Trump is wrong on China Global Warming Hoax but right on the policy consequences

Summary

  • Donald Trump’s famous tweet that Global Warming is a Chinese Hoax is false, but the policy implications are correct.

  • Total proposed climate policies under the Paris Agreement will not stop global emissions rising, but the policy aim is to have global emissions falling rapidly after 2020.

  • The Rio Declaration 1992 exempted developing countries from a primary obligation to constrain, let alone reduce, emissions. 

  • By 2012 the exempted countries accounted for 64% of global emissions and over 100% of the global emissions growth since 1990.

  • The exempted, countries will collectively have emissions rising for decades to come.

  • The most efficient policy is a carbon tax, applied globally. But even this is highly inefficient, only working by making fossil fuel use unaffordable to all but the very rich. That is morally unacceptable in developed countries, whilst would stop developing countries developing, likely leading to civil wars.

  • Actual climate mitigation policies are less efficient and more costly than a carbon tax.

  • Pursuing mitigation policies in just the developed countries harms the poor disproportionately and harms manufacturing. Such policies may not even reduce global emissions.

  • Even if catastrophic global warming is true, the policy reality is the same as if it were a hoax. In either case they are net harmful to the policy countries.

  • Like with utterly ineffective drugs that harm the patient, the rational response to climate mitigation policies is to ban them.

 

 

President-elect Donald Trump infamously claimed on Twitter

The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.

I believe that statement to be totally false. The Chinese had nothing (or essentially nothing) to do with the climate alarmism that the Western intelligentsia (especially in the Anglosphere) seem to religiously accept as a series of a priori truths. But the policy implications of believing such a false position are pretty much the same for a policy-maker that (a) accepts as truth catastrophic global warming hypothesis, (b) puts their country first (but still values highly people in other countries, with an emphasis on the poor and the oppressed) (c) but understands the realities of global policy-making, along with the full economic impact of mitigation policy.

The Realities of Actual Mitigation Policy

The hypothesis is the basic form is that global human greenhouse gas emissions (mostly CO2) are resulting in rising greenhouse gas levels. This is forecast to cause large increases in global average temperatures, which in turn, many believe, will be catastrophic to the climate system. The major policy is to reduce the global greenhouse gas emissions to near zero.
The UNIPCC AR5 Synthesis Report, Summary for Policymakers 2014 tried to the maths very simple. They only looked at CO2 for the ballpark figures. Using the central assumption of a doubling of CO2 gives 3 degrees of warming, then 2 degrees comes when CO2 levels hit 450ppm. At end of 2016 it levels were about 404ppm, and rising at over 2ppm per year. Only is some warming from other greenhouse gases, so we are well beyond the 420ppm. That gives maybe 15 years tops. Somehow though figures seem to have been stretched a bit to give more time, something I will look at in a later post.
The UNFCCC – the body that brings all the countries together to cut emissions to save the planet – had an all-out bash at COP21 Paris in December 2015. In the lead-up all countries (excluding the EU countries, who let the masters in Brussels take the lead) made submissions on how they would contribute towards saving the world, or at least make a start up to 2030. Many were so vague, it was difficult to decipher the “ambition”. This was done to appear like the countries were doing something substantial, when in fact the proposals were often so insubstantial, that targets could be achieved by doing nothing at all. The UNFCCC put all the INDC submissions together on a global emissions graph.

The graph is very simple. Before the INDCs, emissions were forecast to follow the thin dark orange arrow. With the INDCs, the thick light orange forecast is still tracking upwards in 2030. The least-cost 2C scenarios is the blue arrow. This is going down by 2020, and by 2030 is substantially lower than today. The graph gives a very clear message – the whole exercise is pretty much an expensive waste of time. 40,000 people attended the meeting at Le Bourget airport North of Paris, including the vast majority of World Leaders. Rather than be honest, they went through the usual format with a breakthrough at five past midnight. Then they sent the “experts” away to think up yet more scary scenarios to get better proposals in the future.

