From sinking streets to carbon solutions

WHEN Quezon City streets went underwater after just a few hours of localized rain on Aug. 30, many were shocked. It is unusual for short bursts of rainfall to paralyze a major city in Metro Manila.

- Angela Arnante

We can’t predict the next similar downpour, but we know our infrastructure cannot adapt anymore, either due to corruption or the changing climate. And one thing is for sure, we know who pays for it: everyone.

Economists call this kind of spillover damage an externality — costs created by one actor but borne by others. When carbon emissions go unchecked, the rest of society shoulders the impact through stronger storms, disrupted harvests, health risks, and billions spent on response and recovery. Worse, such billions are pocketed and infrastructure — like flood control projects — are haphazardly done or not done at all.

The challenge is that these costs remain invisible in balance sheets. Without rules to make them matter, there is little incentive for firms to change their behavior. The question, then, is how to bring the hidden damage back into the decision-making of those who cause them.

SCARCITY CREATES PROPERTY RIGHTS

The late economist Harold Demsetz offered an answer: property rights emerge when externalities grow too large to ignore. When resources are abundant, there is little reason to define ownership. But when scarcity creates conflict or harm, societies invent property rights to manage them.

That is exactly what carbon credits represent. The atmosphere’s capacity to absorb greenhouse gases safely is limited. Once emissions exceed that capacity, damage multiplies in the form of extreme weather and economic disruption. Carbon markets establish property rights over a scarce global resource by turning each ton of emissions into a tradable credit. Polluters can no longer treat the air — the atmosphere — as a free dumping ground.

BARGAINING MAKES IT CHEAPER