Howard Richman's  Instablog

Some economists think that President Obama is borrowing the United States into an eventual bankruptcy. They point to the huge expansion of the U.S. government debt during his administration. But the reparations currently being negotiated at the UN Climate Control Conference in Copenhagen may end up dwarfing payments to China on his budget deficits.

Specifically, the Washington Post reported on December 17 that Europe has offered that the developed countries (United States, Europe, Japan, etc.) would pay the developing countries (China, India, Africa, etc.) $100 billion per year by 2020 and that the developing countries have agreed to accept that offer:

Ethiopian Prime Minister] Zenawi said he would accept $30 billion a year in the short term, rising to $100 billion a year by 2020, for poor countries worldwide. This was seen as a key concession by developing countries, which had previously spurned that figure -- originally proposed by European countries -- as too low.

Meanwhile, on December 17 Secretary of State Clinton told reporters that the U.S. has offered to pay $10 billion of the $30 billion per year being offered by 2012. If the 1/3 ratio continues, the Obama administration is offering that the U.S. will pay $33 billion per year by 2020.

It is not clear how the United States would be able to afford to pay such sizable reparations. The United States is currently running chronic trade deficits, and reparations either have to come out of exports or be borrowed from abroad.

President Obama is aware of the danger of an American government bankruptcy. ABC News reported on December 16:

President Obama told ABC News’ Charles Gibson in an interview that if Congress does not pass health care legislation that will bring down costs, the federal government “will go bankrupt.”

Maybe, just maybe, this might not be the best time to saddle the U.S. government with a huge new debt.

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There are several thorny issues remaining at at the UN Climate Control Conference in Copenhagen, including the extent of the emissions cuts and the amount of money to be transferred each year from the developed nations to the developing nations.

But the most important issue that remains on the table is whether developed countries will be permitted to enact border adjustments to prevent the agreement from shipping their remaining and future energy-requiring industries to the developing countries.

The basic outline of the agreement has already been determined. Developed countries (including the U.S.) would be required to reduce their CO2 emissions while developing countries (including China) would be permitted to increase their CO2 emissions, though at a reduced pace.

The predictable result of this difference would be that energy costs in the developed countries would rise relative to energy costs in the developing countries. The only way that developed countries could be able to keep their energy-requiring industries competitive would be by imposing border adjustments (tariffs and export subsidies) to equalize energy costs.

But China is insisting that the Copenhagen agreement prohibit border adjustments. World leaders will negotiate this issue on Thursday and Friday this week (December 17 and 18), according to a November 16 report from Bloomberg.com:

The draft accord from a meeting in Copenhagen to forge a climate treaty bars rich nations from adopting trade actions tied to global warming. China said such language will avert “trade wars.” The U.S. Chamber of Commerce sides with China....

In Copenhagen, the latest version of a proposed treaty includes language banning developed countries from ‘‘resorting’’ to climate-related trade measures is printed in brackets, meaning it lacks consensus agreement and must be dealt with by higher-level negotiators from 193 countries.

This issue is key to the future of the United States economy. Without border adjustments (both tariffs and export subsidies) American industry would become less and less competitive. The U.S. trade balance would continue to deteriorate, and an eventual dollar crash would impoverish the American people and force an American retreat from the world stage.

On the other hand, this issue is also key to the future of China. If border adjustments are prohibited, the Communist government of China would come to dominate the world stage allowing them to support tyranny worldwide, just as they already support it in North Korea, Sudan, and Burma. They would no longer be challenged by the western democracies who would have proved, by their deteriorating economies, that they were unable to elect competent leadership.

The world's future is at stake. If the developed countries go along with this Chinese demand, totalitarianism could dominate the world's future. If they do not, then China could veto the Copenhagen agreement and momentum for reducing CO2 emissions, already weakened by a decade without global warming, could be lost.

Disclosure: No Positions

During the Vietnam War, a radical leftist group called themselves the "Weather Underground" based upon the lyrics from a Bob Dylan song, “You don't need a weatherman to know which way the wind is blowing.”

Well, nowadays, you don't need a weatherman to understand that the earth is not warming at the moment. All you have to do is look at a nearby thermometer. According to the What's Up with That website, 304 new record low temperatures were set in the United States last week!

But that has not daunted the delegates to the UN's Climate Change Conference in Copenhagen. A voluntary agreement to fight global warming has just started to take its final shape in the form of a draft text revealed Sunday by an Ad Hoc Working Group. Although many details remain to be negotiated, something very much like this draft will probably be initialed by world leaders when the conference ends on Friday. Here are the two key passages:

Developed country Parties shall undertake, individually or jointly, legally binding national appropriate mitigation commitments or actions, [including] [expressed as] quantified economy-wide emission reduction objectives with a view to reducing the collective greenhouse gas emissions of developed country Parties by at least [25-40] [in the order of 30] [40] [45] per cent from 1990 levels by 2020....

Developing country Parties shall undertake nationally appropriate mitigation actions, enabled and supported by finance, technology and capacity-building provided by developed country parties ... aimed at achieving a substantial deviation in emissions [in the order of 15-30 per cent by 2020] relative to those emissions that would occur in the absence of enhanced mitigation....

To summarize: the U.S., Europe, Japan, and the other developed countries will agree to give away their remaining industries by reducing their carbon dioxide emissions.

In return, the developing countries (China, India, Africa, etc.) will agree to accept those industries by slowing the increase of their carbon dioxide emissions. In addition, they will accept financial aid and those energy-efficient technologies invented by the developed countries.

The leaders of the developed countries are all enjoying how warm it feels to pledge away their children's futures. But you don't have to be a weatherman to know that when these leaders return home with this agreement, they will get a chilly reception from their own legislatures.

Disclosure: No positions