Originally published at Project-Syndicate |December 17, 2020
Following US President-elect Joe Biden’s victory and recent carbon-neutrality pledges from China, Japan, the European Union, and others, now is the time to meet words with action. That means moving beyond finger-pointing and working toward a uniform carbon tariff and tax regime to increase the costs of emissions globally.
NEW YORK – China’s pledge in September to pursue carbon neutrality by 2060 was followed by a similar pledge from Japan a month later. With these commitments being made at a time when the US has withdrawn from the Paris climate accord, it is easy to interpret them as part of the ongoing geopolitical competition for global leadership. But managing climate change is not a zero-sum game. Here, national competition to strengthen ambitions and policies benefits everyone.
To bridge the gap between pledges and tangible results, we will need to lock in these recent commitments and create incentives for other countries to increase their own climate targets. While COVID-19 lockdowns have reduced global carbon dioxide emissions this year, intensive pre-pandemic emissions are likely to return with a vengeance in 2021.
How can we start truly reducing emissions in a timely, efficient, and fair manner? Over the next ten years, Americans need to reduce their per capita carbon consumption from about 200% to about 80% above the current Chinese level (from about 18 metric tons of carbon per person per year to ten). Similarly, Germany needs to cut its per capita carbon consumption from about 80% above the current Chinese level to below the current Chinese level (from about ten to six metric tons per person per year). And the Chinese need to cap their per capita emissions before the end of the decade, while also moving toward carbon neutrality.
To those accustomed to hearing that China is the world’s largest greenhouse-gas (GHG) emitter, these recommendations may come as a surprise. In terms of annual contributions to atmospheric GHGs, China is indeed the world leader, followed by the United States. But in terms of individual annual contributions, an average German leads a life that is about 80% more carbon intensive than the average Chinese; and the average American’s footprint is about 200% larger than the average Chinese.
These differences are shown in the figure below, which traces per capita consumption versus production of GHG emissions in the US, Germany, and China from 1995-2015. (The figures are computed by combining information in an inter-country input-output table and carbon intensity in production by sector, country, and year.)
It is no less important to bear in mind that climate change is caused by the entire stock of atmospheric GHGs, not just the emissions from a given year. Because GHGs dissipate slowly, the cumulative emissions from the Industrial Revolution onward – especially those since 1900 – do more damage than the emissions in, say, 2018-20. From this cumulative point of view, the US and Europe are responsible for an overwhelming majority of atmospheric GHGs, dwarfing the contributions of all other countries combined.
But other countries, having been hit harder by declining export earnings and collapsing remittances, will have obligations to meet. The Institute of International Finance estimates that nearly $7 trillion of emerging-market debt will fall due in 2021, triple this year’s level. This is not a crisis that will materialize at some indeterminate future date. The dog will start yowling next year.
And yet, not all advanced-economy citizens feel this responsibility, for at least three reasons. First, we hear constantly from politicians and the media that China is the “largest emitter,” which, though true, is not the whole truth. Second, Europe and the US are doing a much better job than China (and most other developing countries) at controlling more visible forms of particle pollution, which is not necessarily the same thing as limiting planet-warming GHGs.
Lastly, rich countries’ imports are typically much more carbon intensive than their exports, which means that their residents are maintaining a high-carbon lifestyle partly by offshoring a portion of their emissions to other countries. This is true for rich countries that run a balanced trade account, and it is even more the case in countries that run a large merchandise trade deficit. Americans, for example, have a substantially more carbon-intensive lifestyle than the country’s domestic carbon production may suggest.
To go beyond the currently deficient commitments under the Paris climate agreement – and to make up for the time lost under outgoing US President Donald Trump – we need both new pledges and new sticks and carrots. For starters, all rich countries should aim to achieve carbon neutrality on the consumption side, not just on the production side, no later than 2050. Those that can reach this target sooner should of course do so.
Moreover, all of today’s middle-income countries should aim to achieve carbon neutrality by 2060. Because the carbon intensity of developing countries’ exports is often higher than that of their imports, a net-zero emissions pledge is a taller order on the production side than it is on the consumption side. The international community needs to provide technical and financial assistance to low- and lower-middle-income countries, conditioned on their efforts to achieve near-carbon neutrality by 2075.
We can do better than relying just on national pledges and voluntary compliance. A uniform structure of tariffs on carbon-intensive imports and domestic taxes on CO2 emissions for Europe, North America, China, Japan, and like-minded countries would substantially raise the cost of emitting GHGs globally. The revenue from carbon tariffs and taxes can be used to support not only renewable energies but also innovations to reduce the costs of carbon capture and storage.
A carbon tariff would make it more costly for China to walk back on its recent climate commitment, because its carbon-intensive exports would become less competitive. It also would make China more willing to fulfill its pledge, because it would lose less business to other exporting countries that have lower environmental standards. And, of course, without the US and China’s participation in any international carbon tariff system, the scheme would not cover enough global imports and consumption to be effective.
US President-elect Joe Biden’s victory and China’s new climate pledge together represent a new opportunity to tackle carbon emissions. We should seize it before it vanishes.
Shang-Jin Wei: Former chief economist at the Asian Development Bank, is Professor of Finance and Economics at Columbia Business School and Columbia University’s School of International and Public Affairs.