Perspectives: Global Warming: The Hard Road Ahead


Perspectives: Global Warming: The Hard Road Ahead

ROBERT HAHN

PETER PASSELL

Global Warming: The Hard Road Ahead

With a president committed to fighting climate change and a new Congress inclined to go along, the prospects for greenhouse gas emissions abatement legislation are bright. That’s good news. The Bush and Clinton administrations’ intransigence on this issue set back U.S. action by at least a decade. But it should not obscure the reality that one obstacle to a successful effort in slowing global warming—the cooperation of the rapidly developing economies—is truly daunting. Indeed, failure to acknowledge the difficulty of herding this particular pride of cats in the right direction could cost us another lost decade.

Although there is hardly a consensus about the content of the coming legislation, a market-based system that distributes carbon emissions rights among stakeholders and encourages them to minimize costs by freely trading the permits will probably be at the core of it. The biggest unknown is whether the legislation will tie U.S. containment efforts to those of other countries and whether it will include measures to encourage their cooperation.

What economists call the free rider problem is hardly a new issue here. China recently surpassed the United States as the world’s largest emitter of carbon dioxide, and relatively poor but rapidly expanding economies (think Brazil, India, Indonesia, and Russia as well as China) loom large in projections of emissions growth. Indeed, it is fair to say that any climate initiative that doesn’t engage the developing economies will, at best, deliver very little bang for a buck. Yale University economist William Nordhaus recently estimated that if emissions from half of the global economy remained uncontrolled, abatement costs would be more than twice as high as necessary. More likely, an international containment effort that failed to induce the major emerging economies to join would collapse in mutual recrimination. That fear (plus a friendly nudge from energy and automobile lobbies) explains why Washington refused to pledge support for the Kyoto accord in 2001.

Congress could encourage the emerging economic giants to get with the program in a variety of ways. It could offer government cash in return for foreigners’ agreement to emissions caps. Or it could pay subsidies for specific green commitments, anything from setting emissions standards for heavily polluting industries such as cement and steel to stopping construction of coal-fired power plants. Or the legislation could let U.S. companies meet their abatement obligations through carbon-sparing initiatives in poor countries, an idea embodied in the Kyoto agreement’s Clean Development Mechanism.

Of course, the United States could also play hardball, penalizing trade partners who refused to contain emissions. One way would be to bar imports of products made in ways that offend. Another way, and one more likely to meet U.S. treaty obligations, would be to offset the cost advantages of using polluting technology with green tariffs, much the way the country imposes “countervailing” duties on imports from countries that subsidize the production of exports.

Carrots, unfortunately, are problematic. Positive financial incentives would be hard to monitor: If no one can explain what happened to the trillions of dollars in aid sent to poor countries in the past half-century, why would it be any better this time around? If a sizable chunk of the cash dispensed over the years to build infrastructure has ended up in Swiss bank accounts or superhighways to nowhere, why is there reason to be optimistic that accounting for “green” aid would be any better?

Equally to the point, emissions are fungible, and the measurement of reductions is subject to manipulation: How would we know whether saving the rainforest in one part of a country didn’t lead to accelerated logging in another? How would we know whether the closing of an old coal-fired power plant in China or India would not have taken place even without a cash inducement from abroad?

Note, by the way, that the difficulties of measuring emissions reductions would likely be complicated by the interests of those doing the measuring. Under the Clean Development Mechanism, industries in Kyoto treaty countries can earn credits against their own abatement obligations by financing emissions reductions in poor countries, say by planting trees in Chad or replacing inefficient irrigation pumps in Pakistan. But once the money is spent and credits awarded, the sponsoring industries have little incentive to monitor their progress. Indeed, if this approach is to work on a scale large enough to make a real difference, it will take an enormous commitment on the part of governments to set the rules and make sure they are followed.

But the proverbial sticks would come with their own problems. The gradual opening of international trade has been critical to bringing billions of people out of poverty. Dare we risk losing the fruits of freer trade by encouraging the development of powerful political alliances between environmentalists and domestic industries happy to shut out foreign competitors in the name of saving the planet?

Past experience provides very good reasons to be pessimistic about the capacity of Washington (or any other Western government) to fairly judge compliance on the part of exporting countries. The Commerce Department’s administration of policies designed to enforce U.S. “fair trade” laws have long been a disgrace, a charade in which domestic industries facing foreign competition have effectively called the shots.

All this suggests that the task of limiting climate change will take longer and be more difficult in both political and economic terms than is generally understood. But that’s not a reason to keep fiddling while Gaia burns. Rather, it should change expectations of what U.S. involvement will be able to achieve in the short run, and in the process strengthen national resolve to set the pace in the long run.

First, symbols matter: A key goal of legislation should be to restore U.S. credibility as the leader in organizing carbon abatement efforts. “Do as I say, not as I do” isn’t cutting any ice with China or India, both of which have ample grounds for rationalizing their own reluctance to pay attention to emissions before they grow their way out of poverty. A good-faith effort at reducing emissions at home, in contrast, just might.

Second, the fact that inducing cooperation from developing countries is sure to be difficult is a poor excuse for not trying. For starters, the United States should certainly underwrite R&D aimed at making carbon abatement cheaper, which is bound to be a part of the new legislation in any case, and then subsidize the technology to all comers. The United States should also experiment with cash subsidies to induce targeted change (rainforest preservation in Brazil and Indonesia is probably the most promising), provided it is understood that much of the money could be wasted. By the same token, U.S. business should be given the chance to learn by doing in purchasing emissions offsets in other countries.

Third, policymakers should keep an open mind about what works and what doesn’t. That certainly includes the use of nuclear energy as an alternative to fossil fuels in slaking developing countries’ voracious appetites for energy. And it may include “geoengineering,” using as yet untested means for modifying Earth’s climate system to offset what now seem almost inevitable increases in atmospheric warming.

The world’s largest, richest economy, which is also the world’s second-largest carbon emitter, can’t afford to stay aloof from efforts to limit climate change. And, happily, it probably won’t. Once it does enter the fray, however, it can’t afford to allow the best of intentions to be lost to impatience or indignation over the frailty of international cooperation.


Robert Hahn () is a senior fellow at the American Enterprise Institute and a visiting senior fellow at the Smith School at Oxford University. Peter Passell is a senior fellow at the Milken Institute and the author of Where to Put Your Money Now (Pocket Books), published in February 2009.

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