Debt limits and temperature ceilings

A recent editorial in the New York Times entitled ‘End the Debt Limit’ calls for an end to the federal debt ceiling in the US and concludes that ‘The debt limit is not necessary, or good for the economy, and is now a political hand grenade’ (4 August 2011). The editorial goes on to state that ‘The debt limit does not limit the debt. It is an illusion of a law.’

Indeed, the issue had become the central battleground between the House Republicans and President Obama. The fear of federal government default loomed large. The last minute compromise raised the debt ceiling to $2.4 trillion, but called for spending cuts of the same amount over the next 10 years. The crisis ended with the US credit rating downgrade and a further loss of confidence in the troubled global economy.

The debt limit debate may remind one of the temperature ceiling proposed in the recent climate talks. The Copenhagen Summit in 2009 failed to reach an agreement on global mitigation of emissions but produced a concluding paper titled ‘Copenhagen Accord’ (albeit not adopted). In particular, it called for a limit in the rise in global temperature of 2ºC, i.e. to keep any temperature increases to below 2ºC.

A temperature ceiling at 2°C is a tempting proposal to those who are concerned about climate change and its potentially catastrophic consequences. The proposal may have arisen from fears of ‘dangerous anthropogenic interferences’ on the climate system. However, it may turn out to have many drawbacks as a climate policy tool, reminiscent of those of the debt limits.

The proposed 2ºC limit is certainly not supported by the scientific evidence on climate thresholds. Scientists reported that a shutdown in the North Atlantic Ocean circulation may be possible if temperature increases rapidly by 4 ºC this century, but recoverable if it increases in a slower rate over the next two centuries. Scientists also report that the West Antarctic ice sheets will largely remain intact within this century, although their melting would imply sea level rises of more than five metres globally.

The arbitrariness of the temperature limit, similarly to the debt ceilings, may lead to deadlock amongst global communities when attempting to design a climate policy. Picking a single threshold in temperature is difficult, let alone resetting them once it is chosen. In fact, there is no criterion to determine which limit should be preferred if there is more than one limit to choose from.

If the temperature ceiling is pushed as ‘the goal’ in future negotiations, it may weaken the possibility of agreement on a more sensible policy option such as ‘carbon penalty’. All the focus will be on the arbitrary limit and not on the policy decisions based on all the evidence and uncertainties. On the other hand, the agreed limit may just be pushed aside and ignored – rather like the debt limit. It may become a policy ‘red herring’ simply used for political purposes.

In the ceiling approach, there is no mechanism that guarantees the least cost method to achieve the climate goal. Developing countries that objected to the Copenhagen proposal will further be discouraged from participating in global cooperation. If safeguarding the temperature limit means another rigid policy mandate, developed countries that have taken different abatement approaches may become newly disengaged from future talks.

It is often good to bind governments’ hands. That is why we have devised constitutional debt limits. International agreements that bind governments are sometimes needed. On the climate front, international agreements will force governments to act on the mitigation of greenhouse gases. The difficult part is to pick a single threshold, whether it is for national debt or global climate. There is no guarantee that such a threshold is efficient or effective. Neither does it determine what actions should be taken today and in the future. If picking (or avoiding) those limits and resetting them become the focus of policy debates then they are of no benefit.