 

Little More Policy will be Forthcoming

If they actually read the 1992 Rio Declaration, like Robin Guenier did in October 2015, they would have found out why. In particular Guenier draws attention to this statement in the declaration.

“The extent to which developing country Parties will effectively implement their commitments under the Convention … will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties.” [My emphasis]

These non-Annex 1 developing countries have had phenomenal economic growth, with driven by rapid development of cheap energy from fossil fuels. Guenier quotes some CO2 emissions figures. Instead, I have used the broader estimates of greenhouse gas emissions from the European Commissions’ EDGAR database, grouping the figures into the Annex I countries (the rich OECD countries, like the USA, Japan, European Union, Canada, Australia etc.); the Annex I Transitional economies (basically the ex-Soviet bloc in Europe); International air and shipping; and the Non-Annex, rest of the world.


The figures are quite clear. The growth in emissions in 22 years was greater in the Non-Annex developing countries than the world as a whole. But this is just the developing countries starting to catch up. The breakdown of the Non-Annex developing county emissions is below.

This “developing” part of the world now has 84% of the global population, but in 2012 was just 64% of the greenhouse gas emissions. India and China each have more than 4 times the population of the USA, Africa 3.5 times and S&E Asia 3 times. Whilst in China emissions growth will peak soon, in India emissions growth is only recently taken off.  In S&E Asia and Africa emissions growth has yet to really take off. No matter what the USA and a few other developed countries do, it will not make a big difference to the long-term outlook for GHG emissions. Now compare the global emissions to the UNFCCC graph of INDCs of the target emissions reductions for 2030. The UNFCCC scale is in billions of tonnes, whilst the scale I use is in millions. The least cost 2C scenario is lower in 2040 that the total non-Annex countries in 2012. Even without emissions growth in the non-Annex countries, the Annex countries could cut emissions by 100% and still the 2C limit will be breached by the 84% who live in countries with no obligation to cut their emissions.
But maybe the USA should cut emissions anyway? After all it will not cost much, so these developing nations will be brought into line. I only recently realized how wrong this view was. Economics Prof Richard Tol it one of the World’s leading climate economists, who (unlike me) happens to believe in the moral case for cutting greenhouse gas emissions. In a recent paper, “The Structure of the Climate Debate”, Tol explained how a global carbon tax was theoretically the most efficient means to reduce global greenhouse gas emissions. Use regulation, or rationing, or subsidies of renewables, and it will be more expensive – less bang for your bucks. However, I objected. He seemed to be saying that the carbon tax necessary to cut global emissions worked out at less than the taxation on gasoline in Britain. At over $3 (a level that is similar in much of Europe) there are still quite high levels of fuel usage. I can still remember my high school economics teacher, in teaching about elasticity of demand, said that a good example of inelastic demand were the “sin” taxes on booze, alcohol, tobacco and petrol (gasoline). You could have quite high taxes without impacting on demand. Well, after a few exchanges at cliscep blog turns out Tol (in the more technical Tol 2013 paper) was recommending a $210 tCO2 tax to be imposed in 2020 globally, plus an escalator of 5.5% a year forever. It would eventually make fossil-fuelled energy use unaffordable to all but the Hollywood A-listers. I showed British readers in GBP would that would mean, but for the US readers $210tCO2 is about $1.83 per gallon of gasoline. There would be uproar if it was introduced, and people might get more fuel efficient cars. With the escalator that would rise to over $3 a gallon in 2030, $9 2050, $35 in 2075 and$132 a gallon in 2100. There would also be similar hikes in electricity from coal and gas. This might not be fast enough to achieve the reductions required by the UNFCCC, but would not be sustainable in a country with democratic elections every few years.

But actual climate mitigation policies, are far less effective that the carbon tax. This includes subsidies or loan guarantees to speculative and unsustainable businesses, or flash renewable technologies that fail to deliver,

The carbon tax might be harmful to the poor and middle classes in America, but think of what it would do to the living standards of the poorest half of the world. Countries where parents are hoping that their children might enjoy cheap energy for cooking, lighting or heating, would see those hopes dashed. For billions of people their children or grandchildren would never have a family car, or be able to travel by plane. If the Governments of India, China or Indonesia tried to impose such high and escalating taxes there could be economic collapse similar to that of Greece, and likely civil wars.

