That used to kill two birds with one stone: it helps with greenhouse gases, and lessens the reliance on imported oil.
Now it kills three: government spending is fast becoming the only way to pump the economy. Infrastructure is an obvious target for such Keynesian spending, and it beats sending cheques in the mail or paying people to paint rocks. The danger is misallocation of resources, with governments sometimes prone to favour wasteful causes – think roofs covered with solar panels in cloudy Germany and grain converted to fuel in America. Be that as it may, the next New Deal may well have a green streak to it. China’s government has announced that it is going to pour money into railways, and America could jump-start its energy revolution.
In parallel, Obama must take the lead in getting developing countries on board of meaningful global climate policy. The timing is delicate: halting the slide into recession is paramount, but the crisis right now is also the chance to break open the long-established patterns. A treaty at the December 2009 Copenhagen conference might prove too ambitious a timetable, but the base could be laid there for a treaty to be brought together in 2010. The crucial factor is a political deal struck outside the climate negotiations, between the leaders of the major countries: at least the US and China, plus India and the EU, and better, these four plus other major economies, say the G20 group.
The ideas for a global climate deal are out there. The Garnaut Review for example recommended a package with these elements: binding greenhouse gas commitments with absolute reductions for all high-income countries; commitments below business-as-usual with a temporary opt-out clause for developing countries; equal per-capita emissions entitlements for all countries after a period of convergence; international emissions trading to give flexibility and to encourage developing countries into the system; an immediate start with key emissions intensive sectors everywhere; and large-scale funding from rich countries for clean technology.
China could fulfil its initial share of such a bargain by simply turning its current domestic goals for limiting energy use into binding greenhouse gas commitments. That would help America to commit, and could get a positive chain reaction underway. It’s an optimistic scenario, but maybe a more likely one precisely because economic crisis offers the opportunity for change.
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See also:
Financial crisis driving emissions up or down?
Financial crisis an opportunity to move on climate change
or see all climate change related posts
This is a helpful comment by Frank Jotzo.
Economists should always be wary of trying to solve three problems with one policy instrument. But there may be an opportunity for Obama to use the current set of circumstances to persuade congress to agree to curb emissions.
The appointment of a new head of the House Committee on Energy and Commerce (see http://www.iht.com/articles/2008/11/20/america/transition.php) may prove useful.
The G20 has an important, perhaps decicive role as noted in a recent Petersen Instiute blog (see http://www.petersoninstitute.org/realtime/?p=249) as well as my fortcoming blog on this site.
Sensible post. The double bottom line bit bolsters the case for using climate change investments as a means of stabilising the economy.
The case for the US increasing taxes on imported oil can be tightened by appealling to the external costs of maintaining secure oil supplies from the Middle East.