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Reduce Emissions But Don't Cut Jobs

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By PETER MORICI

Published: November 5, 2007

The United States appears poised to act soon on global warming. Hopefully, Congress will craft policies that motivate a truly international solution rather than make the problem worse, hurt the economy, and create windfall profits for some regulated industries.

Most Americans are convinced that the buildup of greenhouse gases in the atmosphere is responsible for warming Arctic seas, shrinking mountain ice caps and 90-degree October heat in New York.
CO2 emissions account for more than four-fifths of greenhouse gases and a larger share of what government policies may curtail. Various proposals in Congress would establish a national cap on CO2 emissions, and roll those back over several decades.

Proposed regimes would allocate emission permits among businesses that process fossil fuels, like petroleum refineries, and use fuels intensely, like electric utilities and aluminum. Businesses may meet their goals by directly cutting emissions or purchasing permits from other firms that exceed their goals or shut down. Dubbed cap and trade, this approach is used in Europe, where a private market in trading permits has emerged.

Such an approach would bring the United States, de facto, into the Kyoto Protocol. Implemented without U.S. participation, Kyoto commits virtually all other industrialized countries to reducing green-house emissions to 6 to 8 percent below 1990 levels. Developing countries are absolved, though industrialized countries may meet part of their abatement goals by financing cleanup projects in them.

Unfortunately, this regime encourages carbon-intensive manufacturing, like steel and aluminum, and consuming industries, like automobiles and appliances, to leave industrialized countries for places like China and India where fossil fuel use is unregulated and cheaper. This increases global emissions and reduces global GDP, because developing countries use fossil fuels, capital and labor less efficiently to make the same goods.

This madness is illustrated by the fact that China, with a GDP less than a third that of either the European Union or United States, emits more CO2 than either economy.

The international community has determined that global warming can be arrested by rolling back CO2 emissions, and the United States should do its share.

However, without participation by China and other developing counties, Kyoto will not solve global warming. By encouraging energy-using industries to move to the developing world, it will only exacerbate the problem.

The United States should implement a regime that encourages participation and sacrifice by all nations, and does minimum damage to the global and U.S. economies.

Peter Morici is a professor at the Robert H. Smith School of Business, University of Maryland, College Park, Md.

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