Congress is finally getting serious about global warming. But ironically, the approach it is considering would hasten, rather than slow, environmental calamity.
The Senate opened debate this week on legislation known as the Warner-Lieberman bill. It would limit U.S. greenhouse gas emissions in 2012 to 2005 levels, and reduce those by 70 percent in 2050.
Unfortunately, by encouraging energy-intensive American industries to flee to developing countries, this bill would penalize U.S. businesses that could contribute to reducing greenhouse gas emissions and thus accelerate global warming. Working toward a global set of standards for such industries would be a better approach.
The Kyoto Protocol, implemented in 2005 without the United States, commits almost all other industrialized countries to reducing greenhouse gas emissions to 6 percent to 8 percent below 1990 levels. Developing countries are generally absolved, and industrialized countries may avoid some emission reductions by sponsoring cleanup and reforestation projects in the developing world.
Carbon dioxide emissions account for more than four-fifths of America's greenhouse gas emissions and a larger share of those subject to government regulation. CO2 is created by processing and burning fossil fuels, and cutting emissions requires slashing their use.
To reduce emissions, European Union governments require industries that produce and use fossil fuels to obtain emission allowances, which businesses buy and sell in a private market. Purchasing allowances raises costs for fossil-fuel-intensive activities such as electrical generation, manufacturing and driving.
Warner-Lieberman would impose a similar cap-and-trade regime in the United States. But large developing countries such as China and India show little inclination to adopt comparable effective strategies, and the EU regime encourages carbon-intensive industries, such as steel, aluminum and automobiles, to move to those locations. Warner-Lieberman would encourage a similar exodus of U.S. manufacturers.
Reducing emissions in industrialized countries by moving carbon-intensive manufacturing to developing countries only raises emission levels worldwide, because China and others use fossil fuels so inefficiently. China's gross domestic product is less than one-fourth of America's or Europe's, yet it emits more greenhouse gases than they do.
Without comparable regulations in developed and developing countries, Kyoto will not stop global warming. Moving energy-intensive industries to the Third World only accelerates environmental damage. It also makes the world poorer, because GDP would decrease more in the nations losing industries than it would rise in the nations gaining them.
The costs of controlling greenhouse gas emissions would best be minimized by regulating fossil-fuel use the same way everywhere, and encouraging carbon-intensive industries to locate where they can best meet those standards.
Warner-Lieberman fails this test. Foreign producers in countries without comparable emissions-control policies would have to purchase permits for products sold in the United States. However, that would do little to encourage cleaner industries in large developing countries, because most carbon-intensive manufacturing in countries such as China and India is for domestic use and enjoys high tariff protection. The cost of purchase allowances for exports to the United States would be subsidized by domestic sales, whose profits are boosted by high tariffs and other government aid.
A better avenue would be for the United States to negotiate with other countries carbon-emission standards for energy-intensive activities such as electrical generation, metals production and automobile use. Granted, Europe's entrenched cap-and-trade system would make this a lengthy and difficult process. As interim measures while seeking international agreements, the United States could impose emissions standards on energy-intensive activities, require imported products to meet similar carbon-use standards, and share its best technologies with developing countries at low cost.
A standards-based approach would create a huge market for low-carbon technologies in the United States and propel environmentally friendly growth globally. Technology sharing would make greenhouse gas-reducing strategies more affordable for developing countries.
Alternatively, the United States could impose a carbon tax on energy-intensive U.S.-made products and on imports not subject to comparable levies. The tax could be set at levels necessary to hit U.S. emissions goals, and would encourage other nations to adopt comparable policies.
These approaches, in combination or separately, could accomplish reductions in U.S. greenhouse gas emissions without encouraging energy-intensive industries to leave for China and other developing countries, and would provide incentives and the means for these countries to do the same.
Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission. His e-mail is pmorici@rhsmith.