Should the Rich countries still do something?

So maybe the United States, and other rich countries, should still adopt policies regardless. After all, they should pay for the (alleged) harms that are leading to disaster. But if the proposers had any understanding of the real world, they would know that just as economic growth has been propelled by abundant supplies of cheap, available and reliable energy. In international trade what is “cheap” is a relative concept. In the nineteenth century steam power was very expensive compared to electricity today. But at this point in time, when developing countries are make power more available and driving their unit energy costs down. Steam power was much cheaper, and more available than water power, which in turn was cheaper than human or animal power. Yet implementing emissions reduction policies, the rich countries are driving those unit energy costs up just as developing countries have been driving unit energy costs down and making power more available. The USA and EU countries are generating a comparative disadvantage. But, as the developed nations tend to be more energy efficient, the net effect on global emissions may be to increase them, despite the policy countries decreasing theirs. That net effect is unlikely to be as large as any actual savings in the policy countries. What is more, the costs of policy will fall on the poor, and those areas of employment with high energy usage and that compete internationally.

An argument for climate mitigation is that it is to make small sacrifices now to save future generations from the much larger costs of future catastrophic climate change. That is only true if global emissions are cut significantly, at a cost lower than the actual harmful impacts that would have occurred without policy. As policy to cut emissions will makes very little difference to global emissions, then the sacrifices could be of a small benefit in non-policy countries, but be to the net disadvantage of future generations in the policy countries. The biggest burden of the costs of policy will fall on the poorer sections of society and manufacturing in the policy countries.

The Moral Case Against Climate Mitigatiom

If the medical profession insisted on patients taking drugs that did not work and had harmful side effects, then in litigious America they would be sued for all they had, and likely jailed. But when the climate alarmists, back by the liberal establishment, insist on policy that cannot work and causes substantial harms they are not held to account. Indeed, so pervasive are the beliefs in climate alarmism, it is an act of heresy to even question this false policy. Now the tables are turned.

The first thing that should be done with harmful drugs that cannot work is to ban them from sale. For an incoming President, the first thing to do with harmful and useless policies is to rescind them.

Kevin Marshall

 

Carbon emissions – social benefits from enhanced growth

Key Points

  1. Cheap fossil fuels were undoubtedly a major element in China’s very high levels of economic growth.
  2. If Canada were to unilaterally cut its emissions, the impact on global emissions would be tiny.
  3. A reduction in economic growth of 0.01% from now to 2100 would have a larger value in 2100 than the projected  monetary costs of catastrophic climate change in 2100.
  4. Developing nations with up to two-thirds of global emissions, are excluded from any obligation to constrain emissions under the Rio Declaration.
  5. Climate mitigation increases unit energy costs, creating a comparative disadvantage for policy countries.
  6. If non-policy developing countries were later to adopt mitigation policies, they would not only have higher energy costs, but would lose the comparative advantage of being a non-policy country. A few countries pursuing climate mitigation policies increases the marginal cost of other countries adopting similar policies.

Introduction

Ron Clutz has yet another excellent article, this time on SBC: Social Benefits of Carbon

Ron points to the benefits of increased CO2 levels, such as from increased plant growth. But, by far the biggest benefit is the from the use of fossil fuels as an engine of economic growth. I made two comments, which are slightly amended here.

How much did fossilized carbon fuel China’s economic growth?

By far the most important point made in Ron’s article is the impact of fossil fuels on economic growth rates. Take China – the most extreme example in history, at least for major economies, According to the UNFCCC country brief produced for COP21 Paris, economic growth in China averaged 10.3% pa from 1990-2012. In the same period CO2 emissions increased by 6.1% pa. It meant GDP per capita (with 19% population growth) was 7.25 times higher in 2012 than 1990, and emissions per capita were over 3 times higher.

country-brief-2014_-china

How much of the economic growth would have happened without the huge investment in cheap energy sources – principally coal? If economic growth would have averaged a mere 7%, GDP per capita would have 3.7 times higher in 2012 than 1990. This is why people in China are willing to suffer the terrible, acrid, pollution that engulfs many major cities.

