Sunday, September 13, 2009

Could China participate in strong global carbon treaty

There was news today about a US-China trade dispute about tires, which led someone to
ask what this shows about China's ability to join or live up to any CO2-control treaty with real substance to it. My reply:

The tire case was actually discussed the day before the Administration decision in the Financial Times (FT).
FT argued very strongly that taking action as provided for in existing... treaties... would actually be a pro-trade
constructive action. Certainly there have been "retaliation" actions in trade which have been steps towards
reduced global trade and cooperation. But the FT argued that this was the opposite kind of case, where
simply not doing anything would itself be an anti-trade act. I have no idea whether the Administration decision
was influenced by that kind of input, but it might have been.
China's ability and willingness to be part of the WTO treaty is a crucial part of why I think it would be feasible for
China -- IF IT CHOSE TO -- to be part of global treaty to impose a user fee on carbon emissions. That by itself is enough to establish the fact... but there are a lot of important stories connected to this.
One peculiar part of the situation here is that a lot of the discussions between China and the US have been discussions between people (on the US side) who want to solve the global CO2 problem by agreeing to a set of hard quotas for
each nation's CO2 emissions, with people from the old international/military/party-heavy wing of China who still
feel more comfortable thinking in terms of quotas for all economic activity. (In a way, it reminds me of stories about how
Russia used to hammer out its five-year plans and quotas for what each factory will produce.) But the overall leadership
of China and India has been extremely clear that it will not sign off on such a system binding on China.
Curiously -- last time I was in China the press was full of news about gthier new internal measures, which sounded a bit like replacing cap-and-trade with cap-and-guillotine: each local leader had to arrange a 20% cut in CO2 in his district by X year, OR ELSE. Some say that China really is imposing hard quotas on CO2, but will not be bound by them on an aggregate level for .. odd... reasons. On the other hand, China's national analysis reports more realistically that it will be hard for them to reconcile their present rate of economic expansion and the technology they know with any reduction at all, except in transportation.
There is a real irony here. Years ago, when President George Bush I set up our first cap-and-trade system (for acid rain), he put it forward as an ALTERNATIVE to the command and control quotas for serparate states or companies which had been used in the past. He invoked the principle from basic economics that efficiency demands a single PRICE,
and the separate quotas for separate players tends to be grossly inefficient. The people in power pushing a cap-and-trade bill for the US repeat that lesson learned (the great success of acid rain cap-and-trade) over and over again...
YET AT THE INTERNATIONAL LEVEL they are basing all their planning on separate quotas, or on
the hope of creating a system of mutual moral suasion without a common legal framework for most of the emissions.
Last night I had dinner with a Chinese (nongovernment) guy, and we got into some of the realities here.
A sort-of-true story: a few weeks ago, the diplomats arranged a great visit between leading Chinese and US Senators, aimed at creating the kind of mutual communication and understanding that could lead to a treaty...
But when they arrived, the Chinese met the Republicans, and discovered that they had a lot in common, including their total disdain of cap-and-trade. Certain Republican Senators were downright gleeful about what they had learned from their new friends, vindicating their position and providing new ways to express it.
In particular, at an EPW hearing a few weeks back, Senator Voinovich said he agreed with the position that the way we really solve this CO2 problem is by injecting new technology, not new laws and regulations. Thus he introduced a new bill,
essentially a Republican-Chinese alternative to cap-and-trade, which would expand the Asia-Pacific Partnership (APPA) in a number of ways.
In discussing this with my friend... I pointed out that this bill, sadly, will not do the kinds of things China would want,
not for technology, nor for energy security, nor for CO2 reduction. The problem is that this vehicle has tended to become a kind of "high level stakeholders" promotion activity. Some APPA activists have said "There is no Intellectual Property issue
in the US-China technology exchange... all of our participants are quite happy...." But in my experience, every one
of the new companies with emerging breakthrough technologies to really change the game here is concerned to some serious degree about the IP issues; many feel they need to become more established first in the US or Europe
before it would be safe for them to work with China. In many cases, unfortunately, that could imply a delay of decades.
Ironically... a simple carbon price of $20 per ton in China might be the most effective international
kind of thing China might do (in parallel with its usual investment incentives) to get at least a few of these companies
to change their minds. Joint US-China research programs (open to other nations as well) in the "ARPA-E" space
could also do a lot of what they really want. And then somehow streamlining the physical paperwork needed
for people to actually travel between the US and China in such activities. At least, that's what camwe to the top of my mind last night...
In the end... trying to reduce CO2 either by binding national quotas or by mutual moral suasion is
is an ineffective stragegy (as a way to try to reduce CO2) for many reasons. One is the Prisoner's Dilemma effect.
Another is that natural fear of all players (especially competitive manufacturing groups) in an ill-defined
ambigious situation that they will not be treated fairly, and will suffer in competition with others, in
part because of fear of backroom deals. (This is not unrealistic. Looking at what came out in the Waxman Act,
where some get paid two or three times and others get exempted... ) The beauty of a common
global carbon price is that it puts those fears of unfairness to rest... SO LONG AS the nations
are capable of living within WTO oversight to be sure the treaty is being followed. China can do that.
In a fair environment, there is no doubt that China can continue its economic growth.
But will it happen? That I do not know.

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