The last few decades have seen an increase in the concern for promoting environmentally friendly practices. Now it has extended into imposing trade regulations based on environmental concerns. While it seems a good idea to try and promote better practices through trade regulations, this may come with unintended consequences. And some have even argued that free trade with no regulations is actually the most beneficial for the environment.
An Economist article outlines the example of tariffs on carbon. First off, generating these tariffs would not only be complex but difficult to implement. One of the options would be a tax based on content-this would be the fairest, but also extremely difficult since its very hard to measure carbon content. And the countries which would be hit hardest, India and China, would experience huge deficits in their exports. While this may be good for the environment, it is not great for welfare, as the article stipulates that such a tax would probably cause about a global 1% decrease. An easier option would be to install more of a flat tax on all imports using carbon-this cuts some countries a break, but also penalizes countries like Brazil which try to use greener practices. And then there's the problem that much of the current climate debate is coming from countries which have already gone through the process of industrialization. Is it fair to possibly keep these developing countries in poverty by installing these regulations?
Another perspective is not to adopt any environmental regulations, but that free trade actually has the most potential to further the environmental cause. The article starts by reflecting the difficulties in even coming to a consensus on environmental trade regulations, a blaring example being the Kyoto protocol. And if the regulations become accepted, it probably means higher costs across the board for any energy using products. A closer look will expose that most goods consumers buy would fall into this category, therefore shrinking economic growth. Since the new technology surrounding environmentally sound practices is still relatively new, it is also among the more expensive. How are countries supposed to install this technology if regulations have caused a slump in economic growth?
The answer is almost ironic, but allowing more free trade should increase the desire and ability for countries to make their goods more environmentally friendly. Is it any wonder that the countries now concerned with environmental practices are those that are more economically developed? It just goes to show that as income rises, so does concern about the environment. And higher income should also allow these countries to adopt these environmental policies which incur greater costs.
Both the costs and benefits to imposing trade regulations based on environmental factors have made it very complicated to pass such restrictions through the WTO. Some of the more successful restrictions have been based around preserving plant and animal life. For more information on WTO restrictions and the environment, you can look here.
This kind of foot-dragging when it comes to promoting even market-based solutions to climate change will be a huge reason why we'll probably face such serious problems from climate change in the future. Even when the evidence of climate change and the necessity of change is so overwhelming, the most any economy can muster to spur that change is a weak carbon market or claiming that eventually a carbon market will exist. Carbon markets seem to be a good idea from a theoretical approach, but like most everything that businesses participate in to address environmental concerns, there's a hell of a lot of talk and very little substantive action.
ReplyDeleteI think it's sad that at the point I think the economy may need to take a serious hit to save the environment in the future, because if it doesn't take a hit now the one down the road will probably be worse.
Although I am willing to entertain the "free trade as a means for environmental protection" idea, it is important to note that time is of the essence. How long will it take for developing countries to become rich enough to start promoting environmentally friendly business practices? It is completely apparent that the earth's resources are finite, yet the entire global community is shooting itself in the foot by acting as if they are not. Economic development will no longer be a concern if the world is ravaged by famine, war, and civil unrest (worst case scenario, I know, but completely feasible if the trends continue). I sympathize with developing countries who wish to industrialize as cheaply as possible, yet the possible long term consequences of inaction and keeping with the status quo are far graver than the benefit of speedy economic growth.
ReplyDeleteThis post definitely supplements the Jeffrey Frankel reading we talked about last week in class. Although free trade can certainly cause environmental degradation in some cases, openness can also cause green innovations that can potentially benefit both developing and developed countries. It should be noted though that for the environmental Kuznet curve to be fully realized (at a certain point of GDP per capita people start to demand environmental amelioration) developing countries will need to have both democratic institutions to give action to the people's demand for more green policies, and they will need a strong enough state to implement these regulations efficiently.
ReplyDeleteDespite the positive gains of a purely neoliberal approach, I still believe that some international organization will be required to achieve a fully comprehensive approach to reduce greenhouse gas emissions/conservation of the rainforest etc. At the very least, the WTO or possibly a newly created IGO should set up a standard of full consumer transparency. Without this small reform, consumers won't be able to make a rational decision on the products they buy, even if they demand greener goods (eg labels for dolphin safe tuna etc).
The problem with the Kuznet's Curve is that a very small percentage of countries can reach the level of wealth required to "start caring about the environment." Not only will not enough countries reach this level, but in doing so they are still polluting on a high level in order to obtain such wealth. I highly disagree with the second proposal that free trade is the best solution for environmental problems. The incentive is simply not there to sacrifice capital for the environment (at least not until a serious threat spurs action). The only way this problem will be solved is by institutional reform and incentive altering taxes or subsidies. It will be very painful in the short run but as Eryn mentioned, the hit down the road is going to hurt a lot more that taking the hit now.
ReplyDeleteI agree that, left to its own devices, the free market would not naturally solve environmental problems. Holding every country to the same standards does not allow for equal development. The United States and other countries that are now developed went through industrial stages without restriction and holding developing countries to global standards would be unfair.
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