Climate Change, Capital Mobility, and Futures Markets
By Arnold Kling
Unless China, India, and other rapidly expanding economic centers in the developing world fully participate in greenhouse gas reduction efforts, regulatory schemes in the west will simply displace economic activity from the “clean” developed world to the “dirty” developing world, making the global greenhouse gas problem worse, not better.
This recent article from the Washington Post described how Europe’s greenhouse gas “cap and trade” scheme shifted production from some of Europe’s cleanest factories to far dirtier factories in China and Morocco. And TCS Daily’s Nick Schulz told the story about how a German steel mill was disassembled, shipped to China, and reassembled, and now produces steel in China without any greenhouse gas constraints.
I think he takes a view of regulation that is too pessimistic. But the article does raise an important issue for the Pigou Club. If we are going to tax emissions of American companies, does it not make sense to levy the tax regardless of where the emissions occur, so that if you move your pollution from U.S. soil to China you still get taxed? If so, is such a tax legal?
Ron Bailey, at the panel discussion the other day, talked about a “harmonized” worldwide tax on emissions. His thinking was that that low-income countries would be exempt. A better approach, if you’re thinking along these lines, is a uniform carbon tax, with the rich countries rebating some of their receipts to poor countries.
I’m not into that sort of social-utility optimization game. Moreover, I prefer climate engineering as a solution to global warming problems if they occur.
At the panel the other day, Julian Morris of the International Policy Network suggested to me that futures and options markets in Global Warming would be helpful. For example, an insurance company could offer flood insurance to coastal properties, using the markets to hedge. They would buy derivatives that pay off if Global Warming picks up. Climate engineering companies could write options. If the market consensus is that Global Warming is going to be bad and soon, the price of those options will skyrocket, which would stimulate more investment in climate engineering.