What should we think of the Chinese cap and trade announcement?

by on September 27, 2015 at 12:43 am in Current Affairs, Economics, Law, Political Science | Permalink

You’ll find a list of skeptical worries here from Chris Buckley, most of them justified.  In a nutshell, if you can’t believe their gdp numbers you also can’t believe their cap and trade plan.  I am nonetheless more optimistic about this recent development.  It signals a few things:

1. The Chinese have decided to make “doing something about carbon” a potential source of soft power in the international arena.  They are giving themselves an option on this path, and in the meantime trying to minimize the reputational deficit they face from being the world’s largest source of carbon.

2. The Chinese plan to cut pollution in at least some of their major cities soon, and they want to claim credit for that action in advance.  (In fact they are surprised how rapidly some of those days of blue skies have appeared in Beijing, whether that be the added regulation or the economic slowdown.)  “Carbon emissions” and “pollution” are hardly identical, but still the government is repositioning itself rapidly on the issue of pollution more generally.  This is one welcome part of that broader shift, so don’t worry if not all the details add up.

3. The Chinese leadership expects the domestic economy to be weak for a while, so they can announce a semi-serious carbon cap and meet it, without actually giving up any economic growth.  Of course this #3 isn’t good news on the economic front, but maybe the Chinese government first does need a period of time where such a policy has zero economic cost.

The evidence from the European Union is that their cap and trade program hasn’t worked well, mostly because of time consistency problems, namely that more and more permits are issued and the cap ends up weak over time.  That same problem may or may not apply to China.  But even a strong pessimist about cap and trade can be modestly optimistic about the new Chinese announcement.

1 HC September 27, 2015 at 1:01 am

I, as a Chinese, would not believe what Beijing government says. They probably will just make up the numbers in the same way that they make up Chinese GDP. Even you have technology to detect whole China’s carbon emission and publish the figure, they will deny that just like they are denying the existence of great fire wall and large scale GDP manipulation.

2 mulp September 27, 2015 at 10:35 pm

You believe that building carbon free energy capital which costs so much because of all the labor costs, not the cost of money to build the capital and thus the rate or return required on the productive capital is not something China’s leaders will not do to ensure they keep increasing the number of manufacturing and construction jobs.

You believe that China going against all economists, who claimed that China building steel mills will only result in idle steel mills because there is no way the global demand for steel would reach just the China output goals ignore all the other steel production in the rest of the world, is impossible today?

Most economists claim that paying millions of workers to build carbon free energy capital is job destroying, so the only way to create jobs, according to economists, is to burn natural capital to cut the labor cost of energy and everything that involves energy, a logic which really defies reason in my view. I’m hoping the Chinese leadership keep believing in building capital instead of the US view that capital must be burned.

3 TallDave September 29, 2015 at 6:24 pm

Capital investment that doesn’t produce profitable goods and services has been wasted. Destroying wealth is very, very easy.

4 Ray Lopez September 27, 2015 at 1:28 am

The Chinese have seized the moral high ground from the Americans…and the Indians, on AGW (but not the American Indians on other issues).

5 Dzhaughn September 27, 2015 at 2:08 am

Where “moral” means “rhetorical.” But whatever.

6 Boonton September 27, 2015 at 7:23 am

Actually moral means moral. Unless you take the position that CO2 has absolutely zero external costs. Otherwise not doing anything is about as moral as tossing your trash out of your car window onto other people’s lawns.

7 Ray Lopez September 27, 2015 at 8:39 am

@Boonton – I think Dzhaughn is talking about the Chinese not walking the talk.

