The Case for Central Carbon Banks

In a speech to the 1989 UN General Assembly, Margaret Thatcher proclaimed: “the problem of global climate change is one that affects us all and action will only be effective if it is taken at the international level.” More than thirty years later, anthropogenic climate change has only increased, and most governments are failing to take serious action. There are many reasons for this inertia: they include the limitations of the human imagination, the opposition of powerful vested interests, the economic costs and the difficulty of coordinating collective action, given the incentives to free-ride. Most importantly, perhaps, action is constantly stymied by the short termism bias of elected governments worldwide.

One of the most attractive features of democracy is that those affected by a government’s decisions have a say in those decisions: a rule often called the principle of affected interests. But this right is generally only extended to citizens living in the same nation, which made sense in the past. Unless they had been invaded by a foreign power, most citizens were primarily subjected to the power of their own government or of other individuals within their nation. However, globalization has made it increasingly difficult to justify such a limited application of the principle of affected interests since, for example, Mexican citizens are routinely deeply affected by decisions taken by the US government, in which they have no say. Our political systems are equally ill equipped to consider the interests of future generations, who may be affected by the decisions we make today. As Hans Jonas points out: “only present interests [can] make themselves heard and felt and enforce their consideration. It is to them that public agencies are accountable … The non-existent has no lobby, and the unborn are powerless.”

Politicians tend to be interested in producing short term benefits, which may help them win elections, rather than pursuing long term goals, whose effects will not be felt until long after they have left office. While frequent elections increase political accountability and force representatives to be more responsive to public opinion, they also make it less likely that governments can institute long term policies. Any serious policy to reduce climate change introduced by one governing party can be repealed by its successor. This was the fate of reforms introduced by US President Obama and by the Australian Rudd/Gillard governments. In countries with a two-party system, the problem is exacerbated by the fact that the opposition party is incentivized to oppose everything the governing party does—even when the government is acting in the national interest. Opposition parties have often run on the promise of repealing the climate action of the current government; this was the case in the 2013 Australian general election. The modern 24-hour news cycle, constant polling and long election campaigns also encourage short-termism by fuelling politicians’ obsession with the way their popularity is affected on a day-to-day basis by the announcement of specific policy proposals.

To combat this short termism, some policy experts have advocated mini publics: assemblies of citizens selected at random to deliberate on policy and offer guidance to governments, on the basis that such groups would have no reason to avoid recommending beneficial but unpopular policies. Mini publics have, however, enjoyed little support to date and have no political mandate. Politicians are free to ignore their advice, as French President Emmanuel Macron did when the French Citizens’ Convention on Climate suggested he implement specific carbon-reduction measures.

A better solution would perhaps be to transfer decisions on climate change measures from politicians to an independent central carbon bank. A conventional central bank is generally insulated from everyday politics. Elected politicians are not permitted to set interest rates because they will always be tempted to lower rates in order to increase their own short-term popularity, even when that is not in the best interests of the country. As Alasdair Roberts has argued, an independent central bank can make “sound but politically inexpedient decisions about monetary policy.”

Likewise, an independent central carbon bank would shield climate change policy from the incentives of electoral politics, allowing its board of scientists to make decisions that would be beneficial in the long term, even if those decisions are unpopular with voters. One of the main problems with this is that the board would lack democratic accountability. This could be partially addressed by incorporating mini publics into its structure: i.e., alongside appointed members, the board could include a random selection of members of the public, drawn from every segment of the population and part of the country.

The board would set carbon emission reduction goals and provide recommendations on how to achieve these goals—while leaving the specific details up to elected politicians. To avoid gridlock or obstructionism, we could institute a rule that if the elected politicians fail to act within a certain time, the board would have the power to implement the policy themselves, in the same way as central banks can implement interest rate policy.

If we are willing to delegate one of the most important economic decisions—setting interest rates—to technocrats in order to mitigate the effects of harmful short termism, it seems feasible to do this in the even more important arena of carbon emission reduction.