Karsten Neuhoff’s compact contribution aims to scope the role of and recent experience with carbon pricing, and provides all the reasons why a global carbon pricing scheme is a truly formidable undertaking, finds Dominic Mora

Moran, Dominic

English

LSE Research Online

blogs.lse.ac.uk http://blogs.lse.ac.uk/politicsandpolicy/2011/12/11/book-review-climate-policy-after-copenhagen/Book Review: Climate Policy after CopenhagenDec 11 2011Karsten Neuhoff’s compact contribution aims to scope the role of and recent experience withcarbon pricing, and provides all the reasons why a global carbon pricing scheme is a trulyformidable undertaking, finds Dominic Moran.Climate Policy after Copenhagen. Karsten Neuhoff. Cambridge University Press.July 2011.Even before the recent climate negotiations started in Durban we were told to expect little interms of progressive outcomes. Of course, this could be a cunning ruse to disguise someeventual announcement of progress on greenhouse gasemissions control, but it’s difficult to see what this couldbe, and a hard lesson from Copenhagen then Cancunwas that little meaningful progress can be agreed  atnoisy global jamborees.Two years on, and the increased inertia has more or lessguaranteed failure in terms of meeting the targets forlimiting increasing global temperature. With the worldeconomy in disarray, conditions for a meaningful stepforward in terms of concerted emissions reductions lookmore remote than ever. Ahead of Durban, we have also been treated to the now customary histrionics ofClimategate emails, claims about crippling renewableenergy costs, and the remergence of crankycontrainans,  all of which are distractions from the mainissues.So what is to be done? Well alarmism does not seem towork. Extreme events notwithstanding, neither public norpolitical opinion appear sufficiently influenced by thelonger term warming scenarios implicit in exceeding the 2degree ‘guard rail’. Instead our best hope is that there issufficient private sector vision and clout to achieve thenearer term objective of shifting to low carbon economicdevelopment. This objective is much more proximate toindividual and national self -interest. Indeed, this recent‘green growth’ rhetoric is substantiated by examples ofthe economic potential of low emissions technology.Some countries including South Korea, Brazil and Chinasee this as a niche opportunity for a significant overhaul of domestic industrial policy. The quickest movingcountries stand to gain much in terms of a global competitive advantage.  The only thing missing in manycountries is a real incentive to act.A carbon pricing mechanism is crucial catalyst for widespread market transformation, and this is the crux ofKarsten Neuhoff’s compact contribution that aims to scope the role of and recent experience with carbonpricing, mainly in relation to emissions trading.  More importantly, the book provides all the reasons why aglobal carbon pricing scheme is a truly formidable undertaking.The mechanics of carbon pricing is recognisable in the theory of market failure and externality common toany undergraduate micro economics text.  An initial critique of the book is that its somewhat posthoc introduction could have done a better job at introducing non economists to this background. In essence,the theory tells us that polluters and providers of other public goods (for example rural amenity) will notbehave in society’s best interests if they do not face the right incentives. Most directly in terms of some pricesignal. Markets cannot help us price what does not pass through them, and hence their failure and the casefor government intervention to redress the balance of external costs and benefits. This is either by directregulation, or , more efficienctly, by  promoting the emergence of market-based instruments includingpollution trading.This theory works well when one government has the jurisdictional authority over a group of polluters, or inother words, where the property right can be changed. It works less well when the scenario is a globalcommons being polluted by numerous countries at different stages of development and with varyinghistorical responsibilities and grievances for its current degraded state. All of which describe global climatechange. In these conditions the absence of any supranational authority to implement a global carbon pricemeans that the second or third best options lay in regional and national initiatives to implement carbonpricing and trading schemes. In six clearly written chapters Neuhoff outlines how technology policy can bedriven by a carbon price, how cap and trade schemes can be set up, the distributional impacts of alternativepermit allocations, and the consequences of different carbon prices in different parts of the world.  The bookdraws heavily though not exclusively on the experience of the European Union Emissions Trading Scheme,an experience that has been well-documented though often misunderstood.Perhaps the most interesting element of the book is the treatment of the role of developing countries in thisagenda, and the potential options for promoting mitigation in developing countries under the rubique ofNationally Appropriate Mitigation Actions (NAMAs). This NAMA agenda provides an interesting opportunityfor development assistance and double or triple wins in terms of low carbon tehcnologiy transfer and povertyalleviation.As noted, without a more detailed introduction to the theory of externality, the treatment may be somewhatabrupt for readers unfamiliar with the the history of market based instruments for the environment. Aside thefocus on emissions trading schemes, there is also a notable omission of any discussion on the notionalshadow price of carbon and its use in government decision making. The book is also somewhat normative inits hopes for international cooperation and, for a slightly more challenging conclusion,  could have usefullyadded some speculation on the counterfactual outcomes.But there is a burgeoning market of carbon degrees in the UK and internationally, and this book would fit wellon any syllabus covering policy and economic elements. It could also find a home in more generalenvironmental degrees to balance a tendancy to demonise market-based solutions to the environment.Given the current international impasse, we cannot afford to ignore the power of self interest and the role ofthe market in delivering environmental change. But given the current pace of change, we may have to wait tillthings get a lot worse before they get better.Climate Policy after Copenhagen. Karsten Neuhoff. Cambridge University Press. July 2011.Find this book:  Google Books  Amazon This entry was posted in Dominic Moran, Environment and Energy Policy and tagged carbon pricing, climatechange, climate policy, Copenhagen, Durban, emissions, energy policy, Europe, microeconomics, regulation.

Book review: climate policy after Copenhagen

Abstract

Similar works

Full text

Available Versions

LSE Research Online