Stormy’s Post on the IPCC Report and the WTO

This post is by reader Stormy. I would remind the reader that I don’t necesarilly agree with readers when I post their write-ups; I will post material that I think is well written and reasonably well thought out, especially if I think it will spur discussion or make people think. I am also happy to post material on topics that I don’t know much about – the workings of the WTO and global warming certainly qualify.

Without further ado, here’s Stormy:

IPCC Report and the WTO

It is time for the WTO and economists, to take seriously the issues of global warming, environmental decay, and the depletion of resources. Most of us by now are familiar with the conservative IPCC report and its dire predictions for the coming centuries. Even Paul Volcker has stepped forward, saying:

“First of all, I don’t think (such a step) is going to have much of an impact on the economy overall. Second of all, if you don’t do it, you can be sure that the economy will go down the drain in the next 30 years.”

The IPCC report is only a small part of the iceberg leisurely cruising our way. For example, a recent study in the journal Science concluded that, if we continue are present rapacious appetites, fish stocks will crash by 2048. The decline of diversity is accelerating worldwide. Extrapolating that trend into the future, the authors find that all species presently fished will collapse by the year 2048. To date, there has been no substantive rebuttal to this peer-reviewed study. (I have requested permission to quote the report directly, along with its graphs and data. To date I have not heard from the editors.)

The report concludes that there is still time to fish more intelligently to avoid such a collapse.

What will the WTO do here?

And what is our projected course on CO2 emissions? Again, I offer a small sample of where we are going. The Energy Bulletin notes that three countries are planning to build 850 new coal plants by 2012—India, the U.S., and China.

“The magnitude of that imbalance is staggering. Environmentalists have long called the [Kyoto] treaty a symbolic rather than practical victory in the fight against global warming. But even many of them do not appear aware of the coming tidal wave of greenhouse-gas emissions by nations not under Kyoto restrictions.”

The report continues:

“By 2012, the plants in three key countries – China, India, and the United States – are expected to emit as much as an extra 2.7 billion tons of carbon dioxide, according to a Monitor analysis of power-plant construction data. In contrast, Kyoto countries by that year are supposed to have cut their CO2 emissions by some 483 million tons.”

By 2012, China is expected to add 562; India, 213; and the U.S., 72. As for the Integrated Gasification Combined Cycle (IGCC),

“funding for a key billion-dollar [U.S.-based] federal IGCC experimental program called FutureGen is lagging. And unless the US sets a limit on CO2 emissions that creates a market for carbon-reducing technology, there is little financial incentive to invest in such technology, experts say. As a result, the technology appears unlikely to be deployed in time to make much difference in the coming surge of power-plant construction.”

Unless we change the way we do business, there is little hope. Business and trade are the twin epicenters of the coming earthquake. That earthquake will challenge traditional thinking about economics as nothing has before. The “externalities” of which economists speak will no longer be appendages to the discussion, or afterthoughts to be consider only by politicians. They will come marching to center stage, dominating and modifying even the principles of comparative advantage.

The WTO and the principles it enunciates, which seemed fair enough in a pre-21st world, are now inadequate. Countries petitioning for entry need not have any environmental regulations.

The WTO takes no formal position on the environment. Countries themselves may enter into such agreements, but the WTO prefers to remain neutral to such agreements. For disputes among WTO members, however, the actual wording of the position of the WTO is suggestive but allusive:

“But if one side in the dispute has not signed the environment agreement, then the WTO would provide the only possible forum for settling the dispute. The preference for handling disputes under the environmental agreements does not mean the environmental issues would be ignored in WTO disputes. The WTO allows panels examining a dispute to seek expert advice on environmental issues.”

To date, the WTO has entertained a number of environmental disputes: The “shrimp-turtle” and the “tuna-dolphin” dispute, oft cited examples. Both of these cases involved a single endangered species. The first involved a species of turtle that the U.S. had placed on the endangered species list. The U.S. required that “turtle excluder” devices be placed on shrimp nets. Because Malaysia, India, Pakistan, and Thailand did not use such devices, the U.S. put a ban on the importation of shrimp and shrimp products. The WTO ruled against the U.S. Again, its wording is both instructive and suggestive:

“In its report, the Appellate Body made clear that under WTO rules, countries have the right to take trade action to protect the environment….The WTO does not have to allow them this right.”

