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The burning of fossil fuels is one of the major causes of climate change. In a perverse way, warming temperatures will open new areas to oil exploration – almost literally adding more fuel to the fire. Ice melting will make drilling in the Artic region possible. Greenland will soon become an oil producer.

This should not happen. An oil spill in these waters would be devastating for the wildlife. And we must reduce the amount of oil we use, not increase it. But we must understand the temptation! Oil money, if well managed, can make a country and its citizens rich. Do traditional oil producers have a god-given right to this money just because they were there first?

Maybe we should pay countries like Greenland not to drill! A Cap & Trade system for oil production rights would avoid climate catastrophe, share the oil wealth equally among all people on earth, and make drilling in such sensitive areas as the Artic unnecessary.

 

Cap & Trade in a nutshell
Cap & Trade is a very effective and fair way to reduce the amount of pollutants. It has been successfully used for acid rain and is used right now for carbon emissions in the European Union and in other countries.

The “Cap” is set at a certain amount and is lowered over time, leading to a gradual reduction in total emissions. All participants know the timeframe and the rules well in advance. Therefore they can plan and invest on a long-term basis. Some players are better at adapting than others and can reduce their emissions more than required. So they have “left-over” permits. Others are slower and need more permits than they are issued. That’s where the “Trade” kicks in: The “left-over” permits can be traded. The slow adapters gain valuable time and the quick adapters earn money.

How the permits are distributed differs from system to system. Usually it’s proportional to the amount each player emitted in the past.

Cap & Trade to avoid the “tragedy of the commons”
Picture some natural resource not owned by anyone and shared by all, like fish in the oceans. That’s called a “commons”. Everyone is allowed to fish and no one has any interest in doing it in a sustainable way, because there is no guaranty that the other guys will do the same. Others might get to the fish first so everyone takes as much as possible, as soon as possible, until there is no fish left. That''s called the “tragedy of the commons.” A few people profit, most people lose.

Many years ago New Zealand introduced a Quota Management System to conserve fish stocks. Quotas are allocated to individuals. Only quota owners are allowed to fish in the protected areas. Quotas can be bought, sold and leased.

We could call it a kind of "Cap & Trade" system. The difference here: the Cap doesn''t necessarily have to be lowered each year. It can even be increased if the fish stock also increases. The policy has been very effective in stopping the collapse of the fisheries in New Zealand territorial waters. Many are already recovering.

The fish belong to all New Zealand people. By giving some people exclusive fishing rights for a limited amount of time this collective wealth is preserved for the next generations.

Cap & Trade for oil production rights
One must first agree on the global Cap for oil production – the maximum amount of barrels of oil to be sold worldwide each year – and how quickly it should be lowered. This should be based on our needs to reduce carbon emissions. Climate scientists and economists are best qualified to decide this.

To me the important question is who gets the permits. I don’t think they should be allocated based on past production: this would not be fair to latecomers. My proposal is to evenly distribute the total amount of permits to all countries in the world according to their population. This would make every person on Earth a stakeholder in the oil business!

The African continent with 1 billion people would have a quota 50 times bigger than Saudi Arabia with only 20 million. Saudi Arabia would have to buy production rights from Africa if it wanted to keep producing as much oil as it does today.

Countries wouldn’t have to drill for oil in order to get their share of oil money: they could sell their production rights to others. And if they decided to drill, someone else would have to reduce their drilling. This would stop the current “tragedy of the commons” that is destroying our climate.

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