The Political Economy of Climate Change

TCSDaily.com

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By Robert Haddick

The Intergovernmental Panel on Climate Change (IPCC) will soon release its 4th Assessment Report. This report will again warn that atmospheric temperatures are due to rise this century with harmful consequences for the planet's ecosystems. The IPCC will recommend that the world embark on an urgent effort to rein in greenhouse gas emissions to diminish these harmful effects. However, regulatory efforts to reduce greenhouse gas emissions cannot succeed and governments, especially in the developed world, should not attempt them. Adapting to climate change, should it occur, is the only feasible strategy. Governments in the developed world should focus their efforts on policies that will ease adaptation to higher temperatures rather than waste effort and resources on attempting to prevent climate change from occurring.

Let us assume that the IPCC's predictions are valid. How should governments and societies respond?

Government regulations in the developed world to cap or reduce greenhouse gases are a lost cause and should be abandoned. Unless China, India, and other rapidly expanding economic centers in the developing world fully participate in greenhouse gas reduction efforts, regulatory schemes in the west will simply displace economic activity from the "clean" developed world to the "dirty" developing world, making the global greenhouse gas problem worse, not better.

This recent article from the Washington Post described how Europe's greenhouse gas "cap and trade" scheme shifted production from some of Europe's cleanest factories to far dirtier factories in China and Morocco. And TCS Daily's Nick Schulz told the story about how a German steel mill was disassembled, shipped to China, and reassembled, and now produces steel in China without any greenhouse gas constraints.

Will developing countries ever volunteer to meaningfully cut back their greenhouse gas emissions? Governments in developing countries face publics eager to attain the standards of living they observe in the developed world. Restraining economic growth or imposing additional environmental costs are not likely to be sustainable political positions with populations already aware of their poverty. An indication of this recently arrived from China, soon to be the greatest greenhouse gas emitter. After consulting with local and provincial governments, China's government delayed indefinitely its national action plan on climate change. Political stability seems to trump global warming.

What if, against all indications, the developing world suddenly agreed to restrict, through government action, its greenhouse gas emissions? Enforcement and compliance would then become concerns. Assuming that there is a significant cost attached to greenhouse gas reduction (lower output, or higher capital or operating expenses), there is then a strong incentive to cheat on compliance. The atmosphere is a "commons"; a greenhouse gas cheater would get all of the benefits of lower production costs, while passing on the consequences of cheating to the rest of the world. There would be no incentive for any one actor to fulfill his greenhouse gas reduction promises.

What if cheaters, either countries or localities, could be reliably identified? Could some world body impose punishments on cheaters? What punishments? Trade sanctions? Trade sanctions punish the punisher as much as the punished. With the incentive for cheating so strong and the likelihood of cheating so widespread, a "cheaters' trading bloc" would likely form, reducing or eliminating the pain of any punishment the virtuous non-cheaters might wish to impose.

How about punishing greenhouse gas cheaters with military action? I will wait for someone else to propose war as an answer.

Unless there is a stunning political and cultural transformation in the developing world in the direction of economic self-denial, halting the rise of greenhouse gases in the atmosphere through government action will simply not occur. The solution to greenhouse gas emissions may occur for others reasons such as technology improvements or market action, but these solutions would make the discussion of global warming as a public policy problem moot.

Responsible statesmen should acknowledge the futility of trying to use government action to reduce greenhouse gas emissions. They should focus their efforts on preparing for climate change rather than attempting to avoid it.