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Getting sensible about global warming

By Peter Morici
web posted January 29, 2007

Americans are poised to contribute to an international solution to global warming.

Newly elected Speaker Nancy Pelosi is moving the environment and energy to the top of the congressional agenda, and several senators have introduced bills that would reduce U.S. CO2 emissions. However, the solutions being offered to save the planet from rising temperatures will likely hasten calamity and inflict harm on U.S. industries that could otherwise contribute importantly to a sustainable solution.

Shrinking global ice shelves and mountain glaciers offer compelling evidence that global temperatures are rising, threatening to push back continental shore lines, submerge island nations, and radically alter global agriculture.

CO2 emissions account for more than four fifths of U.S. green house gas (GHG) emissions and an even larger share of what may be curtailed by government policies. C02 emissions are created by processing and burning petroleum, coal and natural gas, and any meaningful effort boils down to regulating fossil fuel use.

Implemented in 2005, without the United States, the Kyoto Protocol commits virtually all other industrialized countries to reducing GHG emissions to 6 to 8 percent below 1990 levels. Developing countries are absolved, though, industrialized countries may avoid some reductions by implementing clean up programs in developing countries or creating carbon sinks through reforestation projects. A private market has emerged in Europe trading in emissions permits.

Unfortunately, this regime encourages energy-intensive industries, like metals and metal fabrication, to move from industrialized countries, where they face rising costs for using fossil fuels, to places like China and India, where CO2 emission standards remain much less stringent. Global emissions increase and GDP is reduced, because developing countries use fossil fuels, capital and labor less efficiently to make the same energy-intensive goods.

This madness is best illustrated by the fact that China, with GDP less than one-fifth the size, already emits more CO2 than the European Union and about as much as the United States.

Every two years, Chinese emissions growth adds another country the size of Japan. It is hard to imagine that two years of China’s growth, which comes to $500 billion, could replace Japan’s $5 trillion dollar economy, but that’s the kind of economic accounting international environmentalists advocate.

Bills are pending in Congress that would cap and then roll back U.S. emissions over the next two decades by establishing a national limit on CO2 emissions, and then allocate that cap among energy-intensive industries and businesses. Those plans would allow companies to buy and sell their permits—so called Cap and Trade.

Essentially, Cap and Trade would extend the Kyoto process into the U.S. economy, and impose the same kind of bureaucratic management on U.S. business that has accomplished economic stagnation throughout much of continental Europe and Japan. The very process of allocating carbon use among businesses would create a playpen for lobbyists and Washington dealmakers that would feed corruption and exacerbate the economic damage.

The international community has determined that global warming can be arrested by rolling back CO2 emissions and fossil fuel use. The economic impact would be best minimized by pricing fossil fuel use, and its effects on the global commons, the same everywhere and letting markets do the work of allocating industries and jobs.

Without equal requirements for China and other developing counties, Kyoto will not solve global warming. By encouraging energy using industries to move to the developing world, it will only exacerbate the condition and make the world poorer in the bargain.

The United States should do its share by implementing a regime that encourages participation and sacrifice by all nations.

This could be accomplished by negotiating global emissions standards for energy-intensive activities like aluminum, steel, and carbon use in automobiles, and quickly building out alternative energy supplies like nuclear power. However, negotiating emissions standards would be lengthy and difficult now that Kyoto has its own momentum, and we are all familiar with the resistance to nuclear initiatives in places like Germany and New England.

More realistically, the United States could impose a carbon tax on domestic energy-intensive products and on imports not subject to comparable levies. The tax could be set at levels necessary to hit U.S. emissions goals, and would encourage other nations to put in place comparable policies.

The World Trade Organization has upheld measures to protect the global commons if those apply equally reasonable standards to domestic and foreign producers.

That would accomplish CO2 emissions reductions in the United States without encouraging U.S. energy-intensive industries to leave for China and other developing countries where they make the problem worse not better. ESR

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.


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