Incentives to Manipulate

From The Hoover Institute- An Impasse on Climate Change – by Gary D. Libecap

What is the underlying problem that makes these annual Conference of Party meetings so unsuccessful? There are four major obstacles. One is extreme scientific uncertainty about GHG emissions, accumulations, impacts on climate, and effects on the environment and world economies. There is related uncertainty about the distribution of any effects across the planet. There also is uncertainty about the correct responses to take, if any, their costs, and the division of those costs among countries worldwide. Another obstacle is pronounced differences in preferences and perceptions of the problem among populations within and across countries. Rich and poor populations have very different views of the need for GHG controls, who should adopt them, and who should pay for them.

Third, there is different information around the world about GHG sources and costs. People across the globe see things quite differently, especially when the benefits of taking action are uncertain and the costs are high—as they will be if there are major shifts in energy sources away from low-cost fossil fuels. Some places might actually benefit from warming, while others may be harmed, although we do not know much about either of these effects.

The key problem is gathering accurate data on historical emissions from individual installations in major emitting countries to project the costs of regulation, to draft regulatory controls, and to determine compliance targets. Local parties have far more information than do central government regulators. They also have incentives to manipulate the data in order to gain greater transfer payments or exemptions, more emission permits (if cap-and-trade is used), or demonstrate compliance.