One of the problems I have with the global warming debate is the seeming desire of many environmentalists to turn developing countries into time-travel museums. Development cannot be encouraged for fear of losing the rain forests, so we should stop trading with these people.

But one part of the Kyoto accords was to permit trading in pollution rights. So Papua New Guinea is asking whether it can sell its rain forests as a means of trading on its current position as a country with a low impact on the environment.

If Germany, for example, is reluctant to clean up a particularly lucrative, but dirty power plant, it can still earn credit toward its mandatory emissions cuts by investing in sustainable technology in another country � or, say, buying up a slice of forest in Papua New Guinea and not tearing down the trees.

It would be nice if the tax needed for the purchase of the PNG forest was voted on explicitly by Germans, but that seems quite unlikely. It is a move that makes a good deal of sense from a Coasian perspective, but as David Friedman points out, what Coase says is "Nothing works, Everything works, It all depends (on transactions costs)". And the costs of these transactions between two governments are probably much higher than would occur between the two individuals in most of the Coase examples.

(h/t: Reader jw) Categories: economics