I myself used to troll at Usenet in an alt.global-warming site, and I actually made some good points pretending to be a GW skeptic. Some of my speculations later made it in print in research papers (for example, on carbon sources and sinks around the globe; I was the first to my knowledge to speculate CO2 is not mixed uniformly, from a thread on the CO2 measuring station on top of Mauna Loa, Hawaii). But try as I might, I could not make a compelling case for doing nothing on AGW. My three hardest points to rebut were (and still are): (1) nobody knows with 99% certainty what the effects of AGW are, while the costs of abatement are too great, and, (2) the Kuznets curve predicts that to save the environment, we must first destroy it (meaning, allowing the economy to grow by doing nothing will later make us so rich that we can invent things to restore the polluted earth, such as CO2 ‘getters’, geo-engineering, but by contrast trying to fix CO2 now will keep us stuck in current technology) and, (3) Clean Coal and CO2 deep-water sequestration are “Buck Rogers” cure-alls to both finite fossil fuels and AGW.

The problem is: (1) violates the Uncertainty principle, you are taking a chance doing nothing, while in fact the costs of CO2 are not that great now, but possibly very great later, (2) and (3) are speculative fixes, which in a growing population makes sense to gamble on, but if TC’s Great Stagnation thesis is correct, you can’t count on people to come up with Buck Rogers solutions.

So now I’m a CO2 non-skeptic, and believe in Carbon Taxes as a way of mitigating some AGW risk.

8 chuck martel September 27, 2015 at 9:41 am

Apres nous, le deluge. Those alive today will never know if AGW is for real or not. The world could be destroyed by a nuclear conflagration, an asteroid hit, a volcanic eruption or a dramatic shift of the magnetic poles a week from now. Ice could cover much of the earth’s surface in the geologically near future, just as it did less than 10 thousand years ago. Is there some reason to believe that none of these events will ever occur even though all but the bombs already have? Why do people insist that the present conditions on earth continue when, in fact, there has never been a stasis? It is incredible hubris to believe that the minute externalities of the puny human race, around for only a tiny, tiny fraction of the planet’s history, will meaningfully change it.

9 Harun September 27, 2015 at 3:33 pm

As more research has been done, the catastrophic worst case has receded, which suggests that hurried “we have to do something” solutions are wrong.

Also, since CO2 works on a log scale, cutting current emissions by a fraction is not that useful, and emissions will be falling soon in China, for example, as their population goes down.

Without a catastrophic scenario, global warming becomes a nothing-burger as it happens so slowly people will adapt normally: consider Americans moving to the Sun Belt…was that something we needed a special tax for?

I would accept a carbon tax under two conditions:

1) revenue neutral.
2) imports were taxed and exports were not ala a VAT.

You will never get it to be revenue neutral as politicians can’t resist. Maybe if we had a strict % of GDP for total taxation law…but I doubt it will ever happen.

I am not sure you could actually tax imports, but that could be a technical question.

If you wanted a serious, actual solution and were worried about catastrophe, the stimulus plan in 2009 would have included fully funding and building Yucca Mountain and rolling out nuclear plants to power all the electric cars that would be mandatory. We would also highly restrict air-travel.

You will note the political party in America that claims to be most concerned with AGW did not fund Yucca Mountain, an infrastructure project in the most hard hit state, and its leaders fly endlessly. Thus, I don’t believe they believe there is a problem, or if they do, they think only the proles should conserve.

10 Gochujang September 27, 2015 at 8:02 pm

AGW is apparent today, Chuck. The games is to think up alternative hypothetical explanations for the temperature record. (Or, if you are really craven, yell “Mann’ and ignore all data, associated with Mann or not.)

11 So Much For Subtlety September 28, 2015 at 9:32 am

Gochujang September 27, 2015 at 8:02 pm

AGW is apparent today

Really? Where? The seas persistently refuse to rise ….

The games is to think up alternative hypothetical explanations for the temperature record.

What temperature record? What temperature readings we have show virtually no warming at all since 1970. Well within normal variation. Historical records are based on proxies and they are probably just wrong.

There is no warming. The Warmists are so hysterical because they know it.

12 Gochujang September 28, 2015 at 9:47 am

When does a statistical relation ever produce a “consistent” result?

13 TallDave September 29, 2015 at 6:27 pm

I gave up reading at “violates the Uncertainty principle”.

