There are times when I think Obama is the smartest politician I have seen in my lifetime, and there are times when I’m scratching my head, wondering what the hell? Most of the latter occurrences arise in the context of Obama’s Justice Department, which, as far as I can tell, has yet to prosecute a single Bush administration official for malfeasance, although I may have missed it if it did happen. Then there’s Afghanistan, which looks like an unholy mess. Then there’s financial reform—or, more specifically, the lack of it, which I trace directly to Obama’s very foolhardy appointments of Larry Summers and Timothy Geithner, under the aegis of that old charlatan, Robert Rubin. If Obama loses his re-election effort, it will be because he listened to people like Rubin and Summers and Geithner, instead of ignoring them completely, which would have been the smarter thing to do given their roles in creating the mess to begin with.
Then there’s the environmental and climate stuff, where I had high hopes. And I’m very glad we’ve got some EPA enforcement again. But then there’s the biofuels boondoggle, suggesting that Obama is just another farm state senator. Well, that’s sort of ordinary and predictable stuff, the kind of stuff that any senator (or ex-Senator who becomes President) does—look at the otherwise generally admirable Chuck Schumer and his entanglements with the financial industry. But what do I make of this—the Obama administration has filed a complaint with the World Trade Organization against China’s renewable energy subsidies.
Now, filing a complaint against another country’s subsidy practices is a complicated endeavor in the best of circumstances, and in this case it seems a bit murky, frankly. There are many more clear-cut examples of subsidies that distort the market sufficiently to cause economic harm, on both producers and consumers. The US just won a WTO case against China over tires, for example. Now, some of the cases are stupid, and some are so politically loaded (Boeing versus Airbus) that you have to wonder why anyone even bothers. China and the US are involved in constant talks all the time about opening up China’s markets to various products and services, and these discussions are generally long and complicated–with intellectual property protection a critical issue more often than not. China, you will not be surprised to learn, is a bit casual about intellectual property rights, just as the US has become obsessive about it (check out what’s happened to copyright over the past couple of decades). But that’s why you have trade talks in the first place, and that’s why the World Trade Organization was created—to reduce the kinds of frictions that arise between countries. Too bad the WTO seems to have gone the way of the IMF and The World Bank.
Anyway, as is usually the case with a rapidly developing economy, China would like to protect a number of domestic industries in order to develop them. And one of the ways countries routinely do this is by subsidizing them until they can be competitive internationally, or at least domestically against foreign competition. There are any number of ways of doing this, actually—high tariffs on imported goods is a favorite one, and one used by both the US and Germany aggressively in the 19th and early 20th centuries. The US didn’t get free trade fever until after the Second World War, don’t forget. But it has certainly dominated the agenda since then. Or you could do it the way Korea and Japan have done it, not by tariffs, but by excessive regulations on imports. And these tactics work.
But it’s not as if we’re dealing with, oh, DVD players here. We’re dealing with essential technologies for reducing the rate of increase in carbon generation over the next several decades (to say nothing of actually trying to reduce carbon generation—there doesn’t seem to be much hope for that). But of course the kinds of trade treaties the US and the rest of the world are involved in don’t make that distinction. And here you have to wonder, yet again, about the mismatch between the at-this-point highly questionable economic models that govern how these organizations function, on the one hand, and the way the world really works, on the other. We’ve just spent two years recovering from such a mismatch, but the same models still govern.
So China, which generates a huge amount of carbon, and which is on track to generate more, has spent lots of money to develop renewable energy industries. One might suppose that this is a good thing. In fact, one might wonder why everyone isn’t doing this. The problem comes, apparently, from the fact that China may be exporting these technologies. Well, so what? Really, this is one of those times when you have to wonder how screwed up the international financial system is. Rather than criticize China for its clean energy subsidies, which will result in lower CO2 generation, both domestically and abroad (since there will certainly be exports,) why not match those subsidies? And if China objects, let them take the US to the WTO. That seems unlikely, however. Why would China object? They’ve already got the moral high ground against the US on carbon generation. China’s energy efficiency and renewable targets (which, by the way, China seems to actually be pursuing aggressively) would put the US to shame if the US cared enough. And the world would be a better place, certainly. Look at the rural poor in Africa who now have some electricity courtesy of Chinese small-scale solar energy generators—not the World Bank, it should be pointed out. Of course, there was a time when the US led in this technology, by miles, under Jimmy Carter, but we decided instead to consume more oil and give up on all this renewable stuff when Reagan came in and scrapped all the programs. As in so much else, it’s easy to blame Reagan here, and there’s a large element of truth to this. But we’ve had decades to try to restore a sane trajectory, and have failed manifestly to do so. What a bunch of putzes.
