Compared to Green-Climate-Fund transfers, allocating free permits to poor countries is a less transparent, and hence more politically acceptable way to compensate them for their participation in a climate treaty.
But relying on the public’s ignorance raises questions:
- Because the free permits are not understood a financial transfers they are mistaken for weak caps. Are the result transfer limitations more or less?
- How many generations will remain ignorant, and what happens if they understand?
- If the rich-country public does not see that they are transfers, how do we know the poor-country public will. If they don’t will the transfers be effective.
- Does the ignorance only persist because there have not yet been large transfers?
- Couldn’t a green-fund use opaque permits for international transfers under a global price agreement?
Transferring Permits in a Permit-Trading Scheme
In practice, though, side-transfers through permit allocations seem to raise less controversy in the public opinion than direct transfers. Few inhabitants of Massachusetts became aware of the large transfers of money involved in the grandfathering of emissions in the 1990 design of SO2 markets. Similar observations can be made concerning the ETS system in Europe and the hot air permits awarded to Eastern Europe and Russia by the Kyoto protocol. By contrast direct budgetary transfers to foreign countries, which are perhaps less abstract than transfers of permits, tend to raise an outcry in the population; indeed this is one of the reasons why aid to development is so meager and why international promises to fund good causes are not always kept. It is unclear whether the plans of building up a sizeable green fund will peter out.
—Jean Tirole, “Some Political Economy of Global Warming” 2012
What U.S. Senator, once s/he understands the full implications of a trading regime, can vote for a procedure which could result in the unconditional transfer of billions of dollars, even tens of billions, to the government of communist China, or to Castro’s Cuba, or even to Putin’s Russia?
—Richard Cooper, “A Global Carbon Tax?,” 2004
In the original Kyoto Protocol, since quotas were set so far in advance, the distribution of burdens across countries is as much lottery as planned and equitable redistribution.
—William Nordhaus, A Question of Balance, 2008
On EIA projections, for instance, China’s CO2 emissions will reach those of Europe before 2010 and those of the United States by 2035. [Actually it happened in 2007, proving Nordhaus’s point.]
Comment: Political opposition. At least in the U.S. there will be strong and active political and economic forces with an interest in exposing the nature of “free” permit transfers.
Comment: Imagine China’s surprise, had they accepted even a generous cap (by popular standards) in 2000. By 2010 (about when it would likely have come into effect), China would have been purchasing permits (under any effective trading system) worth something like $100 billion dollars. Who would the purchase them from? The US and Europe? As Nordhaus said, permit transfers are more like a lottery than a policy.
Because of such riskiness, they may work poorly as inducement to cooperate, so much-larger transfers may be needed for the same effect.