Get the U.N. Out of the Climate Business

Posted: December 31st, 2009 by Militant Libertarian

by Kenneth P. Green, WSJ

In the aftermath of the Copenhagen Climate conference, it is clear that the United Nations-driven process is a bust, and that any similar process requiring economic suicide and massive wealth transfers will go nowhere. It is long since time to drop this charade, take the question of climate change out of the hands of the U.N., and implement more reasonable policies.

Fostering the resilience of societies around the world in case climate disaster strikes would be a start. Central to this process is for governments to stop making things worse, as they do when they subsidize risk-taking.

One reason that predicted damages from rising sea-levels and more powerful storms are so high is because of the popularity of coastal locales for high-density business and upscale residential development. As a result, damages from extreme coastal weather events have been fantastically expensive. The damages from Hurricane Katrina for example, reached over $150 billion. The question, however, is why there was so much value that was so badly protected against completely predictable events? Why were levees and sea-walls so under-designed? Why were so many houses and businesses uninsured? As Charles Perrow observes in “The Next Catastrophe,” “Even in areas known to be hazardous, only about 20% of homeowners purchase flood insurance, and less than 50% of businesses purchase flood and earthquake insurance in risky areas.”

In many cases, the answer is that governments stand as insurance stop-gaps, allowing the uninsured to depend on grants to rebuild in vulnerable areas should disaster strike, or otherwise cushioning the real costs of exposure to extreme weather.

Researchers at the Wharton Risk Center observed in a 2007 paper: “Highly subsidized premiums or premiums artificially compressed by regulations, without clear communication on the actual risk facing individuals and businesses, encourage development of hazard-prone areas in ways that are costly to both the individuals who locate there (when the disaster strikes) as well as others who are likely to incur some of the costs of bailing out victims following the next disaster (either at a state level through ex post residual market assessments or through federal taxes in the case of federal relief or tax breaks).

Stripping government measures from the risk market would help reveal the real costs of building in disaster-prone areas, and likely encourage development in more stable locales.

Another near-term option is privatization of infrastructure. Governments are quite good at building infrastructure. After all, what politician doesn’t enjoy a ribbon-cutting ceremony for some new element of name-bearing infrastructure? But governments are dismal at maintaining infrastructure. They rarely establish revenue streams to keep up with repairs, nor do they set up systems to provide feedback on whether a particular road should be raised, or power-capability increased, or a water-treatment facility expanded. Roadways, electricity infrastructure, water-treatment infrastructure, and flood-control infrastructure would all benefit from such systems—the kind that private owners have an incentive to develop, since ensuring that future changes in climate do not disrupt their long-run cash flow is critical to their current financial performance.

Over the mid-term, we should consider the proposal of Ross McKitrick, a Canadian economist, who has suggested what he calls a Tropical Tropospheric Temperature (T3) tax—that is, taxing carbon dioxide emissions based on changes in the global average temperature. Ideally, this would be a revenue-neutral tax with all revenues rebated to the public in the form of reduced distortionary taxes, such as income tax.

Read the rest at this link.


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