Thursday, February 8, 2007

Marginal Revolution: The real questions behind global warming

I found this interesting:

Marginal Revolution: The real questions behind global warming:

The key issue is what we can expect from China and India. As I understand the evidence, if China and India continue to grow, the United States cannot succeed in much limiting global warming on its own. Let us assume, somewhat dubiously (many European countries are further from Kyoto targets than is the United States), that Europe is already on board, what are the options?

1. China and India are less locked into fossil fuels than is the United States, and as Brazil has done they will take the lead in moving toward energy alternatives. America does not need to get them 'on board,' and given their cooperativeness American energy policy will matter at the margin.

2. We can cut a deal with China and India at a suitably presented international convention. China and India will enforce this deal and abide by it, overcoming previous problems they have had ruling their provinces and avoiding excess decentralization.

3. Forget about the international conference, we can pressure China and India by twisting their arms. Like we've done with the Chinese currency. We also can threaten them with trade taxes, as has been discussed in Europe.

4. We are best saying nothing to China and India and calling no conference. There is some chance they will act unilaterally, out of pride and the desire to upstage the United States. External pressure will be counterproductive, remember British imperialism and the Opium Wars?

5. China and India will continue to be major polluters. If we tax American-generated carbon we pay a big price in terms of economic growth but make no real progress on global warming.

6. We do not know what China and India will do, but the United States is a world leader and ought to move first, set a good example, and do the right thing.

Do we know the relative merits of 1-6? I don't. Keep also in mind that what works for China may not work for India, and vice versa.

Of course #5, however ignoble it sounds, is the most serious argument for doing little or nothing. #6 sounds good, but at what point is the chance of #5 high enough to scare us off?

What would it cost China and India to make progress on global warming? Yes Stern estimates it would be a relatively small percentage of gdp, but that is naive. A major problem is institutional, not technological.

I am reminded of some estimates of the costs of cleaning up avian flu in Asia. Measure how much it costs to kill (or vaccinate) one chicken. Not much. Multiply by the number of sick chickens. You have your number.

Not. Many Asian countries simply can't get rid of avian flu. Their institutions are too weak, too lacking in transparency, too decentralized, and too lacking in accountability.

Or how much would it cost to improve the standard of living in Haiti? A few cops, some rule of law, free trade at the ports, and set up some real schools, right? Under one plausible view of the world, that is only a few billion dollars or so. But if we consider some of the very tight institutional constraints faced in Haiti, most of all the almost total unwillingness of the elites and the common voters to support a better politics, the price can seem almost infinite. Which perspective is correct?

The bottom line: When it comes to global warming, the most important question is how China and India will behave, and what kind of leverage "the good countries," if indeed there are any, might have. The correct answer is not a simple matter of fact, but rather rests upon deep questions of how to measure the costs of institutional change and what we can justifiably take as an open variable amenable to change.

All other issues aside, that is why global warming is such a tough problem. I don't like #5, but if you want to sell me on your solution, talk to me some sense about China and India.

Addendum: Jane Galt has a lengthy post on discount rates.

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