Unilateralist Canada reducing emissions by 90%

A hypothetical example with growth impacts

Whilst unable to estimate the effects of cheap energy on China’s phenomenal growth, I would still contend that the compound effect on economic growth of cheap fossil fuels is far greater than the estimates of the projected harms of climate catastrophe. At the start of December Ron Clutz had a post Climate Costs in Context. This referred to a Manhattan Institute Report which estimated the costs of global warming could reach $15trn by 2100 – or 2.5% of global output of $600trn. Reducing economic growth by 0.03% would have the same effect on output, though people would accept a much bigger reduction in growth to avoid 2.5% costs of catastrophes.

This leads to a bigger issue, that it not discussed. Suppose an economy like Canada with 1.5% of global emissions, unilaterally imposed a policy from January 1st 2017 that was guaranteed to reduce emissions by 90% by 2100. Without the policy, global emissions would be double 2016 levels in 2100. With the policy they will be 1.9865 times higher.
Let us also assume that

(1) 2100 costs of climate change are 2.50% of GDP globally and for Canada, without Canada’s policy.
(2) 2100 costs of climate change are 2.45% of GDP globally and for Canada, with Canada’s policy.
(3) The only cost of this policy is to reduce long-term growth rates from 2.00% to 1.99%
(4) All outcomes and calculations are certain.

Even then, the the descendants in 2100 Canada would still not thank the current generation, as output would be 8% lower, to save costs of just 0.05% of GDP. If current GDP is C$1600bn, with 2% growth GDP in 2100 will be C$8443bn. At 2.5% costs of climate change will be $211bn. Reduce that to 2.45% reduces costs by just over $4.2bn. But GDP with 1.99% growth GDP will be 8% or $668bn lower.
Even if all countries reduced emissions by 90% (and thus reduced costs of climate change to effectively zero) mitigation policy would may not make sense on these “heroic” assumptions. Canada would exchange $210bn of random catastrophic costs for $668bn of certain costs. But that would be only if the costs were totally random. If costs were in part predictable, then, without the economic growth impact of climate mitigation policies, additional economic could be used to counteract the direct effects of the warming through adaptation.
But the reality is much closer to Canada acting unilaterally; there are significant policy costs; and the impact on growth is far greater. Worst of all, is the competitive impact.

The Comparative Disadvantage of Climate Mitigation

Assume

(a) Cheap energy is a key driver of economic growth

(b) A country, like Canada, with aggressive climate mitigation policies,  is competing on world markets with less developed countries with little or no mitigation policies.

(c) Climate Mitigation policies, like renewables or a carbon tax, increase unit energy costs.

(d) Some industries with globalized market, like steel, aluminium, shipbuilding or chemicals, energy costs form a significant part of the costs of production.

I would suggest that the imposition of climate mitigation policies increases the unit cost of production, creating a comparative disadvantage compared to countries with little or no mitigation policies. 2017 marks the 200th anniversary of David Ricardo’s theory of comparative advantage. Ably explained by Prof Donald J. Boudreaux, it is perhaps the only principle in economics that it universally true. Climate mitigation is only being pursued, in varying degrees, by a limited number of countries. Developing nations with up to two-thirds of global emissions, are excluded from any obligation to constrain emissions under the Rio Declaration. Developed countries, by imposing mitigation policies, create comparative advantages to the non-policy developing countries that they trade with. Therefore, the marginal cost of those developing countries adopting mitigation policies is greater if developed countries have already mitigation policies in place, than if all countries had adopted them together in equal measure. This implies that those economies like Russia, South Korea and China, who might be able to afford to adopt climate mitigation on the increased energy costs alone, will not do so due to competitor countries having established costly mitigation policies.

Kevin Marshall