One of the most paralyzing obstacles to adopting climate policies is the genuine need for (and difficulty getting) international cooperation on efforts to reduce emissions. As I discussed in my previous post, perceptions can differ over how strongly and when different countries need to act. Nevertheless, eventually all nations will have to constrain and reduce their emissions if we’re going to stop the build up of greenhouse gases in the atmosphere. Nations that refuse to do their fair share will make climate policies less effective and harder to implement for everyone else.
Today I’ll briefly mention two strategies for encouraging international cooperation on emissions reductions: 1) national approaches that automatically respond to international efforts, and 2) trade penalties for countries that subsidize their industries’ greenhouse gas emissions.
To get the most reduction in emissions for the least effort, countries can either set a cap on emissions or charge a fee to pollute. To ease the transition to a lower emission economy, countries can begin slowly then decrease the cap (or increase the fee) over time. Nations can also account for international cooperation by automatically adjusting the stringency of their cap or fee (or the rate at which they become more stringent) based on what other countries do. With good cooperation the cap or fee would become more stringent, but with poor cooperation a nation’s efforts would automatically ease.
As a relatively straightforward example, assume that a nation establishes a cap at its year 2005 emissions level. Provided countries responsible for at least 55% of worldwide emissions make comparable efforts, the cap would be maintained. If global coverage drops below 55%, however, the cap could increase by 5%. If global coverage drops below 40%, then the cap would automatically increase by 10%. Likewise, under strong cooperation the cap could decrease by 5-10% depending on how widespread the effort.
This type of approach has four advantages for nations eager to move forward with emissions reductions: 1) those nations can take unilateral action and thereby avoid contentious and prolonged international negotiations, 2) they can protect their economic competitiveness by accounting for the actions of other countries (the adjustments protect them from acting too strongly), 3) they create carrot and stick incentives to encourage other countries to join emission reduction efforts, and 4) they help overcome persistent rhetorical obstacles to climate policy.
These persistent rhetorical obstacles, in particular, pose serious problems for the adoption of policy measures. Opponents of climate policy in the United States, for example, often exaggerate economic risks by saying that we will suffer a major loss in competitiveness if China and India don’t match our efforts. Basic economic reasoning suggests the opposite: a modest first step will boost the economy by reducing harmful pollution subsidies. Nevertheless, building adjustments into policy would undercut this tired canard by automatically accounting for the actions of other countries.
Trade Penalties for Pollution Subsidies
Those who don’t pay for the damages their emissions cause, receive a subsidy to pollute (as discuss in the comments of this post). Our free trade agreements have tools for dealing with countries that subsidize their industries: countervailing measures.
The imports from countries that don’t institute pollution fees would face border tax adjustments equivalent to the total amount of pollution released during manufacture and shipment of a product multiplied by the appropriate pollution fee (this could equal the permit price in a cap and trade system). At the same time, the exports to non-cooperative countries would receive border tax subsidies that undo the pollution fee imposed within the country of origin. With these border tax adjustments, countries that don’t cooperate on emissions gain little, while countries that do cooperate risk little.
Neither approach is a perfect silver bullet, however. There may be obstacles with our current trade agreements that must be worked through, and policy measures that include responsiveness to international cooperation give up some regulatory certainty, which can help businesses with longer term planning. Nevertheless, preventing unchecked subsidies is entirely consistent with free trade and the modest loss of long-term regulatory certainty brings both a measure of economic protection and incentives for more international cooperation. As a result, the two approaches could help reduce the political, economical, and rhetorical obstacles to climate policy while simultaneously encouraging more emission reductions throughout the world.