China and the US, accidental climate saviours of the world

{"text":[[{"start":6.55,"text":"We economists had climate change all worked out. We recognised carbon emissions were a negative externality, and endlessly econo-splained what negative externality meant. We envisioned governments using carbon prices to make companies bear the cost of their emissions, preferably harmonising prices into a multilateral global one. We scoffed at inefficient state subsidies and regulations compared to market-based mechanisms."}],[{"start":32.65,"text":"We were right in theory; we always are. But we didn’t necessarily think the trading bloc that followed our prescription would end up facing fierce accusations of protectionism. We didn’t foresee the role of state-backed exports from a geoeconomic superpower. We certainly didn’t predict a helping hand from a ridiculous war started by a climate change denier."}],[{"start":54,"text":"The EU created the emissions trading scheme (ETS) in 2005 and is currently expanding it. The scheme has reduced pollution in covered sectors, though not spectacularly, with the effect diluted by the “free allocations” given to high-emitting industries such as steel and chemicals. The European Commission now wants to include those sectors while protecting them from unfair competition through the carbon border adjustment mechanism (CBAM), which charges importers carbon prices to equalise costs. An example of the EU’s prized “Brussels Effect”, CBAM is supposed to encourage other countries to align with the EU carbon regime via global trade."}],[{"start":96.35,"text":"So far, it’s working only on a limited scale. Economies highly exposed to the EU market including Turkey, South Korea and the UK have introduced carbon pricing mechanisms or harmonised theirs with the EU. But the ETS and CBAM have failed to create critical mass by drawing in the other economic giants."}],[{"start":115.85,"text":"US carbon pricing, in the form of Barack Obama’s “cap-and-trade” bill, narrowly failed to make it through Congress in 2010. The next Democratic president, Joe Biden, aimed instead to reduce emissions through public spending and tariffs, trying to create a domestic industry and market for green tech, programmes heavily cut by his successor Donald Trump."}],[{"start":136.65,"text":"The campaign for an international carbon price embedded in global trade is in real difficulty. Efforts within the OECD and the World Trade Organization to develop harmonised carbon-pricing regimes have made little progress, and CBAM’s complex compliance requirements don’t win the EU any friends. At the COP climate change conference in November, India, China and other large carbon-emitting countries rounded on the bloc for climate protectionism."}],[{"start":164.5,"text":"Shahin Vallée, senior fellow at the German Council on Foreign Relations, says: “The COP has turned against CBAM, and without an effective CBAM the ETS is unsustainable.” It’s certainly hard at the moment to imagine the system rapidly expanding to create a global carbon price in the near future."}],[{"start":181.15,"text":"Instead, the best immediate hope for emissions reduction is China, ironically a vast consumer of coal that has frequently resisted binding carbon targets. Its accidental co-conspirator is Trump, an outright climate change denier. For the past 15 or so years, China has poured trillions of dollars in spending and tax breaks — often buttressed by tariffs and regulations — into renewable energy and other green tech, particularly electric vehicles."}],[{"start":210.85,"text":"As a massive net oil importer, it was driven more by energy security and strategic industrial policy than global environmental stewardship. Still, the planet should take its wins where it can get them. The increase in oil prices from the Iran war has acted as the world’s most unexpected carbon pricing scheme, with Trump being China’s best salesman. As data from the think-tank Ember shows, sales of green tech have shot up, including in the US, to replace demand for oil. The art of the deal, indeed."}],[{"start":null,"text":"

"}],[{"start":240.79999999999998,"text":"It’s not necessarily being done in a way economists would endorse. You might disapprove of Chinese solar panels flooding the world market as state-subsidised overcapacity, or approve of it as production for a market where rising demand will match supply. Or, like me, you might simply not care either way as long as massively cheap panels are available. The positive externalities of low-cost renewable energy surely exceed the inefficiency from distorting market signals. (More complex technology with security implications, such as electric vehicles, is a harder question.)"}],[{"start":276.09999999999997,"text":"But whether this is a real tipping point for renewable energy and electrification remains unclear. The oil shortage has also caused countries to increase their use of other fossil fuels, including coal. Nor is it clear how big and permanent the shock is. After all, oil prices have spent only a few weeks above $100 a barrel since Trump attacked Iran."}],[{"start":299.34999999999997,"text":"It would be better for the world to include the efficient and predictable carbon pricing model pioneered by the EU at least as part of the climate change mix. There’s no guarantee that the route we’re on, with China dumping green tech on the world and Trump creating demand for it, will endure. But for the moment, bizarrely, it’s one of the best hopes we have."}],[{"start":326.45,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1782256646_2071.mp3"}