[Peakoil] Bali Schmali? - Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD

[tuohy]

Friday, December 21, 2007

*About Willem Buiter <http://www.nber.org/%7Ewbuiter>*

Professor of European Political Economy, London School of Economics and
Political Science; former chief economist of the EBRD, former external
member of the MPC; adviser to international organisations, governments,
central banks and private financial institutions.
Bali Schmali?

Is there a valid case for special treatment for poor countries (developing
nations and some emerging markets) in global efforts to combat global
warming?

Mr Munir Akram, spokesman for the 130-strong G77 group of developing nations
believes he has fought the good fight in Bali, by resisting pressures on
developing countries to accept obligations to make absolute cuts in their
greenhouse gas emissions, under the successor to the Kyoto Agreement that is
now supposed to be negotiated in the coming two years. In the Financial
Times of Saturday December 15, he is reported as saying that the developing
nations had come under pressure to agree to "commitments and obligations on
mitigation which in their dimension we feel are unfair and unjust".

There are three arguments Mr. Akram and other spokespersons for the
developing world make to support their claim for special treatment for
developing countries and emerging markets. Two are partisan, confused and
invalid, and should be rejected.  The third is valid and can and should be
accommodated.

The first invalid argument is that, however large the aggregate volume of
greenhouse gas emissions (and other manifestations of environmental
vandalism) in developing countries such as China and India are today, their
emissions are much lower than those of wealthy industrialised countries if
measured per capita. Propositions can be both true and irrelevant.  The
proposition that per capita emissions of greenhouse gases in China and India
are low and therefore not a problem, is as relevant as would be the
statement that the 6.9 percent inflation rate in China is less of of problem
than the 4.3 percent inflation rate in the US, because per capita inflation
in China is lower.  The fact that *per capita* emissions of greenhouse gases
in China are much lower than in the US is  irrelevant as regards the damage
done by these emissions, and irrelevant for the design of effective and
efficient policies to reduce global greenhouse gas emissions. This is
because the science and bio-engineering of greenhouse gas emissions make it
abundantly clear, that a given volume of emissions damages the global
environment regardless of how, why, by whom, and by how many it was emitted.
The negative effect and the negative externality depend only on the volume
of emissions.

An interesting implication of the fact that the benefits from a given
reduction in the volume of greenhouse gas emissions is a pure public good –
*non-rival* and *non-excludable* – is that  the countries with the largest
populations like China and India in fact benefit more than countries with
smaller populations from any reduction in greenhouse gas emissions anywhere.
When there are more people, the per capita benefit from a reduction in
greenhouse gas emissions does not decline. In fact, the value of the per
capita benefit in many of the poorest countries, including India and China,
may well be higher than in the richer countries, because the damage that
will be caused in the poorest countries by global warming, by flooding,
desertification etc. is likely to be much more severe than in the richer
countries of the world.  (That would certainly be the case if you did not
base the cost-benefit analysis on willingness to pay, which is contingent on
ability to pay and therefore on the existing distribution of wealth and
income, but instead on a more Rawlesian, status-quo-blind cost-benefit
analysis).

The second invalid argument for special treatment for poor countries is
that, regardless of whether China has already become the largest emitter of
greenhouse gases, as some authorities argue, or will only overtake the US in
a handful of years as the leading environmental bogeyman, the cumulative
stock of past emissions of the old industrial countries is much larger than
that of the developing countries and the emerging markets. This observation
too is correct but irrelevant.  Since vacuuming past greenhouse gas
emissions out of the atmosphere is not a cost-effective method for reducing
atmospheric concentrations of greenhouse gases, the appropriate response to
this second correct but irrelevant proposition ranges between: 'and?' and
'so what?'.  It may induce sufficient guilt feelings among past atmospheric
polluters (or among their descendants) to induce them to loosen the aid
purse strings, but it has no bearing on what is the most efficient way to
combat global warming.

The morally valid argument is that developing countries and emerging markets
are poorer on average than the old industrial countries, and that it is
unfair to put an equal burden on the poor as on the rich. I agree. The
question is, can we make this value judgement in a 'green' way?  It turns
out we can.

*Efficient greenhouse gas emissions control*

If excessive CO2Eq (carbon dioxide equivalent) emissions are a problem,
there are but two solutions. The first is command-and-control methods: limit
the scale of the activities creating excessive CO2Eq emissions by
administrative or regulatory fiat. In the limit, ban them. This was done
with chlorofluorocarbons (contributors to the ozone hole over the Antarctic)
which were phased out by 1996. It can be effective if something is to be
banned completely. That is not possible with CO2Eq emissions. Any
conceivable future will have continued emissions of CO2Eq. Bureaucrats are
not very good at deciding who can produce how much CO2Eq in tens of millions
of activities and firms. Last time something like that was tried we called
it Central Planning.