Paul Krugman debates the limit of policy options that should be used to make China reduce its carbon consumption. He argues the necessity for China to change for the sake of the planet, and appears to be suggesting that imposing carbon taxes on imports might be acceptable if political progress cannot be made.
However, China has been making significant progress in developing clean technology according to the New York Times. Indeed, it has become the world leader in advanced coal-fired power generation, says the International Energy Agency. Meanwhile, combatting climate change will require international co-operation and compromise from both sides. Krugman’s moral superiority is not the answer.
The phenomenon of ‘carbon leakage’ makes carbon emission a global problem. No single country can effectively cut back on its consumption, because free trade will allow the production of these goods in another (less regulated, more polluted) nation. This argument is used to support interventionist measures like the carbon tax on imports.
Krugman doesn’t even consider the response from China in his analysis, and for good reason. The likely outcome would be trade warfare, and the Chinese government would probably subsidise industries that were hit by the tariffs.
This would completely eliminate the benefit of the plan, and have disastrous repercussions for international trade. Meanwhile, protectionist interests in the US will support any measures that hurt imports, as will political factions fearful of China.
Any move towards global systems to fight climate change will need to be grounded in co-operation. Otherwise, we face the risk of political factors making acquiescence to demands unpalatable. Countries like China and India will only come on board if they are coaxed, not threatened.
They also can’t be faced with too much of the burden, or international agreement will never be reached. But if the costs seem asymmetric to Westerners, this will make domestic measures to reduce consumption politically difficult – as they will be deemed ‘unfair’. Carbon leakage also takes away employment, which is why unilateral action will diminish political support for action too.
Luckily, the market is finding solutions to the climate problem. Firms in China see the opportunity for profits in the market for efficient and cleaner energy generation, and are making strides. Stay tuned for further advancements in ‘carbon capture and storage’ technology.
China’s government can be convinced to reduce their carbon emissions, but not without leadership from countries like the US. They don’t necessarily need to feel the pinch until everyone else does, but guarantees will have to start somewhere. It doesn’t matter who caused the problem, but it will matter who fails to contribute to the solution.
© The Free Marketeer 2009