Apportioning Climate Change Costs

Abstract

I. INTRODUCTION II. BACKGROUND ON CLIMATE CHANGE III. HOLDING EMITTERS RESPONSIBLE A. Who Should Pay? B. Designing a System to Shift Costs to Emitters IV. FOUR QUESTIONS ABOUT APPORTIONING RESPONSIBILITY AMONG EMITTERS A. Total or Excess Emissions? B. Average or Marginal Effect? C. Current or Cumulative Emissions? D. Current or Projected Harms? E. The Restitution Measure as an Alternative F. Lessons on Apportioning Responsibility from CERCLA V. CONCLUSION I. INTRODUCTION As most people now realize, our society can no longer postpone serious consideration of how to respond to climate change. Most public attention has been focused on the issue of mitigation--that is, how to reduce greenhouse gas levels and by how much. However, society also needs to consider methods of adapting to climate change. Adaptation will not be cheap. While it is too early to make confident cost estimates, it is clear that the expense for the U.S. will reach the billions of dollars threshold annually over the next few decades. (1) In addition, some of the harms of climate change cannot be avoided by adaptation, and these too may be expensive. The most immediate question is what to do about climate change, but a very closely related question is who should pay. This article is the third in a trilogy addressing the question of how climate change costs should be allocated. The previous articles in the trilogy addressed related aspects of this problem. The first article considered how we might design a scheme where emitters would compensate victims of climate change. Compensation for adaptation costs was a key part of the solution, because of the relative administrative manageability of using this measure of damage. The second article considered the question of how to allocate climate adaptation costs, and concluded that at least some of these costs should be allocated to emitters. Thus, via different paths of reasoning, the two articles converged on the same destination - that emitters should bear at least part of the burden of adaptation costs. A related issue is how mitigation costs should be allocated. Dealing with climate change requires that we reduce total greenhouse emissions to much lower levels. In effect, this goal dictates a cap on emissions. Within that cap, it might be appropriate to allocate emission rights solely on the basis of economic efficiency, or to consider taking other factors into account. Even if emission rights are allocated on the basis of efficiency, side payments could be arranged based on equity or other considerations. Thus, allocation of emission costs could be an issue. The cost allocation issue could arise under any mitigation scheme. For example, if a carbon tax is used to limit emissions, there could well be claims that current emitters deserve to have some compensation from past emitters, on the theory that mitigation is only required because of the cumulative effects of past and present emissions. Similarly, if a cap-and-trade scheme is used to limit emissions, permits might be allocated so as to require emitters with large amounts of past emissions to purchase more permits on the open market. Thus, there could potentially be efforts to shift adaptation costs, mitigation costs, and costs that cannot be avoided through either mitigation or adaptation. In each case, the claim would be that the costs in question should be allocated on the basis of responsibility for climate change rather than falling where they may. Assuming that we did decide that some costs should be shifted to emitters, there are some difficult problems about how to allocate responsibility among the emitting parties. Those problems are the focal point of this paper. Emissions differ greatly between sources. For example, the U.S. was responsible for twenty percent of the world's emissions in 2000, which was about equal to its share of Gross Domestic Product (GDP). …