GLOBAL ECONOMIC CONFLICT: A NOBEL-WINNING ALTERNATIVE TO THE PARIS CLIMATE AGREEMENT?

By Patrick J. Michaels

Senior Fellow, Competitive Enterprise Institute

Every December brings the holiday season back into our lives, along with the lights, the decorations, and time with family and friends. December is also when the United Nations holds an annual “Conference of the Parties” (COP) to its 1992 climate change treaty. This year’s 12-day event is already underway in Madrid, but don’t expect much in the way of results.  

The outcome of previous COPs has not been stellar. In 1997, COP-5 gave us the Kyoto Protocol to the climate treaty, in which developed nations agreed to reduce their emissions of dreaded carbon dioxide. Some large and growing emitters like China and India were not included; China became the world’s largest emitter less than a decade later. Kyoto didn’t do a darn thing to affect the climate and was a failure, according to the winner of the 2018 Nobel Prize in Economics, William Nordhaus of Yale University.

This year, COP-25 is focused on implementation of the Paris Climate Treaty, which Nordhaus noted would not get close to its stated goals, and that its unenforceability renders it useless. Drafted in 2015, the stated goal of the Paris treaty was to hold warming since the Industrial Revolution under 2.0⁰C, with a further aspiration to keep it below 1.5⁰C.

It is easy to demonstrate that if every nation lived up to its current voluntary “contribution,” Earth’s surface temperature would be only a few tenths of a degree lower than it would be in 2100 if we just continued emissions-as-usual.  The effects of Paris are too small to reliably measure. In his Nobel acceptance speech, Nordhaus noted that Paris would not get close to its stated goals, and that its unenforceability renders it useless.

Nordhaus knows from whence he speaks. He was awarded the Nobel for his model that calculates the so-called social cost of carbon [dioxide], along with the effects of emission reduction policies.  In his actual acceptance speech he sheepishly pointed out his model showed the “break even” level of warming (where overall costs begin to exceed the benefits of slight warming coupled to economic growth) is 4⁰C. 

Despite his model’s objective guidance, Nordhaus ultimately agreed that something serious needs to be done about warming. Now. Never mind the fact that life expectancy doubled in the developed world as it warmed one degree, while in nations like the U.S., per capita wealth increased over eleven fold. It is simply ludicrous to believe that warming a mere half-degree more will reverse all the progress of the last century. This is the position of alarmists like Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Bernie Sanders (D-VT).

Nordhaus proposes an alternative solution to Paris and the COPs that is truly scary in its scope, intent, and potential harm.  

The 2018 Nobel Laureate in Economics is proposing that an (unspecified) group of nations form a “club” that sets what he calls “harmonized emission reductions” (whatever that means) and that club members who do not meet these reductions will be penalized. The reductions are determined by agreeing to set a minimum price to emit a ton of carbon dioxide.  Where this money goes isn’t said, but who it comes from (you and me) is obvious. 

What is so scary?  After all, the penalties only apply to members of the “club,” right?

Wrong.  Nordhaus proposes that club members then penalize—globally—the non-members.  Here’s the core of his thinking, in his written remarks:

A key component of the club mechanism…is that nonparticipants are penalized…[T]he simplest and most effective would be uniform percentage tariffs on the imports of nonparticipants into the club region. With penalty tariffs on nonparticipants, the climate club creates a strategic situation in which countries acting in their self-interest will choose to enter the club and undertake ambitious emissions reductions because of the structure of the incentives. 

This will play well in sub-Saharan Africa, won’t it?  It contains 13% of the world’s population, but nearly half of the total number of people without any electricity. McKinsey, a major energy consultancy, predicts electricity consumption there will increase fourfold from 2010 to 2040, with natural gas providing 40% of the power. The “renewable” share isn’t projected to change very much, a mere four percent over thirty years. 

How could these nations join Nordhaus’ emissions reduction club? Doing so would consign them to the group of penalized countries.

It’s ironic that a Nobel Prize winner in economics glibly proposes what could become a global economic conflict because the UN can’t get its act together. History is largely a story of the carnage that ensues when empires attempt to punitively control the world. All of this is world gone mad over an additional half-degree of warming, and a world gone mad over something that Nordhaus’ own Nobel Prize-winning model says will be a net benefit.

Patrick J. Michaels is a senior fellow at the Competitive Enterprise Institute and author of “Scientocracy: The Tangled Web of Public Science and Public Policy” (Cato Books, 2019).