U.S. Negotiations with China to Reduce Carbon Emissions

nilateral action by the United States to reduce carbon emissions will do little to reduce global carbon emissions and will impose significant costs to households. (HT Mankiw) Martin Feldstein, a professor of economics at Harvard University, makes the point in, "Cap-and-Trade: All Cost, No Benefit," Washington Post, June 1, 2009.

The Obama administration and congressional Democrats have proposed a major cap-and-trade system aimed at reducing carbon dioxide emissions. Scientists agree that CO2 emissions around the world could lead to rising temperatures with serious long-term environmental consequences. But that is not a reason to enact a U.S. cap-and-trade system until there is a global agreement on CO2 reduction. The proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households. And to get political support in key states, the legislation would abandon the auctioning of permits in favor of giving permits to selected corporations...

The Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15 percent CO2 reduction -- slightly less than the Waxman-Markey target -- would raise the cost of living of a typical household by $1,600 a year. Some expert studies estimate that the cost to households could be substantially higher. The future cost to the typical household would rise significantly as the government reduces the total allowable amount of CO2.

Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable. The U.S. should wait until there is a global agreement on CO2 that includes China and India before committing to costly reductions in the United States.

I made a similar point here, arguing that negotiation would be very difficult and costly for a variety of reasons. I missed an important reason a country might want to use carbon based fuels, the main reason: they are a cheap way to provide the energy for economic growth. Kathrin Hille of the Financial Times describes the difficulty the U.S. has encountered in negotiations with China to reduce carbon emissions in both countries ("Biggest emitters fail to show the way forward," June 11, 2009).

China and the US failed to achieve a breakthrough at their latest round of climate talks on Wednesday, raising the stakes in the global effort to fight global climate change.

The two countries responsible for almost half of the world’s greenhouse gas emissions ended three days of negotiations in Beijing...

Chinese officials maintained that the two countries should have a “common but differentiated approach” – code for Beijing’s reluctance to adopt a formal domestic mandate to reduce its carbon emissions. The US Congress is considering a bill that would reduce US emissions to 83 per cent of 2005 levels by 2020. China wants the US to cut its emissions to 40 per cent below 1990 levels by 2020 – a different order of magnitude. It also wants the US to pledge up to 1 per cent of its gross domestic product to pay for clean technology in China and elsewhere.