Tuesday, November 22, 2005

Global Warming: Who Pays?

Next week, the leaders of several countries will meet in Canada to discuss ways of approaching the issue of climate change (a.k.a. global warming). This is expected to be the start of a long series of negotiations that will last several years to work out an accord.

On this issue I have a moral question, which I seldom hear being asked.

Who pays?

Let me illustrate my concern with a hypothetical situation. Let us say that I own some land with a stream running through it. In order to collect water that I will use for farming on my land, I build a dam. However, I am not much of an engineer. One spring, after a winter of heavy snow, the runoff is particularly high and my dam breaks. Water rushes down the valley, destroying the homes of people who live downstream.

Who pays?

A reasonable moral principle states that where one person performs an action that harms others, that the person who does the harm should pay the costs. In this case, I owe my downstream neighbors compensation for their losses as long as those losses can be traced to my actions.

Free-market economics defends the same principle. In order to increase market efficiency, we need to internalize, as much as possible, the costs and benefits of each action. If those costs are internalized (if the person who does the harm pays the costs), then people will reduce the amount of harmful actions they perform.

On the other hand, if people (companies) are able to force those costs onto the people harmed (costs that economists call 'externalities'), then the free-market incentive not to engage in harmful action is removed. We end up with a society in which those who benefit by harmful actions continue to perform those actions, and those who bear the costs continue to bear those costs.

In effect, if the government refuses to support institutions that internalize these costs, then the government is supporting a wealth-transfer scheme. This system transfers wealth from the victims being harmed and being forced to endure those costs, to the companies and individuals that benefit from the harmful activity.

With respect to global warming, this system "taxes" those effected by global warming the value of the property that is damaged, the health that is sacrificed, and even the life of those who die from heat stress, the spread of disease into regions where they once could not survive, and the power of increased storms. These "taxes" are used to bring increased wealth that the corporations and their stock holders who still get to sell their products, but who do not have to pay all of the costs of producing those products.

It is like giving credit cards to corporations that they can use to cover their costs, that are paid for with the lives, health, and property of those who suffer the effects of global warming.

This is not the way that a fair and just society would operate. The corporations should be paying these costs.

Or, more precisely, those who engage in activities that contribute to increased greenhouse gas emissions should be paying those costs. This includes the person driving the SUV and heating the 40-room house in the mountains, piloting his private plane, and sailing his private yacht. It also includes the person who takes public transportation to work, though his activities will almost certainly produce fewer greenhouse gasses.

The extra money that people pay to engage in greenhouse-gas-creating activities can go into a pool, which can then go to cover the costs of those whose suffering or loss can be attributed to greenhouse gas emissions.

Too Expensive

One argument that the Bush Administration uses against American participation in programs to combat global warming is that it would be harmful to the American economy.

If we go back to our hypothetical dam builder for a moment, this would be like the dam builder arguing that he should not be required to pay for the damaged buildings and lost lives downstream because doing so would lower his net worth.

When we talk about just compensation for harms done, the net worth of the person who did the harm is not a morally relevant concern. The dam builder earns no moral points for preserving his net worth against his responsibility for covering the losses of his downstream victims. America earns no moral points for preserving "jobs" at the expense of the disease and destruction that people in other countries may suffer as a result of global warming.

They Benefit

America could try to avoid blame by saying that we use this energy to produce goods and services that benefit others. However, imagine the dam builder claiming, "I use the water to produce wheat that I then use to make bread that I sell to the people downstream. They get cheep bread, so I should not be required to cover the costs if the dam should break."

However, this would be morally equivalent to the dam builder saying to the people downstream, "I will sell you this loaf of bread for $1.00." Then, after the downstream farmer buys the bread, the farmer gives him a second bill for $1.00 and tells him that he has no option but to pay that bill. Even if the downstream resident should refuse to buy any more bread, they must pay the cost -- though there is nowhere else to get bread.

In economic terms, this system counts as a subsidy to the dam builder that allows him to undercut the price of other competitors and, thus, prevent competition.

The dam builder should be building the cost of flood insurance into his price. If it is worth it to the people downstream to pay the higher price, they may do so. If not -- if they would rather go without or buy the bread from somebody who can do so without the risk of flooding their land -- they may do so. They would have the option in a truly free market. They do not have that option if the system forces them, and not the wheat grower, to bear the costs of the flood damage.

Thus, the people downstream have no option to purchase from "somebody else who can produce this product in a way that does not damage our land", because these alternative producers cannot compete with the "subsidized" price of those who do threaten the land.


So, here we have a group of people who claim to be “capitalists”. These are people who claim that they serve a noble cause. They assert that great evil follows those who use the government to interfere with the free market. Such actions not only produce inefficiencies that produce poverty, want, and suffering; it commits a grave injustice against those from whom wealth is taken so that it can be redistributed.

Yet, in the global warming debate, these same "capitalists" forget these principles. They forget that free markets require that those who are responsible for harm and loss must internalize those costs for the market to run efficiently.

They are more than eager to argue for policies that redistribute wealth from those who suffer the effects of global warming to the corporations and their stock holders who benefit from these activities. They are more than happy to have wealth redistributed from the poor and powerless to the rich and powerful.

Which suggests that all of this talk about the virtue of free markets, to them, is just talk -- words that they use to sell ideas to others, but which they are more than happy to abandon when it is profitable for them to do so.

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