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JakilaTheHun (99.93)

Climate Change and Why "Coordinated Global Action" Isn't Necessary

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April 14, 2011 – Comments (15) | RELATED TICKERS: CREE , FSLR , ABB

I was reading an article in the New Yorker today about the recent conference organized by George Soros at Bretton Woods, NH.   It was the second annual event for the Institute of New Economic Thinking (INET) and as the name implies, the conference was meant to help foster new ideas on how to deal with major economic and financial issues facing the world.

One issue that came to the forefront was climate change.  Former UK Prime Minster Gordon Brown  argued at the conference that the issue of climate change ”cannot be addressed on an individual basis and can only be resolved by global coordination.”  Brown’s thinking on the subject is hardly “new” or “innovative.”  Rather, it’s a recycling of the conventional wisdom.

Right now, there are basically two predominant schools of thought:

(1) Climate change has major scientific evidence backing it and it’s vital for governments across the world to take aggressive actions to address the issue,

(2) The evidence for climate change is inconclusive and it would be economically disastrous to use government action to solve a problem that may not exist.

In my view, position #1 is more defensible, but I’m increasingly convinced that it’s also a very wrong position.  There is overwhelming scientific evidence that climate change is occurring and being, at the very least, exacerbated (if not wholly caused) by human activities, particularly energy uses that emit carbon into the atmosphere.

I agree that climate change is a very real phenomenon and action is needed to solve it.  Where I’m largely in disagreement is the ‘coordinated global action by governments’ part.  Brown takes it a step further and says that the problem can not be solved by individuals.

The Flaws with “Coordinated Global Action”

There are several flaws with Brown’s argument.  For one — it’s not actually practical.  The idea that we could ever get dozens of governments (at least the major ones) to agree on a realistic plan of action that would reduce carbon emissions is nothing more than fantasy.  China, the US, France, India, Japan, Saudi Arabia, and Brazil all have their own unique issues and it’s extremely unlikely that all would ever agree to any “aggressive plan” that could feasibly reduce carbon emissions by some significant amount.

Even if the governments could agree on a plan, it would likely be counter-productive.   What could the governments agree upon?  The immediate thought is some sort of carbon limit scheme, but that would create immediate problems.  Governments would have to implement various schemes to limit carbon emissions, but these schemes would inevitably end up having to focus on stiffing economic production.  Indeed, it’s no coincidence that the “Great Recession” did more to lower emissions in a short period of time than decades of public policy.

So a top-down approach to the problem is in many ways, the wrong approach.  It incentivizes poor decisions in the name of ‘saving the environment.’  Instead of innovating our way out, we would be devolving our way to lower carbon emissions through economic destruction.

Gordon Brown is absolutely wrong on this issues.  It’s not ‘coordinated global action’ by the world’s governments that will solve climate change issues.  It’s those “individuals” that he claims are incapable of solving it.

Empowering the Private Sector to Combat Climate Change

Climate change is a vital issue that needs to be solved by humanity.  Yet, individuals in the private sector are more likely to solve the problem that misguided attempts by large, inefficient governments.

The real solution to climate change:  enact policies that empower small entrepreneurs!   All over the world, there are people who sincerely care about the issue of climate change and are willing to dedicate their entire life to solving it.  They are determined to find a way to get us out of our downward spiral and won’t be happy until they succeed.

Not only is this endeavor attractive on a moral and practical standpoint of trying to create technologies that will help improve the world; it’s also likely to be quite a profitable endeavor to those who succeed with their technologies.   Which is why there are also people out there who hold large sums of capital and are willing to commit that capital to these innovative entrepreneurs.

Of course, not “cleantech” entrepreneurs will succeed.  In fact, most will fail, but there will be a few pioneers who perfect technologies that will help solve our problems.  With a profit motive involved, these technologies will also be commercialized and more quickly gain mainstream acceptance.

It’s not “coordinated global action” that will achieve this.  It’s domestic policies aimed at empowering innovative entrepreneurs that will help solve climate change issues.

In the broadest sense, policies that achieve the following would be beneficial:

(1) Eliminate subsidies for dirty techologies,

(2) Create more capital for small entrepreneurs (e.g. lower capital gains taxes for holdings over 5 years)

(3) Find ways to unleash the power of the private sector in state-owned enterprises, such as mass transit

(4) Stop limiting upward urban development and promote policies that encourage more of it

(5) Corporate tax reform (e.g. eliminate loopholes and lower the overall rates, which will benefit smaller start-ups)

Of course, these aren’t the only ideas and I’m not even dogmatically proclaiming that all my ideas will help solve the problem.  Rather, I’m suggesting that the direction of debate needs to shift on this issue.

We need to tackle climate change, but the way to do this is from a  bottom-up perspective rather than a top-down one.  We need to think of more ways to empower entrepreneurs who have ideas on how to reduce our carbon footprint.   This will be more successful than a flawed, unenforceable multi-national agreement that deems from above that “thou shall not emit too much carbon.”  Incentivize people to solve the problem and they will eventually.

