It should be noted that such a scheme will be needed whether we go for a
carbon tax or emissions trading as the instrument of choice. A one-shot move
to a pro capita allocation could be too disruptive to large economies such
as the US and those in the EU. Thus the shift has to take place over time
(perhaps under a ‘contract and convergence’8 type programme). The issues
here are trust and a sense of fairness, both of which are critical to the success
of any economic system, including a capitalist one. It remains to be seen
whether there are enough of these two ingredients for an accord to emerge.
There are reasons for both hope and scepticism.
CONCLUSIONS
The theme of this debate is the prospect for stabilizing the climate in a world
dominated by capitalist economies. I began by noting that ‘real’ capitalist
systems do have lots of environmental regulations and large public sectors.
There may be under-provisioning of some public goods, but it is not the
case that such goods are ignored. If we look at environment-related goods
and services, the sector has been growing and there have been important
successes, achieved without compromising economic development. At the
same time there are major problems that have not been tackled adequately.
Often these are issues with an international dimension (pollutants that cross
borders) and with a lack of immediacy, allowing policy makers to procrastinate. Once a problem has been raised in the public consciousness, however,
and as long as there is openness and transparency, the prospects for effective
action are quite good in capitalist economies, and certainly better than in
centrally planned ones.
In the case of climate stabilization, the main issues are the magnitude and
the urgency of the changes required. While convergence through development between the North and the South is still possible with strict carbon
targets, it does require agreement on the allocation of rights and on a system
for trading such rights. To succeed, such a system and the institutions which
implement it must be seen as fair by all parties: the biggest challenge will
be achieving the necessary levels of trust.
7. For a detailed discussion of the role of option values and options markets as climate
regulation instruments, see Golub and Markandya (2009).
8. See http://www.gci.org.uk/ (accessed 21 April 2009).
Can Climate Change be Reversed under Capitalism?
1151
There are measures that can be taken to increase the chances of a fair
solution being adopted. Perhaps most important among these is ensuring
higher levels of development more broadly, so that the world is indeed
moving toward greater convergence in living standards. In the immediate
future, failure to meet the Millennium Development Goals, for example,
would not send a positive message to developing countries about this longerterm objective. Second, the internalization of financial flows on the scale
envisaged here, be it through taxes or permits, needs confidence building
and evidence of effectiveness. These can only come gradually, and all parties
have to agree that the institutions set up for the purpose can and do work.
There is really no institution at present in which developed and developing
countries manage large amounts of resources on an equal footing. Something
along these lines will have to be created as a precursor to the kind of fair
solutions envisaged in this essay.
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Anil Markandya is Professor of Economics at the University of Bath and
Ikerbasque Research Professor at the Basque Centre for Climate Change
(BC3) in Bilbao, Spain. His mailing address is: Department of Economics
and International Development, University of Bath, BA2 7AY, UK; e-mail:
[email protected].
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