Supply (down) side

Recent research (1) from Northwestern University argues that the best way to implement climate policy is by buying the extraction rights to dirty fuels such as coal and oil. They argue that the focus, thus far, has been on the demand side – where policies attempt to limit consumption. By buying and holding extraction rights, the authors argue that a coalition can control green house gas emissions to tolerable levels. The motivation has been that non-participating countries in global negotiations on Carbon emissions, circumvent any policies that are put into effect, globally.

This is academic thinking without much relevance. Yes, it is true that a coalition with infinite resources can buy all the dirty deposits of hydrocarbons and summarily solve the problem. It is a bit like religion – where some entity just appears from the heaven to cleanse the world of all its ills. Granted, academics also have such visions but what appears to be obvious on the surface is a band aid to the real problem. The real issue is that the unit of power produced by burning hydrocarbons should be efficiently priced taking all the costs into account. Without a market based control on the demand side – any artificial band aids on the supply side are bound to break. Moreover, certain rising powers have been sequestering dirty hydrocarbons across the world and it is unlikely that such countries, who control half the world’s population, will let that go easily.

It is good to think about creative solutions to the problems at hand. But it is important both to look for an efficient solution as well as something that is practical.

(1) Buy coal? New analysis shows purchasing fossil fuel deposits best way to fight climate change. Published: Wednesday, April 11, 2012 - 21:31 in Mathematics & Economics. Source: University of Chicago Press Journals