How good a climate change solution do we need?

Responding to the recent Henry Paulson piece, Paul Krugman writes today:

In policy terms, climate action — if it happens at all — will probably look like health reform. That is, it will be an awkward compromise dictated in part by the need to appease special interests, not the clean, simple solution you would have implemented if you could have started from scratch. It will be the subject of intense partisanship, relying overwhelmingly on support from just one party, and will be the subject of constant, hysterical attacks. And it will, if we’re lucky, nonetheless do the job.

I would put it this way: climate change is like neither the financial crisis nor the Obama health care plan, but above all it is an international problem requiring an international solution.  And it’s not like banning land mines, where most countries have little reason to continue with the practice.  It is also not like ozone, where a coordinated solution is relatively low cost, more or less invisible to voters, threatens few jobs, and involves few incentives for defection.  A climate change solution requires a lot of countries to turn their back on coal-generated pollution long before we did (as measured in per capita income terms) and long before the Kuznets curve suggests they otherwise are going to.  A climate change solution, if done the wrong way, will look to China like a major attempt to unfairly deindustrialize them and, if it is backed by trade sanctions, it will look like an act of war.  Trade agreements do best when most or all of the countries already wish to act cooperatively toward much lower tariffs.  For a green energy solution, China (among others) in fact has to want to solve the problem, as do we.  And the already-installed or in-process coal base in China is…forbidding.

The problem isn’t just coming up with “something better.”  Think of today’s fossil fuels as a stock in the ground.  The problem is coming up with something “better than the lower and falling prices for the fossil fuel stock once some countries start going green.”  That’s really tough, because it means competing against a lower fossil fuel price than what we see today.  What will Africa choose?

In other words, a climate change solution has to involve a relatively cheap form of energy, relative to the status quo.  Not just cheap to citizens because it is subsidized, but cheap to governments and cheap at the national level too.  Alternatively, you could regard all of this as reason to be pessimistic.  But in the meantime, it is entirely reasonable to insist on solutions which can generalized, and that means solutions which are relatively cost-effective.

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