Stern-Nordhaus-Dagupta debate on GW

Economist's View: Global Warming Bonds

Global Warming Bonds

Andrew Oswald has an idea for a cooler world. This is from the comments section of Martin Wolf's Economists' Forum:

Andrew Oswald: ...I believe we could and should work out a way for the next generation to pay. This is because it is those millions of unborn citizens who will benefit from a cooler world, and because doing so will solve the problem at the crux of the Stern-Nordhaus-Dasgupta debate, which is really the question: why should the current generation pay generously and pay quickly?

This means it is necessary somehow to design a way of bringing the future, with their cheque books, to the negotiating table. Here is a suggestion.

We print a government bond called a Global Warming Bond. These have stamped on them: "I pay out 1000 indexed pounds in every year - beginning in the year 2050 and going on forever". These bonds would be given out, as a subsidy, to those people and organizations who reduce emissions today.

The bonds would have immediate value. A market in them would spring up. I shall assume that their status as government bonds would make risk of default negligible. One might object to this, but I shall leave it at that.

The attractive thing about these bonds is that (leaving aside technical issues about general equilibrium reallocations across asset classes) they would be funded essentially by future taxpaying citizens. Those earning and paying taxes in 2050 onwards would fund them. Our citizens, in 2007, would gain.

In this way, the unborn would subsidize us to cut carbon emissions.

I offer this as an idea. There may be a flaw in it; one would have to think through a formal model. In economics, we are used to tax neutrality results coming back to bite us when we hope they will not. But perhaps the GW Bond idea suggests an avenue of ideas on these problems.

That's a good trick - charging future generations to prevent environmental damage that would occur before they are born and then affect them. I wonder if we can get the unborn to pay us not to do other sorts of damage, kind of a protection racket. Pay us off in bonds or we'll pollute this river! I've got a chainsaw and I'm not afraid to use it! More seriously, what do you think of this idea? There are also comments by Jeffrey Frankel, Lawrence Summers, Paul Seabright, and John Williamson.