I read an article recently on Grist covering the subject of coal deposits around the world and the hugely troubling issue known as carbon leakage, a stumbling block for both the economy and the climate, with the article going on to detail how this new paper, published in the Journal of Political Economy, could sold the problem once and for all.
At its simplest, carbon leakage is a nasty side-effect of the supply and demand system our capitalist economy runs by, and is a possibility resulting from multiple different ways of dealing with taxing carbon and introducing credits especially. The crux of the issue in regards to this paper, is as follows.
If a ‘climate coalition’, such as the UN or OECD, decides to reduce the demand of coal within its member nations, it is highly likely other non-participating countries will sense the drop in global prices and exploit this readily. Flip this over, and reducing the supply results in practically the same response. Prices will rocket if coalitions cut demand or extraction, ultimately making it much more profitable for said member nations to begin selling coal once again, generating a tidy profit in the process.
“In other words, global fossil-fuel markets are like a big balloon. If one set of countries squeezes consumption or extraction, the balloon just puffs up somewhere else” - David Roberts, Grist
In effect then, both of these options, until now thought the only options on the table, result in carbon emissions and coal being burned simply migrating to another region of the Earth, where regulations and controls are not so demanding. Attempts to solve this can lead to dangerous tariffs and border taxes which could lead to unfavourable trade wars with little actual progress in carbon reduction. This has been the itch economists and climate scientists have been struggling to scratch for years. Until now it would seem.
The paper, titled ‘Buy Coal! A Case For Supply-Side Environmental Policy’ outlines a new approach, stating that coalitions should purchase foreign coal reserves, then allowing them to lower the extraction side of things without worrying about outside nations containing to exploit. They would only purchase those reserves which would require high economical costs to extract, meaning that host countries would be more inclined to sell at low prices.
Economically, this system is near-perfect, with the phrase ‘all allocations become efficient’ music to economist’s ears. It can be accomplished under current market systems and could be huge effective if done right. This is why many of the world’s economists are no doubt jumping at the opportunity to swing this into action.
However politically, I feel there a fair few issues with this approach, as did David Roberts in his Grist article (I encourage you to read). How much would buying up coal deposits around the world actually costs, and would it be sustainable? I can’t believe it would be cheap, and given the current climate for finance, it could be very risky. In tandem with this, what benefit do the buying-nations actually receive, other than the knowledge that carbon leakage has been, to some extent, lessened? I would assume that the governing body of the coalition may subsidise some of the purchase, but it’s quite an ask for countries by buy up coal they then can’t touch. It would no doubt be awful tempting to sell that stuff as its price flies through the roof.
Also, what about those who depend on a nations coal to fuel its grid? When said nations reserves are bought up and locked in the ground, that disadvantages them greatly. I would guess that this is to drive demand down over time and force countries to innovate into the renewable sector, but with current technology and mobilisation of knowledge, many lesser developed regions could be badly hurt by a similar policy.
Finally, how will this look to the non-member states? Developed nations swooping in and buying up swathes of burnable, valuable land and barring access to the host could be construed as colonialism in some places, especially with the track record of some. That could come across very badly if not handled well.
In my opinion, this policy needs some serious refining if it hopes to achieve its set goals without angering the global society, but I do feel it is onto a possible winner. Carbon leakage is a real problem and this does address many of the big issues, but buying up coal just to hope it is left in the ground smacks of being too good to be true to me.