Don't provoke a cap-and-trade war

Commentator Will Wilkinson


Bob Moon: Details of the new climate bill are emerging from Washington this week, and Congress is examining the implications of legislation designed to restrict carbon gas emissions. But we can't fight the battle against global warming alone. How do we get other countries to do likewise? Commentator Will Wilkinson observes we may already be off to a bad start.

Will Wilkinson: Last week, Energy Secretary Steven Chu said the U.S. should be open to slapping tariffs on imports from countries that fail to implement their own carbon reduction policies. Meanwhile, China has threatened trade war if faced with carbon duties, which it says are illegal under World Trade Organization agreements.

Trade restrictions tend to leave all involved poor, making trade war a frightening prospect during an already immiserating recession. So how did we come to have the Energy Secretary provoking threats of mutually destructive trade sanctions?

Here's how. Either all the big, carbon-intensive economies reduce their emissions, or there's little chance of reducing warming. If the climate modelers are right, we'll all be better off if everyone pitches in. But each has an incentive to hold out, since countries that don't pitch in will enjoy lower energy costs and a competitive advantage in international markets.

Chu rightly points out that Obama's proposed cap and-trade scheme will put American manufacturers at a relative disadvantage. So how do we avoid this, and make sure countries like China don't get a leg up?

In short, we can't. There is no mechanism, no global government, to compel compliance. And it is dangerously naive to think that China, who is the world's largest owner of dollar-denominated assets, is in a weaker bargaining position than the U.S. We poke the dragon at our peril.

Cap-and-trade is sure to raise costs for struggling American consumers. But it won't much reduce warming unless countries like China and India fall in line. Yet neither the U.S. nor Europe can just force this to happen. If we try by imposing carbon duties, we'll hurt consumers even more by raising the cost of imports, and possibly start a trade war no one will win.

Chu's remarks highlight the fact that cap-and-trade is a costly, risky gambit. But now's not the time. Suffering workers and consumers can't afford to lose again.

Moon: Will Wilkinson is a fellow at the Cato Institute.

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These criticisms of cap-n-trade are valid, but beside the point. The worst thing about cap-n-trade will be that it will create a giant new regulatory regime with authority to determine every major business decision in most important industries. The incumbent producers, who have already captured every regulator created up to this date, will be only too happy to capture the new super-regulator as well. That doesn't bode well for innovation and dynamism in our economy.

Small firms with new ideas and new products will find it difficult to get approval for the energy they'll require. (Sure there might be a market in carbon credits, but the game starts with incumbents holding all the chips, and having hired all the dealers. This amounts to a transfer of wealth from small firms to large. Expect fewer innovative small companies!) Existing firms are "already" using fossil power so they'll get to continue doing so for free. In fact they could be in line for huge windfall rents on the energy they "save" in modernizations and capital improvements they were going to do anyway. Hmmm, is it really surprising that a certain oilman whose first initial is "T" plans to bring large wind generation capacity online just after this disastrous legislation passes?

If anyone really cared about greenhouse gases rather than this feather-bedding rent-seeking free-for-all boondoggle of a corrupt statist's under-the-table wet dream, they would just levy a large tax on fossil fuels.

Obviously trade wars are not a good thing. It is also obviously true that countries shouldn't have armies. The question is how do you move the world toward cooperation? Either way capping carbon emmissions is not very expensive at all and if we start leading on this issue we can probably get other countries to join us.

Cona Lein,
your mastery of the <em>ad hominem</em> is impeccable, do you have any argument to offer?

Joe Phillips,
stop waiting, go read his actual writing on the subject of the ethical implications of economic growth at his website.

Jodi Smits Anderson,
no, it's like saying we won't produce needed medicine because we already spent the money on carbon offsets. Opportunity costs matter.

Paul Weimer,
I have not analyzed Will's genetic code, but I've read his arguments about implementing a welfare state that actually, well, improves welfare, by taking into account the realities of economic and political behavior. Maybe you should check it out.

I think Will has a point. Short of nuking the international community into carbon-limit compliance we cannot legislate our way to reduced CO2 production on a significant scale without incentivizing additional production elsewhere. Solutions that do not account for this will fail.

Mr. Wilkinson's arguments against cap-and-trade sounded precisely like the arguments Big Oil would make. Imagine my surprise when I discovered that some of the largest contributors to the Cato Institute are Chevron, Exxon-Mobil and Shell Oil as well as the American Petroleum Institute. Perhaps it would behoove NPR to clarify these relationships to listeners when presenting such slanted commentary.

It is worth mentioning that cap-and-trade can also act a source of revenue for governments, NGOs, and private landowners. Demand for credits will spark an equally robust industry in Carbon sequestration. Reforestation and restoration of degraded ecosystems, such as the marginal crop land common in nations such as China and India, have the potential to produce substantial revenue by storing Carbon. If you factor this into an assessment of Carbon cap-and-trade, it seems much more reasonable that developing countries would have incentive to sign on, and aggressive trade policy would not be needed.


In fact China and India do have powerful incentives to help fight global warming. More than most countries they cannot afford damage to their agriculture caused by climate change and cannot afford inundation of their coastal cities or an influx of millions of refugees from neighboring countries caused by a rise in sea level. We really have run out of excuses for doing nothing about global warming; the only question is whether we have run out of time.

Mr. Wilkinson says that he wants to avoid a trade war with China by not instituting President Obama's cap-and-trade Carbon plan. He neglects to consider that the Europeans already have moved forward in this manner, and could conceivably do that to us. Perhaps instituting our own system would prevent a trans-Atlantic trade war. Also, the Chinese ARE moving forward too by for example spending a fair portion of their stimulus plan on wind farms.

I await the "economic analysis" from Mr Wilkinson and his ilk that incorporates the state of the planet 10, 50, 100 or 500 years hence. Wasn't this childish obsession with just the next quarter's earning statement what caused this global "Great Recession" in the first place?

Cap and Trade is still a horrendously bad idea. It's creating cost out of nothing. There is no "product" and thusly will be a huge financial burden. What needs to be done in order to reach this "goal" is to federalize most of these energy companies. Then allot each person and company X amount of energy for y amount of money. Excess can be bought at a premium. That premium will go to new energy production R&D as well as programs specifically focused at cleaning the air.

Unfotunately, there is no disputing Mr. Wilkinson's analysis of the issue, so I'll just have to go and get depressed that the only practical course of action is to race to be the fastest toaster of the planet for short term profits.

There is no denial that can stop climate change. There will come a time when even Rush Limbaugh will admit that it was real after all. And when that time comes, the US will go broke from the cost of moving all our major coastal cities and oil refineries inland, and food, our only remaining export becomes our biggest import and we no longer produce anything the world wants to buy. When that time comes, if I have some food, I will not be trading it away for something as worthless as money. It will make in retrospect, the idea of paying more for Chinese toaster ovens not seem so bad after all.

The great minds at the Cato institute have been busy coming up with reasons why we cannot do the right things, like save the planet. Cato should instead put their great minds at work and come up with plans to save the planet.

This is like saying we won't produce a needed medicine for our town or country because the upfront cost is a burden, knowing full well that NOT innoculating the majority of the residents means (with 100% certainty) that all but a few will die next year. How can we NOT deal...RIGHT NOW...with carbon emissions. Let's be strict with ourselves and take our medicine, and do all we can to get others to take it as well.


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