U.S. Playing Chicken with BRICs

by Kindred Winecoff

A few days ago, Dr. Oatley wrote about the attempt by the U.S. House of Representatives to cap greenhouse emissions and coerce other countries into doing the same:

This time it is the Waxman-Markey cap and trade legislation. The intent of the legislation--reduce greenhouse gases--addresses concerns of the Democrats' median voter, who cares deeply about climate change. Producers, however, are concerned that the higher energy costs generated by cap and trade will disadvantage them relative to Chinese firms who are not facing higher energy costs because China does not regulate greenhouse gases. The solution, added late to the legislation, is to impose tariffs on goods from countries that do not regulate GHG (i.e., China). Nobody really wants to impose tariffs, but the hope is that the threat of tariffs will be sufficient to induce China to agree to international regulations on CO2 emissions.

This realist view is often borne out in the politics of international regulations. But in this case it is difficult to see whether the U.S. has the muscle to coerce China (and others) into adopting the U.S.-preferred strategy. Krugman loves it, but the push-back from China and India has already begun:

The Chinese government also said it believed the carbon tax proposal violated the principle set out in the Kyoto protocol that developed and developing countries should respond to climate change together but with different responsibilities. “[It] severely harms developing countries’ interests,” Mr Yao said.

The WTO report, which gave a cautious nod to carbon tariffs, was prepared by the organisation’s secretariat, which can advise and facilitate discussion among the WTO’s members but does not set the rules itself. If a government such as China’s challenged such taxes, the case would be decided by the WTO’s dispute settlement system – panels of independent trade experts and lawyers.

Some trade lawyers point out that past WTO decisions have permitted governments to restrict trade in order to protect natural resources. But others say the case law is patchy, and it is hard to prove that such measures are being applied in a fair and consistent manner – a necessary condition for meeting WTO rules.

And the Indians have quite a point:

With 1.1bn people – roughly a sixth of the world’s population – India has one of the lowest per capita emission levels, with 1.2 tonnes per head, about 4.6 per cent of total global emissions. “India has not polluted – we are bearing the brunt of global climate change caused by the developed countries and we are being asked to curb emissions,” he said. “I find this ludicrous.”

However, India’s carbon emissions are expected to rise sharply in the future, especially as the country tries to meet its power deficit through the rapid development of generating capacity. India uses about 450m tonnes of highly-polluting coal for power generation each year, a figure that Mr Ramesh said would rise to about 1bn tonnes in less than a decade.

“There is no running away from our karma – without coal, we have no economic future,” he said.

That last sentence is the crux: India and China will not yield because they cannot. They can credibly commit to hurt U.S. consumers and producers in retaliation (in this case, retaliation could be as simple as accepting reduced economic gains from trade; of course, they could also slap retaliatory tariffs or simply stop buying U.S. bonds). So the question is whether the U.S. thinks that the environmental gains from carbon tariffs will outweigh the economic costs of a trade war during a nasty recession. More specifically, does the president and the 60th most-progressive senator think so? So far, Obama has indicated that he is not interested in playing chicken with the Chinese.

From my seat (nowhere near the table), it appears that the provision will be stripped from the Senate version of the bill, and / or the bill will not pass. The costs to American consumers of challenging China and India (and Canada) have already become too great. That could change if the U.S., E.U., Japan, and others make a concerted stand against the BRICs, but that would allow the BRICs to accuse the rich world of preventing the development of some of the world's poorest people in order to fulfill their pet preferences. And they would be right.

Addendum: China may have actually started the trade war over a month ago.

Comments

[Steven Hansen:]

interesting dilemma. everyone is right depending how you look at it. the usa continuously finds religion and tries to impose it on everyone. my suggestion is that if somebody believes the carbon footprint is important to the survival of mankind, they should develop non-carbon alternatives for the developing world (and themselves).

i believe america needs energy sources that do not require import.

