The not-carbon economy

Economist, May 31, 2007 has a special report on business and climate change. One article offers an interesting perspective on carbon energy credits - as not-carbon economy:

The carbon market is truly innovative. Although it works like any commodity market, what is being bought and sold does not exist. The trade is not actually in carbon, but in not-carbon: in certificates establishing that so many tonnes of carbon dioxide (or the equivalent in other greenhouse gases) have not been emitted by the seller and may therefore be emitted by the buyer.

The purpose of setting up the market was, first, to establish a price for carbon and, second, to encourage efficient emissions reductions by allowing companies which would find it expensive to cut emissions to buy credits more cheaply. It has had some success on both counts—some would argue too much on the second.

When the carbon price becomes high enough, companies will actually cut their own emissions instead of buying carbon credits on the Emissions Trading Scheme (ETS). And cheap sources of credit, such as eliminating HFC-23 emissions in China (these are the CFCs from old fridges) might be aplenty now, but they will all dry up.

The interesting thing here is that becoming a source of energy credit is an incentive for some people to reduce their emissions. It is also cheaper for established dirty air producers (say an old coal-based electricity plant) to subsidise the HFC-23 source in china. And eventually, by the time the cheap carbon credits become scarce, the coal-based plant could construct a new cleaner plant!

The not-carbon economy works because reducing pollution is important only in the long run, so we can let the current big polluters to continue on for a little longer - and although regulators can enforce extremely strict standards in Western Europe, it is much more important to catch the long tail of polluters in developing countries.

Networks have a long history of making use of ideas in economics - can we come up with an application similar to this? A not-congestion economy perhaps? Or how about a not-IPv6 certificate - this way, we could let established networks stick to old IPv4 addresses and incentivise newer ones to move to IPv6.