"Who Owns the Sky? Our Common Assets and the Future of Capitalism"
By Peter Barnes
(Island Press, Washington, DC: 2001)
U.S. involvement in international efforts to reduce greenhouse gas emissions have stalled for the time being over concerns that cutting carbon dioxide emissions simply will prove too expensive for U.S. firms and consumers. But Peter Barnes may have found a way to make climate control pay.
Barnes parlayed a modest inheritance from his working-class parents into Working Assets, an investment firm that makes money while doing good. He has since left the corporate world to think loftier thoughts at several San Francisco think tanks. On the basis of his experiences, Barnes proposes to sell the sky as a way to create a trust for every baby born in America.
His "Sky Trust" proposal is not pie-in-the sky as it may sound. In fact, Barnes has developed a plan that some of the country's most cynical environmental economists hold in high regard.
To understand how the Sky Trust proposal would work, it is necessary to know something about climate change and market-based systems to control the greenhouse gases that trap heat in the earth's atmosphere -- something that Barnes does quite efficiently in his 132-page digest.
Who Owns the Sky? deals mostly with how to harness climate change as a way to create an inheritance -- both financial as well as in terms of natural resource benefits. But its greatest contribution may be in the way it spells out, in simple terms, the science of climate change and the economics of addressing it.
Barnes explains the important functions performed by the sky (it protects us from meteorites, supplies fresh water, delivers oxygen, and bounces back radio signals). One of the sky's most important functions is to work with oceans to regulate temperature. "Greenhouse gases" knock out the earth's thermostat in the same way that a glass-enclosed hothouse traps heat for tropical plants in the wintertime. Greenhouse gases let the sun's heat in, but prevent the heat from radiating back out into space.
Many scientists say greenhouse processes may lead to a 5- to 10-degree Fahrenheit jump in average temperatures by the turn of the next century. Such shifts may lead to more intense storms (and storm damage) and changes in forests and snow pack, not to mention damage to beachfront property. Rather than bog down in science or doomsday language, though, Barnes borrows metaphors from poets such as Katherine Lee Bates to make a climate control as palatable to average citizens as apple pie.
Barnes's proposal is two-fold. First, each American would get a cut of the proceeds from regulating greenhouse gases. By Barnes's estimate, each person would receive a check about twice the size of last summer's tax refund -- about $644 a year, assuming targets set in the Kyoto Protocol and carbon emission permit prices of $25 a ton. Second, and of most interest to those involved in current debates about the role of coal (which essentially is just carbon), the Sky Trust revenues also would support a "transition" fund to compensate coal miners and others displaced by shifts toward a clean energy future. By Barnes' estimate, the size of the fund would be about $25 billion a year.
Sound familiar? The Sky Trust is patterned in part on the Alaska Permanent Fund. Started in 1983, the fund distributes mining and drilling royalties on an equal per capita basis to Alaskans. Last year, residents each received checks of roughly $2,000, underscoring the potential popularity of a nationwide program.
In addition to borrowing from poets, Barnes's clearly put his think tank tenure to good use. His proposal mines the insights of every economist from the classical theorists such as Adam Smith and the dismal Thomas Malthus to John Maynard Keynes. Barnes uses Smith's "water and diamonds" paradox to show how the practice of emitting greenhouse gases has created a shortage of sky ("the sky is filling!"). Smith, one of the world's first economists, showed that diamonds, even though they don't have as much use as water, are far more valuable in exchange simply because they are so scarce. In the same way that water pollution makes the boutique water pricier than a cup of Starbucks, global warming drives up the value of filling the sky, an increasingly scarce commodity.
But how to harness the sky's moneymaking potential? Conventional, first-generation laws simply would impose standards that tell each emitter how much pollution to control and how to control it. Second-generation market-based approaches stand in stark contrast to command and control. Under these approaches, Congress establishes a single cap or limit on the total amount of greenhouse gas emissions that every source can emit. Emission sources then receive permits or rights to pollute a certain amount. These sources can decide how best to control their pollution or they can buy additional permits from others who can control pollution more cheaply. Emitters (countries or companies) whose control costs are high can buy tradable emissions permits from those whose costs are relatively low. In this way, the total price for pollution control is lower than what we'd pay if everyone were required to reduce the same amount of greenhouse gases.
Leaders in most countries agree that cap-and-trade systems can stem climate change in a more effective, efficient manner than regulatory controls. Several proposals (including one by PPI) to "cap" greenhouse gas emissions and let emitters decide how to best reduce pollution have been offered.
