Smith Faculty Opinion Article	February 19, 2008
By Dr. Peter Morici, Professor of International Business                                                                       E-MAIL       WEB SITE

Doing Something about Global Warming

Americans appear poised to act on global warming, but despite the best intentions, we may hasten environmental calamity.

The Lieberman-Warner Bill has passed Committee and appears headed to a full Senate vote. It would limit U.S. greenhouse gas (GHG) emissions in 2012 to 2005 levels, and reduce those by 70 percent in 2050. Sadly, by encouraging energy-intensive industries to move to developing countries, it would accelerate global warming and harm U.S. industries that could contribute importantly to a sustainable global solution.

Shrinking polar ice shelves and mountain glaciers offer compelling evidence that global temperatures are rising, and the scientific consensus is that manmade GHG emissions play a key role.

The Kyoto Protocol, implemented in 2005 without the United States, commits virtually all other industrialized countries to reducing GHG emissions to 6 to 8 percent below 1990 levels. Developing countries are generally absolved, though, industrialized countries may avoid some emission reductions by sponsoring clean-up and reforestation projects in them.

CO2 emissions account for more than four fifths of U.S. GHG emissions and an even larger share of those susceptible to government action. CO2 is created by processing and burning fossil rules, and curtailing emissions boils down to regulating fossil fuel use.

EU governments have established national limits on GHG emissions by requiring fossil fuel producing and using industries to obtain emission allowances. Limited allowances are issued by governments, and a private market has emerged for trading in these permits. Obtaining permits raises costs in fossil fuel-intensive activities.

Lieberman-Warner would impose a similar cap-and-trade regime on U.S. industries, auctioning off a large share of U.S. permits.

Unfortunately, big developing countries like China and India show little genuine inclination to participate in the Kyoto, and the EU regime encourages energy-intensive industries, like steel and aluminum, to move to developing countries. Lieberman-Warner would do the same in the United States.

Policies that cap emissions in industrialized countries without requiring the same in developing nations like China only raise global emissions, because developing countries use fossil fuels so inefficiently.

China, with GDP less than one-fourth the size, already emits more GHG gases than the United States or the EU. Every two years, Chinese emissions growth adds another country the size of Japan.

It is hard to imagine that two years of China’s growth, which comes to $600 billion, could replace Japan’s $4.5 trillion dollar economy, but present international environmental policy requires such perverse economic accounting.

Without equal requirements for developed and developing countries, Kyoto will not solve global warming. Moving energy-intensive industries to the Third World only hastens catastrophe and makes the world poorer in the bargain.

The economic costs of controlling GHG emissions could be best minimized by regulating fossil fuel use the same everywhere, and letting energy-intensive industries go to those locations that can best meet those standards.

Lieberman-Warner fails in this regard. Through 2020, it would permit imports of products into the rich U.S. market no matter how filthy their production processes. Subsequently, imports would have only to be made as cleanly as the average for their national industries in 2012-2014. Essentially, that would require no improvements from current production methods in countries like China, Brazil and India, and encourage U.S. energy-intensive industries to move to those locations.

As an effective alternative, the United States could negotiate with other countries carbon-emission standards for energy-intensive activities like electrical generation, metals production, and automobile use.

Negotiating emissions standards would be lengthy and difficult now that cap and trade is in place in Europe. Nonetheless, the United States, while seeking agreements with other countries, could impose emission-standards on energy-intensive activities like electric generation, metals production and carbon use by automobiles. And, it should require imported products to meet similar production standards.

A standards-based approach would create a vibrant market for low-carbon-using technologies in the United States, encourage development of new environmentally friendly industries that could lead U.S. export growth, and ultimately make less costly GHG-reducing production technologies for developing countries.

Similarly, the United States could impose a carbon tax on domestic energy-intensive products and on imports not subject to comparable levies. The tax could be set at levels necessary to hit U.S. emissions goals, and would encourage other nations to put in place comparable policies.

Both approaches are consistent with World Trade Organization requirements regarding equal treatment for domestic and imported products and policies to protect the global commons.

These approaches, either in combination or separately, could accomplish GHG emissions reductions in the United States consistent with Kyoto without encouraging energy-intensive industries to leave for China and other developing countries where they make the problem worse.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.                                                          ►More Faculty Opinion Articles