Economists devise new system of greenhouse gas trading

American economists have calculated what they say is the the cheapest system of greenhouse gas trading, suggesting that there should be a ceiling on the maximum tolerable change in temperature.

Economists Alan Manne of Stanford University and Richard Richels of Electric Power Research Institute, Palo Alto, California, say that the approach recommended by the Intergovernmental Panel of Climate Change (IPCC) , which allows part of the reductions in CO2 emissions agreed under the Kyoto Protocol to be met by controlling the output of other greenhouse gases, such as methane and nitrous oxide (see related story) could prove unnecessarily expensive.

The IPCC assess equivalence with ‘global warming potentials’, which compares the impact of the

gases on climate, summed up over a set time limit, with the results varying significantly with the choice of the time limit set. However, Manne and Richels say the option chosen will be either more expensive than necessary or less stringent than future generations would want and say that setting a ceiling on the maximum tolerable change in temperature is the cheapest way out of the climate dilemma.

With the help of a computer model, the researchers set the price of the emission of a tonne of each greenhouse gas in order to reflect its contribution to reaching that ceiling, where for example, a parcel of CO2 will heat up the Earth for the next 50 to 200 years, while methane lingers in the atmosphere for about 12 years. Trade-off between gases can then be based on these prices, which the researchers say, is the most cost-effective way into a future where the price of using the environment for dumping greenhouse gases will have to be paid. The researchers also limit the rate of temperature change, which might be even more important than magnitude. If global warming happens slowly, humans as well as plants and animals have more time to adjust.

The prices attached to each gas would also vary with time, under the new model. The price set for emissions of a short-lived gas is low, relative to CO2, at first, in Manne and Richels’ scheme, but rises as the allowed maximum temperature is approached. Thus high prices are paid for emissions near the critical temperature threshold. Global warming potentials, such as IPCC’s, in contrast, always ask the same price for each gas, regardless of circumstances.

Economist David Bradford of Princeton University, New Jersey summed up why this way of adding-up the trade-offs makes sense. “Imagine we are given the choice of emitting a large amount of methane now, or after another century of carbon dioxide emissions. And just imagine that by the next century, such an emission would push the climate system over the edge. Of course, emitting now would be preferable.”

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