Politiconomy of CO2
POLITICS, Technology and Economics -- which I call politiconomy -- are innately inseparable from almost all human activities -- and greenhouse gas, carbon dioxide (CO2) -- emission is a perfect example of that disquisition.
The G8 summiteers in L'aquila, Italy agreed on July 8 to a goal of limiting global warming to 2 degrees Celsius (3.6 Fahrenheit) and cut its greenhouse gas emissions by 80%, but failed to persuade China and India to halving it by 2050.
According to UN report on climate change, (1) average global temperatures rose by 0.7 Celsius in the 20th century, (2) temperatures will rise further, by between 1.1 and 6.4 Celsius during the 21st century, depending on individual government actions, and (3) nearly 90 percent of that CO2 will result from burning fossil fuels.
The target of 2 Celsius was set following the aforesaid global temperature trend and EU's 1996 estimate that perilous consequences of many island states being wiped off the map is expected to begin with a rise in temperature by 1.5 Celsius. The EU estimated that the target could be achieved with world GDP losses of at most 2.5% by 2050 with a loss of annual growth by at most 0.05%.
On June 26, the US House of Representatives narrowly passed a cap and trade bill (CAT) to restrict CO2 emissions to 83% of 2005 levels by 2020 and to 17% by 2050. Cap refers to a specified amount of "pollution allowances" limit sanctioned for a government facility or a private enterprise over an area or an entire country. Trade refers to selling the leftover or unused "allowances" of any enterprise in the open marker to whoever is exceeding their legal cap. As such, a CAT is also called allowance trading or pollution credits. The G8 countries also proposed the creation of a global carbon trading market -- possibly patterned after the US CAT bill -- and a fund financed by rich nations to pay for technological renovations.
How'd the CAT system work? Overall goals of air quality are set for an area and explicit sources of air polluting entity (such as power plants, waste incineration facilities, manufacturing plants etc.) are allocated a certain number of allowances, measuring the amount of various pollutants that the facility is permitted to emit. However, depending on how rapidly a given facility adopts the new pollution reducing technologies, some facilities will exceed their limit and others will pollute less and save allowances, which can be purchased by facilities exceeded the cap. Critics argue that CAT system relies profoundly on achieving breakthrough in clean energy technology.
Although, buying up such pollution credits from less polluting enterprises allow some entities to pollute more, the overall pollution cap for a region or the entire country will be preserved. This entails the undesirable outcome that some parts of the country are exposed to degraded air quality than other parts. Besides, CAT system creates a new, intricate market for trading emissions that's vulnerable to abuse. However, the system is designed to reward pollution conscious facilities while allowing time for renovating other facilities with latest pollution inhibiting technologies.
One concern of the CAT bill, yet to debated in the Senate, is a provision to tax imports from countries that are resisting adoption of carbon-filtering measures. The bill's sponsors feel that the tax provision is absolutely necessary to prevent job losses in industrial states.
President Obama rejects the tax provision as it would send a protectionist signal in a period of declining global trade. Critiques, however, argue that the bill -- even if the tax provision is jettisoned -- will put US industries at a competitive disadvantage relative to their foreign counterparts, and a carbon tariff is an inexorable fait accompli.
Nobel laureate economist and NYT columnist Paul Krugman argues that without the tax, goods produced by US corporations under the CAT provision will be more expensive relative to those produced by their foreign competitors, which aren't saddled with the burden of extra cost and regulations.
Another negative aspect of the CAT system is that business's cost of purchasing "pollution credits" from the government to emit CO2 would be passed on to consumers in the form of higher product prices. For example, it's much cheaper to generate electricity from carbon-emitting fossil fuels than from wind and solar sources.
President Obama insists that the CAT bill will create more jobs building windmills and solar panels than it will destroy in the coal, oil and natural gas industries and in the industries dependent upon them. But Charles River Associates, a Harvard-based economic consulting firm, estimates the net loss of jobs at about 2.5 million a year.
The dilemma with wind and solar energy for Bangladesh and other developing countries are that they're much costlier than coal, oil or natural gas -- and thus economically unfeasible unless subsidised by rich nations or domestic resources are redirected from other much needed development projects.
For Bangladesh, the inclusion of tax provision in the CAT bill and the possible moratorium on imports from uncontrolled CO2 emitting countries or imposition of tariffs on goods from CO2 emitting factories of a country is a concern to be reckoned with. However, there's enough time interlude for modernisation since the CAT bill -- with or without the tax provision -- will be triggered in 2020.
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