Trade Sanctions, Energy and Climate Change
Yesterday, the Times reported that President Obama has expressed opposition to a provision of the Waxman-Markey climate change bill (summary) that would compel the President, starting in 2020, to begin imposing trade barriers against countries that don't act to limit carbon emissions. The Times article frames the provision as a matter of domestic politics, with representatives from rust belt states wanting to make sure that what remains of the American industrial economy doesn't take further body blows from climate change legislation. The Obama administration, which has been rhetorically ambivilent on trade issues, but which has so far hewn fairly closely to the free trade consensus of the past quarter-century, expressed reservations out of a fear that such moves would spark protectionist impulses worldwide.
Obviously, creating some kind of global regime around the issue of climate change and alternative energy is enormously complex, requiring technological and economic expertise beyond that of the informed layman, but here are my thoughts for what they're worth:
I think that, at a tactical level, the Obama Administration is probably correct that sending even modest protectionist signals right now is very dangerous. We're in the worst global economic crisis since the Great Depression, and the global trade regime that has underpinned much of the world's economic growth since the end of the Cold War sits on a knife's edge in many countries. Playing with protectionism under such circumstances is playing with fire, so I think now's probably not the time to be rewriting the rules.
That said, in the long term I don't see any way to bring about a broad-based global shift away from hydrocarbons without linking it to global trade. Putting aside the economic health of the rust belt, the health of the planet depends on countries like China, India, Russia and Brazil moving away from fossil fuels as they develop, rather than waiting until they've attained OECD living standards before making the shift. Many in those countries feel, with some justification, that forcing them to, in effect, pay for the sins of the West, which was able to pollute with impunity for two centuries, is unfair. That said, the world can't handle another fifty years of Chinese coal-fired power plants belching carbon and sulfur into the atmosphere, irrespective of what Europe and the United States do. The only way I can see to square that circle is to convince China, and the rest of the developing world, that their GDP will suffer more in both the short and long term from a refusal to change than from imposing energy regulations.
All this to say that while the timing of the Waxman-Markey provision might be problematic, the overall gist of the legislation is right on.
2 comments:
Thee WTO treats carbon tariffs as a legitimate border adjustment just like value-added taxes. Considering the EU has toyed with this sort of policy as well, the risk of "sending...protectionist signals" is low. See Krugman and this paper>
I'm not arguing that the underlying economics is problematic. I agree with Krugman (for what my agreement is worth since, I again emphasize, I don't have the greek letter economics background to reach an independent mathematically-informed opinion here). My problem with doing this at this very moment is that, legitimate or otherwise, it will look to a lot of people like back door protectionism, particularly those countries whose leadership believes their economic growth would be especially harmed, in a relative gains sense, by having to institute serious carbon reductions. That's the whole point of the exercise obviously, I just think this maybe isn't the right time for it. That said, the overall legislation is important enough that I hope Obama doesn't use this as an excuse not to sign it (if it even gets to his desk, which given the ever-frustrating makeup of the Senate is far from guaranteed).
Thanks for the comment and the link to the other paper as well.
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