Fran Barlow asks the question.
Imagine that you are persuaded that anthropogenic augmentation of atmospheric inventories of GHGs really were causing quantifiable harm both to humans alive now and prospective harm to humans in the future over at least the next several hundred years. What, suite of measures, most compatible with the ethical standpoint of libertarians ought the responsible human communities take in response? How should the resources needed to support the various remedies be marshalled? On whose shoulders should the burdens of this effort fall most heavily?
That is an interesting question and some background information was posted in March 2010. (Please read through this earlier post if you want to make a sensible contribution).
I have a few other thoughts (not fleshed out or detailed) if we arrive at the point where it is appropriate to design a suite of policies to counter AGW. The real question is who should pay? I believe the beneficiaries of the policy should pay the bulk of the costs – that means future generations and those who would be more likely to be more adversely affected by AGW. This would be a difference from the polluter pay principle. So I would not envisage a wealth transfer from currently rich nations to currently poor nations, rather a transfer from the future to the present.
This suggests a long-lived debt instrument – probably a zero-coupon bond matched by a sinking fund that is financed out of all the economic prosperity generated by the transition to a greener economy. Of course, if the economic prosperity doesn’t eventuate the bondholders will lose their investment. The deadweight losses associated with the debt instrument are incurred in the future when the bonds mature. So if we believe that 2050 is an important date then a tranche of bonds can mature then and taxpayers then pick up the bulk of the economic cost. The sinking fund will have to be calibrated to match deadweight costs with benefits and a secondary market in the bonds will be necessary to make them attractive to investors. This allows future generations to pay for the benefits they receive while providing a market signal to the benefits of greening the economy (from the secondary market). Of course, it might happen that future generations feel that we have made an inappropriate choice of their behalf – for that reason I would build in a default clause into the bonds. If a series of currently available indicators do not improve by a fixed and known magnitude then the bonds automatically default.
So how does this work? Money is raised in the present by voluntary investors, paid for by richer beneficiaries in the future, a market signal is generated as a by-product of the market for the bonds, and future generations are insulated from us having made a poor policy decision. Risk is voluntarily assumed by those willing and able to do so.
The real question is how these bonds should be priced? As an opening bid I reckon the ridiculously low discount rate proposed by the Stern Review should be used.