14 BC September 27, 2015 at 5:32 am

Normally, we could learn about the cap-and-trade announcement by observing market prices. However, we don’t have a global temperature futures market to observe. We can, however, observe published predictions of global temperature, for example from the IPCC and other experts, even if those predictions have tended to be too high in the past.

If the Chinese cap-and-trade announcement is credible, then the IPCC and environmental groups should now be either predicting lower future temperatures or stating that the US and other developed nations don’t need to reduce emissions as much to achieve the same temperatures. Absent either of these, we can conclude that either the Chinese announcement is not credible or the IPCC and environmental groups don’t really believe that capping emissions will have much impact on global temperatures. It would be particularly interesting to observe the global temperature predictions and emissions recommendations of the “United States officials and many environmental groups [that] have welcomed the plan as a stimulus for negotiations on a new global climate change treaty”, which are cited in the linked article.

15 TallDave September 29, 2015 at 6:28 pm

IPCC predictions tend lie somewhere in the tension between what is plausible and what will maximize the influence of the IPCC.

16 harumpf44 September 27, 2015 at 6:30 am

You might as well be trading in unicorns. There is no reasonable, empirical proof that CO2 has anything much to do with Climate at all in the real world, and I challenge you to prove otherwise. (and no, the fact that in a lab you can force it to “radiate” heat is not proof of its effect in the climate.)

It is just another hustle by an immoral elite.

The fact that you feel “optimistic” about this mean that your judgements are wholly political, and not based in science, or even just common sense. There is no “climate crisis”; there is no AGW.

Your position is absurd.

17 brickbats and adiabats September 27, 2015 at 1:17 pm

Try learning some thermodynamics and basic heat transfer before you try to scare quote something you don’t understand…

18 So Much For Subtlety September 27, 2015 at 4:54 pm

By all means, would you please mind explaining to us how thermodynamics and basic heat transfer influence the relationship between climate and CO2?

19 Barkley Rosser September 27, 2015 at 5:23 pm

If you want to argue that the CO2 global warming link may be weak or that we cannot do much about it, at least at a reasonable cost, that is one thing,. To argue that there is no link is simply wrong, in the same category as saying the moon is made of green cheese.

20 MagicMan September 27, 2015 at 7:36 pm

+1

21 So Much For Subtlety September 27, 2015 at 7:41 pm

Actually in the real world the climate is an incredibly complex system with a lot of feedbacks both positive and negative. We have no idea what throwing a lot of CO2 into the atmosphere is likely to do. It is noticeable that the last two periods of heating came after big reductions in CO2 outputs, in the 1990s after the collapse of the Soviet Union and 1930s during the Great Depression.

However that is not my point. My point is that the climate is incredibly complex and so the laws of thermodynamics and basic heat transfer have virtually nothing of interest to tell us whatsoever. It is merely a ritual incantation – and calling of the tribal idols to protect us all.

22 Gochujang September 27, 2015 at 8:07 pm

Why don’t you trust NASA on this? Funny that Americans broadly love NASA but conservatives exempt this one area, and claim that in it NASA scientists are cowardly liars.

http://climate.nasa.gov/

The cognitive bias, the confirmation bias, the polarized emotional thinking, stares one in the face.

23 So Much For Subtlety September 27, 2015 at 8:39 pm

Gochujang September 27, 2015 at 8:07 pm

Why don’t you trust NASA on this?

NASA allows their historic temperature data to be “adjusted” in such a way it makes it look like the planet in warming? What do you think of a “scientific” organization that changes its data in such a way so that it always supports the political case they are making at the time?

I am usually fairly warm to appeals to authority, but the authorities need to maintain their authority and not simply rest on what they did in the late Sixties.

“Funny that Americans broadly love NASA but conservatives exempt this one area, and claim that in it NASA scientists are cowardly liars.”

