Climate change lessons from a Nobel prize winner

Siddharth Varadarajan

Averting the tragedy of the atmospheric commons will require binding, equitable arrangements between countries, big and small. If only this year’s Peace prize winner listens to the Economics recipient.

One of the winners of the Nobel prize for economics this year, Elinor Olstrom, is a pioneer in the study of the economics of the ‘commons’ — common property resources which, by virtue of being available to everyone free of cost, tend to be over-exploited. Thus, fish stocks may be over-harvested, meadows overgrazed, rivers polluted, the ozone layer depleted. All are examples of resources where ‘market’ mechanisms like ‘price’ do not operate to restrain consumption by individuals.

Given the focus of neoclassical economics on the optimal allocation of scarce resources, it is perhaps not surprising that the commons became a distinct field of study within the academic discipline only in the late 1960s, following Garret Hardin’s seminal 1968 article in Science, ‘The Tragedy of the Commons.’

Hardin argued that freedom in a commons brings ruin to all, whether one is speaking of simple herdsmen grazing cattle on a meadow or factories emitting effluents or smoke into a river or the skies. “The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them,” he wrote. “Since this is true for everyone, we are locked into a system of ‘fouling our own nest,’ so long as we behave only as independent, rational, free enterprisers.”

The implications of Hardin’s work were politically controversial. Anthropologists argued that the problem, though cast in the framework of the rural or pastoral economy, was actually a manifestation of modernity and industrial capitalism. That the tragedy was not of the ‘commons’ but of the ‘moderns,’ who did not respect traditionally evolved norms that allowed for the maintenance of harmony between human beings and the environment. However, economists and governments were quick to seize on the implications of Hardin’s work; devising rules and institutions to limit the overconsumption of common resources became something of a cottage industry. Most argued, like Hardin, in favour of privatisation and the assignment of property rights; others made a case for nationalisation or the use of taxation. But most academic approaches to the commons dealt with the problem as a local one with a limited number of essentially homogeneous players.

Prof. Olstrom was perhaps the first economist to seek to harmonise this field of study and to emphasise that there was no “single, best way” of preventing the inevitability of the ‘tragedy.’ She also insisted on the study of commons problems where the number of actors is scaled up and their nature is heterogeneous. She demonstrated theoretically and empirically that privatisation or government regulation or management of common property resources often produced outcomes inferior to locally managed, self-regulated common property regimes. She then abstracted a set of design principles necessary for such arrangements to work.

But while compact communities and states have had reasonable success in finding solutions within their jurisdiction, the international community is not very well-equipped to deal with its single biggest resource problem today: the future of our atmospheric commons.

As Prof. Olstrom put it in a 2008 article co-authored with other economists, emitters have every incentive to overuse the atmospheric commons as a repository for the wastes associated with burning fossil fuels since the immediate cost to them of this factor of production is zero and the long-term, marginal cost is also less than what an emitter might have to spend by himself to use a different production technique that limits his greenhouse gas emissions. This is, of course, the classic Hardin problem. “But the present and future costs to society of this practice are enormous. Estimates of these costs vary. But there is compelling evidence that the eventual costs will exceed the cost of changing our current practices to limit emissions of greenhouse gases by a large margin.”

No clear predictions

With a national regulator, it is not difficult to devise rules of the road to deal with this problem, or even to enforce the ‘national’ share of an internationally agreed solution as conceived by the U.N. Framework Convention on Climate Change. But in a world marked by the unequal distribution of power, reaching an agreement internationally is proving difficult. “One of the problems we face when we move up to the global level is that unanimity is required for most international treaties,” Prof. Olstrom wrote in a 2002 journal article. “While we have all sorts of chances to learn from experiments in local commons, we have only one globe and the risks of experimentation are much greater.” In sum, she concluded rather pessimistically, “we do not have clear predictions for beating the tragedy of the commons at a global level.”

When it comes to the atmospheric commons, the problem of regulation is compounded by the heterogeneity of the international system. The benefits and costs of either maintaining the ‘business as usual’ status quo or aggressively reducing GHG emissions are unevenly distributed across nations. By a quirk of geography and economics, those countries least responsible for climate change have the most to lose from it — tiny Maldives is all set to disappear as sea levels rise because of global warming — while the biggest culprits have the least incentive to do anything about it. A case in point being the United States, which refused to sign up to the Kyoto Protocol and even today is trying its best to avoid shouldering its historic responsibility to cut its GHG emissions.

“The bad news,” Prof. Elstrom wrote, “is that when users cannot communicate, don’t have trust, can’t build it, and don’t have rules, we have to expect the tragedy of the commons to occur.” This is the fate which awaits the world if the forthcoming U.N. conference on climate change in Copenhagen ends without the world’s major emitters of greenhouse gases agreeing to significant cuts in their emissions.

But if diplomats can engage in direct discussion and — crucially, have the autonomy to change some of their own national rules — “they may be able to organise and overcome the tragedy,” Prof. Olstrom concluded. With seven weeks to go before Copenhagen, the signs are not looking good. The Bangkok climate change talks which ended on October 9 saw the developed countries advocating the U.S. model of watered down domestic targets rather than the kind of internationally binding GHG reduction targets embodied in the U.N. process so far. Without which the tragedy of the atmospheric commons will never be averted.