Although the proposals would use similar "cap and trade" mechanisms, they differ on who participates in the emissions trading and how emissions permits are distributed. Barnes and most economists favor cap-and-trade systems that target "upstream" fossil fuel production -- primarily wellheads, pumps, and shipping vessels. Barnes and others like systems that favor these targets because those systems capture most of the emissions and require government agencies to worry about fewer emissions sources (about 1,000).
Others (including PPI) favor cap-and-trade systems that target "downstream" fossil fuel users, both "direct" emitters (factories) as well as "indirect" emitters (those who make and buy products such as cars and refrigerators that consume energy from fossil fuels). More than 30 percent of U.S. greenhouse gas emissions come from energy used in commercial and residential activities like lighting, heating, and cooling offices and homes and operating computers and electrical appliances. Cars and trucks and other forms of transportation account for another third of total emissions -- about the same fraction for which industry is responsible. As suggested above, upstream-targeted systems are easier to administer and capture more emissions sources than downstream-targeted systems, but because the upstream systems distribute potentially lucrative allocations to far fewer entities than a downstream approach, they also are thought by some to be more politically infeasible.
More to the point of Barnes' proposal -- and the heart of the political challenge of establishing a greenhouse gas emissions market -- is the question of how the government distributes emissions credits to initiate the market -- or who owns the sky? Three approaches have been offered. One approach is simply for governments to give away the sky (or the right to emit greenhouse gases into it) to emitters. In policy parlance, this approach is known as a permit allocation or "grandfathering." This approach is thought to make carbon constraints easier for the regulated community to swallow. Another approach is to place the commons -- like public lands -- in government stewardship. The government would auction permits to polluters and decide what to do with the revenues.
The third approach, which Barnes favors, is ownership of the sky by the federal government on behalf of all Americans. Under this approach, a board of trustees would auction annually greenhouse gas emissions trading permits. Upstream sources -- oil and gas wells, coalmines, and tankers -- would buy and sell carbon emission permits to suit their needs.
PPI's proposal calls for an initial allocation to avoid compelling major greenhouse gas emitters to bid for the "right" to continue their operations. Over time, however, the PPI proposal merges with Barnes's approach by calling for the gradual phase-in of an auction. Unlike the Sky Trust proposal, PPI stops short of outlining how the proceeds could be used.
In doing so, Barnes's proposal actually addresses a problem first identified by Thomas Malthus, who is credited with giving the economics profession the moniker of "dismal science." Malthus observed that when assets, such as grazing land or ocean fisheries, are held by the public in common, no single user has the incentive to limit his or her take. The tragedy of the commons can be remedied by assigning property rights.
Barnes's final chapters extend the logic of the Sky Trust to other areas of social policy. Barnes proposes that other common assets, such as watersheds, could be harnessed to provide an "intergenerational Transfer Trust," which would replace the estate and gift tax. Income from this trust would flow equally to all "babies." This "new commons" approach, Barnes argues, would compel the United States to hold common assets in trust for future generations. This idea is consistent with a program PPI has championed known as "KidSave." Pioneered by former Senator Bob Kerry, (D-NE), KidSave would open a retirement account for each child at birth. The account would be administered by the federal Thrift Savings Plan for government employees, and funded initially by a $2,000 interest-free loan. A shortcoming of the KidSave proposal is that it envisioned tapping Social Security payroll taxes as a funding source. Skytrust would not only help keep Social Security funds in a lockbox but also make good on President Bush's campaign pledge to do something about CO2 emissions.
Where Barnes' argument begins to fall apart is in his final chapter, titled "Capitalism 2.0." The logic of using trusts and markets to generate an inheritance for Americans who otherwise would have none is on target, but rhetorically Barnes oversteps his bounds. When he extends his Sky Trust reasoning to end capitalism as we know it. He argues that capitalism cannot be fixed "one company at a time." He envisions trusts as a way to redistribute wealth and in doing so to change fundamentally the genetic code of corporate behavior.
Although his vision is consistent with that of John Maynard Keynes (who is perhaps most famous for noting that in the long run, we are all dead), his modest proposal comes closer to the proposal of Karl Marx, who in the end envisioned a redirection of economic surplus from the asset owners (companies) to the workers. Some readers, drawn in by the apple pie and "amber waves of grain" imagery in earlier chapters may be put off by Barnes's sky-begets-domino-theory approach to social policy.
The argument that Barnes advances would have been stronger had he stuck to the topic at hand -- generating wins for the environment and windfalls for everyday Americans. In terms of the fallout from the Sky Trust proposal itself, we can only be better off if 1 of every 1,000 or so newly minted trustees penned proposals as accessible and yet analytically airtight as the one offered in Who Owns the Sky?
