Global Warming

Yesterday's papers carried a small news item on the melting of the Wilkins glacier in Antartica (NY Times Article). I am sure most people chose to gloss over it - for a few, there may have been a slight pang of guilt (myself included) but for most, it would amount to some remote news item of little immediate interest. In almost all cases, readers would find it impossible to accept any responsibility for this, just as most people fail to accept any personal responsibility to problems arising out of collective failure like global warming, traffic jams et al. This has often been characterized as the prisoner's dilemma, where participants often maximize their own payoffs, at the cost of the 'collective payoff' (creating a pareto-suboptimal solution).

Here in lies a paradox that has continued to flummox economists for several years now (at least the proponents of behavioural economics) - the fact that we humans consistently end up failing to factor the long-term consequences of our immediate actions. One possible reason could be that we are hard-wired for such behaviour. In the hunter-gatherer mode with the constant threat of predators, natural forces etc, it is hard for the brain to look beyond the next few meals. Even so, it is extremely difficult to quantify the complete set of externalities (negative and positive) in many cases - most notably in the case of environment. What is the incremental impact of switching on the air conditioning in your car? Can the environmental cost of that be built in to the cost of petrol? Assuming yes, who is the beneficiary of that cost? Does it go to some environment fund? The implementation challenges are obvious.

Which then begs the question - is there any point in even trying to influence/change this behaviour? This obviously has profound policy implications - the most obvious (and pressing) issue at hand being global warming and the policy choices to keep the human race from destroying the planet, or at least postponing the inevitable.

The good news is that the academics are beginning to sit up and take notice - hopefully, there will be some solution frameworks soon and then the challenge will be to get the governments to adopt them. One such solution that is being tried out is the idea of carbon credits , which could work at the industrial level - it is possible (and is already happening) to impose carbon charges on polluting industries and also award carbon credits for non-polluting ones and then monetize this by creating a trading market for these credits. The real challenge is to move this to the individual level - i.e. impose/award carbon charges/credits for individual decisions. Measurement (how to measure, how to charge) and agency (who charges and who gets to keep the charges etc) issues need to be overcome.