Friday, December 28, 2007

A real problem with CO2 controls

This occurred to me some time ago, but now it's made it into the popular press (emphases mine): | Clive Crook's blog: Trade and climate

...Suppose the US adopts a cap-and-trade regime for carbon, as promised by Hillary Clinton, or as envisaged by the Lieberman-Warner Climate Security Act (yes, make this a security issue, why not) currently before Congress. Also suppose that China does nothing to curb its carbon emissions. Then Chinese imports, it will be argued, will have an unfair cost advantage in US markets...
Shame on Crook for not correcting the "unfair cost advantage" error. Trade theory tells us there's no such thing as unfair cost advantage in the naive mercantilist sense. On the other hand, if we were to create a set of carbon tariffs to offset this "cost advantage" then we'd amplify the negative economic effects of necessary carbon emission controls.

The legitimate issue, however, is one of relative socio-economic power. If a President Edwards were to ask Al Gore to lead a US-European world saving CO2 emissions initiative, the US and Europe would sacrifice a certain measure of economic productivity compared to non-compliant nations. That productivity hit translates to a power shift, with all the usual implications.

I think the rich nations will probably have to take the hit and live with it, but we need to recognize it's going to have an effect.

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