World Politics Review: Linking Trade and Climate Change
Bernard I. Finel
While few can predict exactly what new policies will be implemented by the incoming Obama Administration, it is clear that addressing climate change will be among its top priorities, and that any successful approach to the challenge will involve international cooperation.
The outlines of a solution are relatively simple. Over time, global carbon emissions need to be reduced, which means that current emitters — largely in the developed world — will need to reduce their emissions. Countries in the developing world, meanwhile, will need to limit the increase in their emissions as their economies grow and modernize, so as not to offset the reductions by the developed world. In the long run, carbon emissions per capita around the world will equalize, with total emissions below current levels.
This approach is both workable and fair, even if there remain many details to negotiate: Over what time frame will the process unfold? Will emissions targets be equalized on a strict per capita basis, or instead roughly converge? Should targets be linear or weighed over time?
Unfortunately, we never get as far as resolving these thorny questions because many countries in the developing world, such as China and India, cite their poverty to reject any binding targets. Their resistance in turn feeds reluctance in the United States to make reductions that amount to costly sacrifices with little global impact.
There is a simple solution, however. In order to implement a serious international regime to control carbon emissions, the United States will ultimately need to incorporate emissions reductions into its trade policies, and impose tariffs against countries that refuse to participate. In fact, including climate issues in trade discussions will ensure that the market accurately prices the value of internationally traded goods and services.
As developed nations begin to implement controls on greenhouse gas emissions, the production costs in associated industries will increase. Unless other countries also pass such controls, they will gain a production advantage as a result. In short, if we limit our emissions, but China and India fail to do so, we will ultimately find ourselves exporting production, jobs, and greenhouse gas emissions to those countries.
In addressing this issue, it is important to make the distinction between pollution and climate change. Ultimately, each country has the right to pursue its pollution targets independently. While there are complicated moral issues associated with this kind of trade, if one country places a lower value on clean air and water than another, then it makes sense for the latter to export pollution-causing industries to the former. The advantage of sending pollution abroad is that it does, indeed, help the exporter maintain cleaner air and water.
This kind of tradeoff does not work with climate change, however. When other countries have weaker controls on greenhouse gas emissions, they are making a choice not only for themselves, but for countries that choose to limit their emissions as well. And if we reduce our emissions while they maintain theirs, we still get global warming. So when the United States exports production — and the greenhouse gas emissions that go with it — abroad, Americans continue to pay the cost of those emissions in terms of climate change at home. Because we gain nothing, it is a false trade. In order for the free market to function effectively, the costs for Americans to buy goods from India must include the costs we place on the negative effect such trade has on our climate change goals.
The challenge is ultimately pragmatic. Both China and India have a tremendous need to provide jobs and increase the standard of living for hundreds of millions of their citizens who live in grinding poverty. They are unlikely to willingly accept the kinds of restrictions on climate change emissions that we, in the United States, now believe are necessary. So, the United States must internalize those externalities.
Will there be some costs to implementing this approach? Of course. Any tariffs, by definition, will reduce trade, and less trade means less economic growth. But we routinely accept tradeoffs against economic growth to safeguard other values. Pollution controls, subsidies to farmers, child labor restrictions, workplace safety regulations, the minimum wage, taxes on corporate profits, the prohibitions of dangerous substances: all of these impinge on free markets and limit economic activity.
Preventing climate change is no different. The question is not the tradeoffs related to economic growth, but how to ensure that we don’t pay the costs associated with emissions controls without reaping the benefit those limits are meant to provide.
The United States should strengthen the implementation of the any internationally negotiated treaty on climate change by supporting a series of mandatory tariffs against imports from countries that exceed their carbon quotas. There should be no international economic benefit from harming the environment. This approach would internalize the cost of climate change into ongoing business decisions. These penalties could be implemented against hold-out countries, thus providing an incentive to work within the system.
Trade is an engine of economic growth and should remain so, but it does not need to be an engine of environmental destruction. At issue is not making trade policy fair, so much as making sure that no nation or group of nations is able to free-ride on the efforts of the international community to take action to manage climate change.
Bernard I. Finel is a senior fellow at the American Security Project and a former professor of military strategy and operations at the U.S. National War College.
http://www.worldpoliticsreview.com/article.aspx?id=3212