I don’t think conservatives love NASA, at least not since 1973 when they decided their job was political statements and affirmative action and certainly not in recent times when they have decided their task is to make Muslims feel better about themselves. But it does have that historic cachet. Because they once sent a man to the Moon. A different NASA in different times.

The cognitive bias, the confirmation bias, the polarized emotional thinking, stares one in the face.

I agree. I really do. But what can you say? Most skeptics used to be believers but changed their minds. The believers, despite all the frauds and incompetence, continue to believe and there is nothing that will make them change their minds. There are none so blind as those that will not see beyond their cognitive biases.

24 A Definite Beta Guy September 28, 2015 at 9:03 am

“To argue that there is no link is simply wrong”-I agree there’s a link, but most of the people yelling at me about it don’t know what the link is.

25 Gochujang September 28, 2015 at 9:49 am

I think, when you want to find the bias, you only look at who has the data, and who does the waving away.

26 So Much For Subtlety September 28, 2015 at 5:37 pm

And 92% of the data produced by climate bodies in the US has been massaged to produce the right result:

http://www.powerlineblog.com/archives/2015/09/almost-all-us-temperature-data-used-in-global-warming-models-is-estimated-or-altered.php

In any other field this would be criminal. So despite holding on to the large government collections of data, and altering it at their whim to produce the result they want, in fact the warmists still have not been able to find the result they want and so for the past 17 years have been playing a game of “where’s the heat?” Is it in the deep oceans? That will fool the rubes for another couple of grant cycles. Go with that one.

The skeptics do not wave the data away. The only person who has put a sustained effort into understanding the data has been Steve McIntyre. It took a skeptic to point out the Urban Heat Island effect. The warmist models have consistently been improving because, despite hiding their models and their data, skeptic pressure has forced them to lift their game.

27 Blackbeard September 27, 2015 at 7:05 am

Here is another theory: They are surprised and delighted to see the West damage its economy investing billions in impractical renewal energy schemes and generally making energy costs soar. If they can encourage such stupidity at essentially no cost, and gain some propaganda advantages at the same time, why not?

The key point to note is that they have agreed to no numerical targets and have utterly refused to permit any sort of monitoring.

28 Boonton September 27, 2015 at 7:18 am

“generally making energy costs soar….”

I read this after gassing up my car for less than $1.79 a gallon. Energy costs have indeed been soaring here in the West.

29 Blackbeard September 27, 2015 at 8:44 am

Obama has just finished killing coal-generated electric power in the U.S. You haven’t seen that yet in your electric bill, or in manufacturing employment numbers, but you will. Next up is the Clean Power Plan. That’s hasn’t taken effect yet but do you have any doubt it will? And when Hillary is safely in fracking will be next.

The core progressive tactic is to make these changes gradually so that low information voters don’t catch on until it’s too late. Of course they can count on a complaisant media to help.

30 Alain September 27, 2015 at 12:04 pm

You do realize that the reason gas is 1.79 a gallon is due to the energy Policy act of 2005, don’t you?

And, of course, Blackbeard was talking about the marginal increase in electricity prices caused by mandated buy back rates in some areas of the developed world.

31 Careless September 28, 2015 at 12:22 am

Where the heck is gas that cheap in this country?

32 Jack September 27, 2015 at 10:21 pm

Chine is the largest single investor in renewable energy. The country developed more solar power in 2014 than the entire installed capacity of the US. Three of the top five markets for renewable energy (in investment terms) are in Asia.

I don’t think your theory makes any sense at all.

33 Economist September 27, 2015 at 10:24 am

Great post. The second point seems to be the most plausible.

34 Bruno Mota September 27, 2015 at 11:08 am

Why not a carbon tax? Everyone agrees it is more sensible than cap and trade, and I would expect the Chinese government not be under the same constraints that prevent it’s adoption in developed countries.

35 Yancey Ward September 27, 2015 at 11:44 am

For the Chinese, I think it almost certain that they go with Cap And Trade because they don’t really plan to do anything in regards to CO2 emissions. In the West, though, carbon taxes aren’t preferred because it is hard to hide the tax from the people paying it. Also, a tax allows fewer avenues to give cronies and other political supporters special breaks and benefits.