The U.S. lost the case, not because it sought to protect the environment but because it discriminated between WTO members… It provided countries in the Western hemisphere—mainly in the Caribbean—technical and financial assistance and longer transition periods for their fisherman to start using turtle-excluder devices.”

The WTO can take position! Indeed it will, even if the environmental stance of the two parties differs.

Neither of these cases are anything like the cases that may eventually appear. What if, for example, the fishing habits of one country threaten to crash multiple fish stocks, possibly threatening the entire food chain? It has entered no international agreement; yea, it is blind to the effects of its present activities. It sees only the gold in front of its eyes.

Or, what if the pollution from one country actually starts to change the weather in another? (This is actually happening.) What if, in response, the offending country is then confronted with a tariff on its goods? Such was the suggestion of French President Chirac in response to U.S. pollution: A carbon tax, really a tariff on U.S. goods.

Now, we can argue in this last instance of whether the pot is calling the kettle black. Although France has made measurable steps in curbing green house gases, in all likelihood it will fail to meet Kyoto goals. The U.S., as noted above, will continue its profligate ways. As an aside, I wonder if Chirac would put the same tax on China and India. To be successful in the WTO, it cannot discriminate among countries. And how is the carbon tax to be determined–CO2 per capita emissions? And what if the tariff itself is only tenuously or indirectly connected to the CO2 emissions?

To lessen the coming issues, perhaps the WTO should insist that nations petitioning for entrance have environmental regulations more in line with its present members (China excluded, of course. That cat is out of the bag.)

These are tricky waters, but the WTO, unlike the U.N., has an intelligent and respected arbitration procedure that may indeed work. The U.N. is always faced with the veto. The U.N. seems to be good at reports, not at action. It produced the IPCC report. I think there is a synergy here.

Allow me to comment on two additional issues: (1) the argument from developing nations that any such carbon tax, or even mild Kyoto, is unfair to them and (2) the rather simplistic application of comparative advantage.

The unfairness issue comes from two quarters. On the one hand, we have the foreign firms and foreign financial interests within China that suddenly have become philanthropic in their motives. The making of money is their business; to profess otherwise is to be disingenuous.

On the other hand, China itself decries the unfairness. To China I would say, “Yes, it is unfair. But you are late to the party. The industrialize nations have theirs. In all truth, they should share what they now have. But you know they will not do that either—witness the sweat shop factories now gainfully employing your poor. The question you must ask yourself is: Is there time? Is it a Pyrhhic victory you want?

You and the West are like two felons handcuffed together in a burning house. Your rich handcuffed partner wants to flee the burning building. You, however, see a safe that could be opened.

“There is not time,” your partner shouts. “Any minute now the roof will collapse on both of us.”

“Then give me some of what you have,” you cry, “otherwise, I am going to chance opening the safe. I will not be poor!”

“Are you kidding,” he shouts. “What’s mine is mine!”

And so the two of you struggle and argue as the flames leap higher and higher.

I would extend the story to encompass each and every one of us. There is no escape, not for the rich who have squirreled billions into tax havens nor the poor who insist that the government widen its safety net; not for the economists who do not want to use the tools of their trade to measure “questionable” externalities nor for the investors who have their eye on the bottom line. Everyone wants more. Is the GDP down? Is the stock market up? Like the poor fools with ten maxed credit cards, our credit, too, is slowly but surely being maxed to the limit. There is a limit to growth. We are all subprime borrowers. In the next twenty or thirty years, all our mortgages will be reset.

Take a true measure of the land and water we have poisoned in the last 50 years. Count the species that have gone extinct in the last hundred years. Wealthier we in the west have become. But what has been its cost, its true cost? Mere externalities, you say? The initial equations supporting comparative advantage were not conceived for the problems we now face. Real and deadly constraints confront us.

The house is burning; the resources are dwindling. Whether we like it or not, the WTO will be at the center of the conflagration. We should use this and expand this organization.