Jul 06 03:34 AM

[User 353732:]

The Global South now has an effective veto on the environmental and carbon control policies of the West. They have 3 reasons:
1. Many in the Global South are unpersuaded by what, to them, is the deeply flawed, if not actually incompetent and dishonest Western "science" on which carbon management prescriptions are based.
2. An influental segment of opinion and policy makers in the Global South, supported by Russia, believe that Carbon Control is a transparent attempt by an effette and increasingly selfish West to deny growth, dignity and hope to billions of people in Africa, Asia and Latin America.....Carbon supression is really supression of the Global South
3. To many nations of the Global South, coal. natural gas and nuclear( and oil for mobility) are irreplaceable drivers of their energy economy for the next 50 years and increased energy efficiciency for those who consume very little energy per capita is a low and misplaced priority.

Nothing now, typies the decline of Westrern Europe and Japan and the limits of American moral, economic and technological power than the futile( and arrogant and shrill) attempt to impose Western environmental ideology and elitist world views on the rest of the world.
The current trajectory seems to be that the West, via deliberate choices, will make itself both increasingly uncompetitive and intellectually/morally unimpressive to the rest of the world while the rising and increasingly confident nations of Asia( who will pull Africa and Latin America with them) use fossil energy and nuclear power (and iron ore)to acquire much greater global economic and geopolitical market share.
FIrst the Global South protested and demurred. Now it knows it has a veto. Once the veto is successfully and repeatedly exercised with impunity( if the West cannot contain Iran and North Korea, how ican if fantasize about dictating terms to China, India, Nigeria, Brazil , Indonesia and that defacto third world nation:Russia?) the Global South will not be content with parity or "partnership" with the West: it will seek dominace; a dominance facilitated and abetted by multiple bad policy choices and implementation decisions of self obsessed Western elites.

Jul 06 05:58 AM

[whidbey:]

This cap and trade nonsense is just another measure of the madness in Congress. The Kyoto treaty has been signed in the EU and ignored or dodged for years with little/ no affects on CO2, but it goes unreported.

Of course, the rest of the world would rather eat that have fresh air, its a choice and we have not got much to say. Meanwhile a home, where are the jobs bills that reach at the heart of our problems? Behind the climate,health care and political restructuring legislation. The train is running backwards.

Jul 06 11:33 AM

[Jason Rines...:]

Nothing this Democratic government should do (we are supposed to be a Republic NOT mob rule) should surprise. All of the recent legislation is about tax and spend. One gets the government elected and those elections have consequences.

Jul 06 12:12 PM

[jstratt:]

Outstanding viewpoint!

Cap and Trade is a terrible idea!

Why dont we just try to work on our own pollution?
High Speed Rail
More Efficient vehicles
More efficient homes

It doesnt seem that those things would require huge additional taxation. In a more cynical moment I would add that the latter 2 items would not build profits for Goldman Sachs.

Jul 11 05:13 PM

[GaryRumor:]

Cap and Trade is a policy that was developed to turn the air we breathe into another commodity to be bought and sold on the stock market. It would be much simpler simply to give government funding to research into clean energy, and to simply use the EPA to limit emissions from power plants and automobiles.
As the last person stated Goldman Sachs stands to make bank from Cap and Trade.
The Global South needs to develop their economies but there is no reason why they cannot do so with the same environmentally sound technologies that are being developed in the west.
The writer who spoke of a reverse imperialism with the global south dictating to the industrial nations of the north is not an answer, it may become a reality but what we need is global cooperation not one group dictating to another. The science on global warming is real. Countries like Bangladesh are on the front line of those suffering the consequences of global warming through rising sea levels. Do we want to sacrifice 140 million Bengali's for the sake of industrial development in China and India and for Americans to have the same level of wasteful energy use as we have now? I think not. What we need is agreements that are fair and global.
We are no longer in a world where might makes right. Survival of civilization depends upon cooperation not on who stands on top of the pile of dead bodies beneath.
The USA spends as much on the military as the rest of the world combined. That needs to end. The USA needs to spend its money developing alternative energy here and on conservation and not on securing raw materials to ship to China simply to get them made at less cost there so that some financiers on Wall Street can make a few extra billions.
This is a world system and we are now all in it together. Nobody is innocent and everyone has to share in the burden of fixing it. The west has to lead by example not by coercion. But there is no reason why the BRIC countries should wait either. Otherwise they will simply dump the pollution on those less powerful, places like Bangladesh.

Jul 12 04:21 PM