An Open Letter to Libertarian Candidates … (Part 3)

Part 3. A market-based approach. The insurance model is certainly simpler than 7 billion lawsuits (reduced perhaps by class action) seeking damages from some indeterminate number of CO₂ producers (including, to some degree, ourselves). However, the settlement of a large number of claims for individual damages (both present and future) is equally daunting. Think of the settlement with BP over the Gulf Oil spill, on steroids.

    Market-based approaches are potentially much simpler. And, since the process is less litigious, the overhead is low. A number of conservatives have proposed a carbon tax with a corresponding reduction in other tax rates or elimination of other taxes to make the approach revenue neutral (a so-called tax swap). A long list of taxes that could be reduced or eliminated then follows--many of which (such as the elimination of the capital-gains tax) would favor one group (the rich) over another. And an obstacle to scaling things up world-wide (simpler is better since every country's tax system is different, and every country's politics is different too).

    Revenue neutral is fine, but the air belongs to all of us who breathe it, in equal measure. In terms of property rights (fundamental to libertarian principles of fairness), we each own a share. So an approach in which we license the right to dump carbon into the atmosphere is a matter of setting a fee (not a tax technically, though you can call it that if you wish) and distributing the revenues to the shareholders equally. In much the way, the Citizens Climate Lobby would propose (https://citizensclimatelobby.org/carbon-fee-and-dividend/).

    Compared to the insurance-based approach, the fee substitutes for the premium, and would be a like amount. Unlike the insurance-based approach, however, the market-based approach hikes the fee each year so that we begin low and only gradually reach a fair price, giving both producers and consumers time to adapt and innovate. There is also no payout of individual claims based on damages. (Think of the whole deal as a settlement, one that--if agreed to--eliminates the need for legal action.)

    Instead we assume that (given the time to adapt), people will adapt and innovate going forward, based on what they know of the problem (and subsequently learn from future research). Potentially drawing money from the pool (rather than adding to it) by developing approaches that remove carbon from the air.

    Or—if they truly think human-induced climate change is a hoax—buying up that (now) less desirable beach front property, investing heavily in almond groves in California, and taking advantage of the fears of others (who are too dumb to see that today’s warming trend is just a part of a climate cycle that will soon revert to normal). Come on everybody, put your money down, bet on what you truly believe (if you truly believe it). But with no public subsidies for crop insurance or flood insurance or insurance against the ravages of storms like Sandy. Pay the market rate.

    Don’t want to pay the fee? Opt out. Challenge it in court. Claim that climate change is not real, or at least not man-made, and that you are not responsible. But do so at your own risk. Be prepared to pay damages if you go to court and lose. Not only for now, but for past actions. You are not party to the settlement, and have no contract for dumping carbon into the atmosphere. So don’t expect any protection for your actions. Maybe get a little liability insurance in case you lose and have to pay out big. Except “liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured.” Oh well, you expect to win after all. All the suits against you (however many that may be).

    So there you have it. The full range of options are open to you: you can join the settlement and pay the fee, you can take out private insurance to protect your interests (as either a producer of carbon in the atmosphere or a victim of its effects), or you can take your case to court and take your chances.

    Again the solution is not perfect. Ideally a settlement should account for damages due to past actions, not just impose a fee going forward. And be scalable worldwide. But more this next time.

    The good news is the proposed approach is low overhead, market-based, stimulates economic growth, provides certainty to business, settles past sins, and encourages individual action and innovation. And avoids the heavy regulation and big government intervention of other proposals. It is almost something a candidate could run on.