A price on carbon emissions and bottom-up international cooperation is still needed in order to keep pace with global warming, writes George Soros, chairman of Soros Fund Management and the Open Society Institute.
The following contribution is authored by George Soros, chairman of Soros Fund Management and the Open Society Institute.
"The official communiqué from the Cancún climate change conference cannot disguise the fact that there will be no successor to the Kyoto Protocol when it expires at the end of 2012. Japan, among others, has withdrawn its support for efforts simply to extend the Kyoto treaty.
This sounds like bad news, because it means that there will be no international price on carbon, and, without a market price, it is difficult to see how the reduction of carbon emissions can be efficiently organised. But appearances can be deceiving.
Even as the top-down approach to tackling climate change is breaking down, a new bottom-up approach is emerging. It holds out better prospects for success than the cumbersome United Nations negotiations.
Instead of a single price for carbon, this bottom-up approach is likely to produce a multiplicity of prices for carbon emissions. This is more appropriate to the task of reducing carbon emissions than a single price, because there is a multiplicity of sectors and methods, each of which produces a different cost curve.
The market price of anything is always equal to the marginal cost. When there is a single price, all the various cost curves are merged into one and low-cost projects enjoy large rents. This makes the cost of reducing carbon emissions much larger than it needs to be.
This was amply demonstrated by the working of the Kyoto Protocol in practice. The carbon-trading scheme that it established gave rise to many abuses. For example, formerly communist countries earned emission credits at zero cost on the heavy industries that they had to shut down and reaped windfall profits by selling them. So the demise of the Kyoto Protocol will be no great loss."
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(Published in partnership with Project Syndicate.)