36 jorgensen September 27, 2015 at 12:15 pm

The difference between cap and trade and a carbon tax is who you think the right to emit belongs to.

Cap and trade – the right belongs to the existing emitters.
Carbon tax – the right belongs to the government.

37 Yancey Ward September 27, 2015 at 11:40 am

God save us from idiots. The Chinese will do what they were going to do anyway. This announcement is utter bullshit provided for the consumers of propaganda in the West.

38 derek September 27, 2015 at 11:53 am

You give us cap and trade, we give you Taiwan.

39 Thiago Ribeiro September 27, 2015 at 2:09 pm

So no downsides at all?

40 ThomasH September 27, 2015 at 12:13 pm

The European plan was quite odd. The idea of a cap is that it comes down over time sinne we are aiming for zero net. Yet it appears they issued additional permits? Anyway, a carbon tax seems less risky.

41 jorgensen September 27, 2015 at 12:26 pm

The biggest problem with cap and trade in China is going to be the doling out of the valuable permits. In a country riddled with graft and special interests that process seems doomed. It is also a way of favoring existing businesses over new entrants.

One of the big emitters of CO2 is cement manufacturing. Cement consumption is in free fall in China. So China could see a fall in CO2 even if it did nothing. if China were issuing permits based on recent CO2 emissions it could hand valuable permits to cement companies which did not need them and could sell them.

China is burning coal to generate electricity to refine aluminum. It is an insane, energy intensive, business for China to be in. Cap and trade might lead to large drops in aluminum related CO2.

42 chuck martel September 27, 2015 at 4:16 pm

“The biggest problem with cap and trade in China is going to be the doling out of the valuable permits. In a country riddled with graft and special interests that process seems doomed. It is also a way of favoring existing businesses over new entrants.”

China? Wouldn’t that be the US even more so?

43 jorgensen September 27, 2015 at 6:19 pm

It would be a problem everywhere but I think China would be worse than the U.S. For example, to the best of my knowledge the head of the joint chiefs of staff in the United States has never amassed a fortune of $40 Billion from graft.

The whole attraction of cap and trade over a carbon tax is that it gives a valuable common asset to the existing entrants so anywhere you see cap and trade it smacks of cronyism.

44 Harun September 27, 2015 at 3:35 pm

China’s population and thus CO2 emissions will slowly be fallling anyways.

45 Barkley Rosser September 27, 2015 at 5:26 pm

Sorry, but carbon tax, old Pigou, is an out of date solution that has become newly faddish, partly because it is so impractical that we do not see it, so people can compare it as a textbook case against various real world cap and trade systems, some of which (see Europe) have had practical problems. Unfortunately some of these new faddists got to the Pope, who somehow thinks that Pigouvian taxes do not involve (evil) market forces while cap and trade does.

That the Chinese are going for cap and trade rather than Pigouvian taxes shows that not only are they being more practical, but that they also recognize that this is the system in place in most of the world. If there is going to be a globally harmonized system, it will be cap and trade, not carbon taxes.

46 jorgensen September 27, 2015 at 6:21 pm

Cap and trade grandfathers the existing polluters.

47 dan cole September 27, 2015 at 7:01 pm

Even if it is seriously intended, there is every reason to expect China’s cap-and-trade program to fail. The largest emitters of CO2 and other greenhouse gases remain in the state-owned sector, where budget constraints are far from hard. Because they rely on subsidies from the party-state, which have not been slashed, and because they do not have to compete in markets to survive, they have little reason to be concerned with minimizing compliance costs. In addition, the managers who run state-owned firms are also party-members, whose primary incentive is to rise in the party hierarchy. Despite the party-state’s recent focus on environmental protection, the best predictor of career improvements in the party system is to meet growth-based targets. Finally, given the evidence from Chinese enforcement (really, the lack of enforcement) of other environmental protection programs, there is absolutely no reason for optimism about a cap-and-trade program for carbon.