So why can’t the system come up with a better solution than having the US and China go after each other in the premier global trade organization? Well, partly the usual—subsidies are bad etc etc etc. We’re about to get a House of Representatives dominated by people who believe this. Of course, subsidies aren’t necessarily bad at all—ask any country that develops an automobile industry how it does it. (Even Malaysia has one.) Or ask Korea and now China how they developed their shipbuilding industries. Ask any country—including the US, and of course most of the rest of the world (except for poor Africa which can’t quite get it together)–that supports its farmers so that it can ensure some minimal necessary food production. Ask the US oil industry, which gets all sorts of hidden subsidies from the federal government—and will undoubtedly get more under the new regime.
Then there’s the Korea problem. Korean conglomerates have aggressively been trying to enter the renewable energy business, mostly through investments in Solar cell companies. In addition, Korea provides lots of subsidies to the solar and wind industry, subsidies that European countries are currently cutting back on, as is (or will be) the US, which is why there is virtually no US solar industry. So will the US go after Korea as well? And as the authors of the Grist piece point out, there are lots of subsidies elsewhere for the renewables industry, including Spain and the UK—most of Europe, in fact. Will the US file a WTO complaint against the UK? Somehow, I suspect not.
This represents a failure of the imagination on a very large scale. Not just by Obama, who seems curiously constrained and inside the box in dealing with global warming, but by everyone involved in a intellectually bankrupt system that doesn’t distinguish between kinds of economic goods. DVDs and tires are a lot more equivalent to each other than either is with wind turbines–and we (and governments) should be able to make that differentiation. Wind turbines at this point should be regarded as an essential survival tool—as should be every form of renewable energy. But we’re not there yet, and by the time we get there, it will likely be too late.
It’s perhaps even more absurd. The New York Times covered the same story, giving it the predictable anti-China spin that is becoming all too common in the Times these days. The story generated a raft of comments worth perusing, including commentator number 4, who points out that
There is another side to this story, of course – namely, that both the Obama and Bush Administrations have focused on subsidizing the following:
1) Coal-to-gasoline plants (billions from the DOE, often cloaked as “CO2 capture projects”)
2) Tar sand imports (billions in Congressional loan guarantees for new gas pipelines to feed the tar sand production system)
3) Liquefied natural gas imports (more billions to Exxon and Chevron for their Indonesian and Papua New Guinea LNG projects)
4) A new round of ridiculously expensive taxpayer-subsidized nuclear reactors ($8 billion in loan guarantees for Southern – Georgia nuclear plants).
There are many similar examples of the Obama-Bush focus on fossil fuels and nuclear – but solar and wind have received almost nothing in comparison.
Clearly, this could be challenged by China as unfair government support for fossil fuel & nuclear (which, despite the earnest claims of Energy Secretary Chu, are hardly “clean” and definitely not renewable) – but China is obviously more concerned with reducing its dependence on fossil fuel imports by moving state support away from fossil fuels and towards renewable energy.
This is all true, although I have to admit I’m a lot more ambivalent about nuclear these days than I used to be. If carbon is the enemy, and it is, I’m not sure how we get to where we want to be (stabilizing CO2 generation at 350 ppm, or whatever –it’s currently 388.59, and rising) without nuclear. And there’s certainly an interesting discussion to be had on whether natural gas (and LNG) are acceptable “transition” fuels. But these are separate discussions, I think. The point here is that the US has yet to make any significant moves to reduce its dependency on fossil fuels, while China is doing just that, and very aggressively too. Which does make you wonder what the WTO claim is really all about.
The US, after all, continues to subsidize highly inefficient corn-based ethanol, while imposing a substantial tariff on imports of more efficient sugar-based ethanol from Brazil—and Brazil, by the way, removed its own import tariff on ethanol earlier this year (although only through 2011). Oh, and Brazil looks set to initiate a claim against the US in the—you guessed it—WTO on this issue. The US ethanol subsidy and import tariff were set to expire at the end of 2010—but they just got extended in the tax bill that just got passed. If you were looking for an example of a subsidy policy that was both bad economics and bad climate policy, US ethanol subsidies would be near the top of the list. And Ontario is raising its domestic content requirements in certain renewable areas as well. So is there a trade war with Canada shaping up? I would guess not—we need their oil, after all.
Now, I’m fully mindful of what Obama is going to be up against in the next Congress. Here is one example of yet another fathead who thinks he knows stuff, but who obviously knows nothing, and who is going to find himself in a position of considerable power. Then there’s this guy. Oh, this one too. So I’m not sure what Obama can actually do here–the window of opportunity may be gone on this, tragically. The prospect of getting some sort of even weak climate bill through the next Congress appears remote. But that doesn’t mean the administration has to approach this all with the caution it has demonstrated up to now. Time for a little boldness, I think. And pursuing courses of action that will only serve to delay the adoption of reasonable energy goals and standards doesn’t really seem like the right strategy. What all of this sadly suggests is that the American government under the Obama administration, somewhat surprisingly, has yet to move beyond rhetoric in the global warming debate—but certainly gives the impression of being upset that China may be.