Sunday, November 03, 2013

Global Warming & International Trade -- the Elephant in the Room.

Update! In a new Stanford University Survey a majority of Americans believe man-made Global Warming is occurring, but do not support a Carbon Tax.

The Global Greenhouse Gas Conundrum: In BP's Annual Energy Outlook to 2030, World carbon emissions from energy use are projected to increase by 26% by 2030. This increase will primarily come from developing countries (e.g., China, India) as they industrialize their economies (as Western economies did during their Industrial Revolution, called the Kuznets Curve).

The primary fuel source for powering Asian industrialization will be their vast natural resources of coal, where coal prices are currently about one-third of Liquefied Natural Gas (LNG) and about half of natural gas.

The biggest carbon emitters among developing nations have made clear that while they are prepared to improve the energy efficiencies of their economies, they have no interest in capping carbon emissions that restrict economic development.

The Politics of Climate Science in U.S.: Many Conservatives twist valid science uncertainties of Climate Change/Global Warming (e.g., Dr. Judith Curry) to become "Deniers" -- arguing that no economic policy actions (e.g., Carbon Tax) are needed. Conversely, Liberals often use a message of apocalyptic doom/gloom to advance climate policy actions. But for most Moderates/Centralists, they just don't "easily fit" in either of these highly polarized groups.

Question: What happens if you (A) Believe in the science of Global Warming, but (B) Disagree with a U.S. Carbon Tax Policy?

Answer: You find yourself in the middle of Red State vs. Blue State, Conservative vs. Liberal, Culture and Political Ideology Wars.

The Mind of "Sympathetic Greens": While Moderates/Centralists are concerned about Climate Change, a major roadblock in their supporting U.S. policy actions is the conundrum of carbon emissions from industrialization in the World's developing economies. These "Sympathetic Greens" recognize a fundamental reality: The U.S. alone (or even the developed world as a whole) can not reduce global CO2 concentrations. Unilateral U.S. actions may be admirable (lead by example), but are quixotic.

While a Carbon Tax would undeniably reduce energy consumption in the U.S. (especially among poorer Americans as a regressive tax), how would this impact total Global emission levels? Could an unintended outcome be even more "outsourcing" of greenhouse gas emissions from the U.S. to developing countries? (increasing the already huge U.S. Trade Deficit). Liberals never really address these type questions.

Growth Rates in CO2 Emissions
A New Path: A Policy option that just might get us out of this ideological mess and also actually achieve meaningful reductions in global greenhouse gas emissions is by thinking "outside the current box" -- Using international trade agreements between the U.S./EU and developing countries.

The below chart illustrates the global CO2 impact of international trade where the flow of emissions are allocated to the locations where global goods and services are produced and then consumed -- where Chinese exports to the U.S. and the EU clearly dominate.

Major Global Flows of CO2 From Production to Consumption:
Start of Arrow: Fossil Fuel Consumption (Production)
End of Arrow: Goods and Services Consumption

Responsibility of the U.S. and EU: To be successful, using international trade to sizably reduce Global CO2 emissions must be a constructive two-way-street with shared responsibility and recognizable benefits -- not driven by parochial interests leading to confrontation (use of free/liberalized trade agreements versus unilateral tariffs/sanctions resulting in trade wars).

As the World's largest economies, Western industrialized countries must recognize, accept, and act on their unique responsibility:

Since a significant percentage of CO2 emissions likely remains in Earth's atmosphere for thousands of years, the bulk (perhaps up to 80%) of current CO2 PPM levels (with a man-made footprint) comes from Western industrialization which began in the 18th century.
Underlying Principle of Free Trade: The U.S. has advocated free-trade policies for decades, but it also has spent considerable effort and diplomatic capital in creating both global and regional trade rules/standards (WTO, NAFTA) -- based on the acceptance and implementation of trade policies by other members (with verifiable actions).

If Climate Change is to be truly treated as serious on a global stage, pragmatic lessons must be drawn from international trade -- where reciprocity reigns supreme. No country eliminates its trade barriers without reciprocal and meaningful concessions from trading partners.

Its ironic that ultimate success in addressing Climate Change will depend as much on social sciences of "human nature" rather than just the physical sciences in resolving climate uncertainties. A good analogy is why young people still smoke, given the overwhelming medical evidence that it's harmful -- The difficulty of making a lifestyle change today to avoid the consequences in 20, 30, 40 years. People also need near-term positive incentives -- like wanting to go out with that "Hot Girl or Guy" who only dates non-smokers.

International Trade Incentives: As the World's largest economies, the U.S. and EU have the ability, opportunity, and responsibility to provide needed positive incentives to developing countries. An illustration of a "concept framework" of trade incentives is California's Low Carbon Fuel Standard.

Applied to international trade, specific products from developing countries meeting a "Low Carbon Standard" (LCS) would be given greater/favored trade access into U.S./EU markets (achieving a competitive advantage over other countries that don't participate in LCS Free/Liberalized Trade).

Correcting a Major Policy Mistake on Climate Change: After the Kyoto Protocol in the late 1990's, a major policy error was the missed opportunity to create "Idea Incubators" with developing countries in existing Free Trade areas (especially India and the Philippines). Such an effort could have created "Success Stories", developing and demonstrating a "Model" for specific multi-lateral trade actions and collaborative cooperation (Western technology transfers and financial assistance) that could be then scaled up to sizably reduce CO2 emissions in developing countries.

It's not too late to correct this mistake, it just will take political resolve by Western industrialized nations to do not just the "right thing as to responsibility" but the "smart thing".

Multi-Lateral Free Trade Areas
(Below Countries in Red)
The following is a conceptual framework of beneficial trade reciprocity between industrialized and developing countries (Wins/Wins) to reduce global CO2 emissions.

Industrialized Nations

High Tech Energy Efficient Goods and Services

(Including U.S. natural gas exports)

Developing Economies

"Low Carbon Standard" Products

(With favored US/EU Trade Status)


Additional News Stories:
Views on Global Trade by Country -- (Pew Research).
In War on Coal, Coal is Winning (C.S. Monitor)
China's Coal Demand Set to Double.
Emerging Economies Nearing One-Half of Global CO2 Emissions.
Argument that U.S. Carbon Tax Would Have Minimal Impact (0.1°C ).
Dramatic Decrease in Carbon Intensity in U.S. Economy
Why A Carbon Tax Will Not Work -- and What Will.
U.S. to Help Ukraine with Natural Gas Development


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