48 charlies September 27, 2015 at 8:40 pm

China’s CO2 output could drop below trend projections due to either (1) a massive involuntary drop in output; or (2) taking bold steps towards “going green”

It’s sort of laughable that the leadership think they can trick outsiders into crediting them with #2. Time to downgrade priors about their savvy-ness a bit further than after those silly stock market manipulations.

49 Ronald Brak September 28, 2015 at 2:06 am
50 Ronald Brak September 28, 2015 at 11:41 am

Apparently, according to this World Bank article, 40 nations currently have a price on carbon. Australia remains the only country to have removed a carbon price after putting one in place, but its new Prime Minister, in the past at least, was very much in favour of one.

http://www.worldbank.org/en/news/feature/2015/09/20/state-and-trends-of-carbon-pricing-2015

51 TallDave September 29, 2015 at 6:22 pm

Let’s check back in 2030 and see what those numbers are.

52 Ronald Brak September 29, 2015 at 7:25 pm

Will you give me odds on anthropgenic greenhouse gas emissions having already peaked?

53 TallDave September 30, 2015 at 2:45 am

Like wind power, that depends on government incentives, but since the effect is logarithmic, emissions growth past 2030 (which might be zero in any case) is largely a moot point even under the most lurid IPCC speculation. Another reason why the excitement over China’s non-agreement is so baffling.

54 Ronald Brak September 30, 2015 at 5:50 am

Could you explain what the “the effect is logarithmic” means?

55 TallDave September 30, 2015 at 10:53 am

https://en.wikipedia.org/wiki/Radiative_forcing

“The relationship between carbon dioxide and radiative forcing is logarithmic[7] and thus increased concentrations have a progressively smaller warming effect.”

http://www.ipcc-data.org/observ/ddc_co2.html

Note that the IPCC only expects one more doubling even in the A2 scenario, the worst of the “projections for policy.” The post-2030 Chinese emissions increase (even assuming there was any) could only have a tiny effect on temperatures in 2100, especially given the size of the baseline.

56 Ronald Brak September 30, 2015 at 12:35 pm

I don’t understand your point, TallDave. Currently CO2 concentrations are 400 parts per million and are rising at about 2.11 ppm per year. So at the current rate, in 15 years time the CO2 concentration will be 432 parts per million, which is an 8% increase. As the increase in global temperatures is expected to be about equal with each doubling of CO2 concentration, this means a tonne of CO2 emitted in 2030 would have a warming effect equal to about 97+% of a tonne of CO2 emitted today. In other words it’s pretty much the same.

And the fact that the warming effect of each tonne of CO2 emitted declines as the concentration in the atmosphere increases means we get more benefit from avoiding a tonne of emissions now than we would if we waited until concentrations were higher.

57 Ronald Brak September 29, 2015 at 5:45 am

According to Deutsche Bank China may install 20 gigawatts of solar capacity this year for a total of 45-50 or more gigawatts by years end: http://www.pv-tech.org/news/deutsche_bank_envisages_solar_installs_in_china_could_top_20gw_in_2015

China’s target for 2020 is 100 gigawatts of solar capacity, but this may be raised to 150 gigawatts.

As everyone probably already knows, China is the world leader in installed wind capacity with 114.9 gigawatts of capacity at the end of 2014. This is more than 40% more than the United States, which leads the developed world in low cost wind: http://www.gwec.net/wp-content/uploads/2012/06/GLOBAL_INSTALLED_WIND_POWER_CAPACITY_MW_%E2%80%93_Regional_Distribution.jpg

58 TallDave September 29, 2015 at 6:05 pm

China has essentially agreed to do nothing until 2030 and probably ever. Not sure why anyone cares about the kabuki here.

59 AfUasLKxxOvaQht October 11, 2015 at 9:59 pm

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