15 Comments – Post Your Own

#1) On April 14, 2011 at 10:31 PM, portefeuille (99.66) wrote:



enlarge

(from here)

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#2) On April 14, 2011 at 10:43 PM, portefeuille (99.66) wrote:

List of countries by GDP (nominal) per capita



enlarge

 

So I guess it would help if the U.S. were to become a little more Swiss, hehe ...

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#3) On April 14, 2011 at 11:01 PM, portefeuille (99.66) wrote:

#2 If the euro "settles" at above $1.5 at the end of the year Germany might make it past the U.S. in "2011 GDP (nominal) per capita". yeay, hehe ...

EURUSD.



enlarge
 

 

The largest economies in the world in 2050, measured in GDP nominal (billions of USD), according to Goldman Sachs.[1]



enlarge

(from here)

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#4) On April 14, 2011 at 11:38 PM, portefeuille (99.66) wrote:

above $1.5

above $1.65.

 

2011 GDP estimate (from here).
United States: 1.3509 * 10^13 USD,
Germany: 2.193 * 10^12 EUR.

2010 population estimate (from here and here).
United States: 3.087 * 10^8,
Germany: 8.176 * 10^7 (it needs some refugees from Lampedusa to grow the population at the U.S. rate, hehe ...).

http://www.google.com/search?q=(1.3509*8.176)/(3.087*2.193)

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#5) On April 14, 2011 at 11:41 PM, portefeuille (99.66) wrote:

it needs some refugees from Lampedusa to grow the population at the U.S. rate

less refugees make it easier to pass the U.S. in that statistic og course (unless they produce above average "GDP per capita") ...

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#6) On April 14, 2011 at 11:42 PM, portefeuille (99.66) wrote:

#1-5 sorry, I am bored, hehe ...

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#7) On April 14, 2011 at 11:59 PM, portefeuille (99.66) wrote:

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#10) On May 09, 2010 at 9:03 PM, portefeuille (99.93) wrote:

The EURUSD exchange rate might "go down a bit more" but I do not expect too much "further decline" and I think most European indices bottomed on Friday or will do so on Monday. Just a "feeling", maybe.

--------------

(from here)

When I wrote that the euro was at around $1.29. It made its 2010 low on June 7 at around $1.1874, so I guess I was "about right" with my "exchange rate forecast". I guess you still think "Europe is in trouble" (see your comment #24 to that post) ...

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#8) On April 15, 2011 at 12:03 AM, portefeuille (99.66) wrote:

#7 The EURO STOXX 50 Index made its 2010 low on May 25, so that forecast was alright as well. yeay ...

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#9) On April 15, 2011 at 4:15 AM, JakilaTheHun (99.93) wrote:

Not sure what you're driving at, Porte.

The reason the US has the highest emissions per capita is precisely because we heavily subsidize carbon-intensive activities.  We subisidize the highway system, we subsidize oil production, we subsidize coal mining, we subsidize suburban sprawl, we subsidize ethanol, we don't make polluters pay for externalities (which is a de facto subsidy in my view), etc. 

Meanwhile, we heavily taxed and regulated railroads through most of the 20th century and went out of our way to kill off mass transit. In other words, it was top-down governmental preferences that resulted in the US being such a heavy polluter to begin with.  If we hadn't subsidized the hell out of everything, we'd likely have a lower carbon footprint and have more densely populated cities. 

Hence, my point is that the idea that some coordinated top-down action will solve the problem is untrue.  It was coordinated top-down action that created the problem. 

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#10) On April 15, 2011 at 10:02 AM, mhy729 (29.82) wrote:

Interesting, and I am inclined to agree with your reasoning.  However, to say "It was coordinated top-down action that created the problem" doesn't seem relevant as the 'goal' for that action was never emissions-minimization.

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#11) On April 15, 2011 at 11:18 AM, JakilaTheHun (99.93) wrote:

Interesting, and I am inclined to agree with your reasoning.  However, to say "It was coordinated top-down action that created the problem" doesn't seem relevant as the 'goal' for that action was never emissions-minimization.

True, but the goal wasn't emissions-maximization, either.  It was an "unintended consequence", which is a very common result with top-down policies that often ignore the realities of the market. 

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#12) On April 15, 2011 at 4:18 PM, awallejr (79.53) wrote:

Well you got Porte's energy flowing.  And this quote gets mine:

Climate change is a vital issue that needs to be solved by humanity

I am stating this categorically, that you cannot "solve" climate change.  It will always occur.  The only question is in which direction.  Personally I am anti-Ice Ages.

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#13) On April 15, 2011 at 6:25 PM, EnigmaDude (83.73) wrote:

Everyone talks about the weather, but nobody does anything about it...

    -Mark Twain

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#14) On April 16, 2011 at 12:40 AM, awallejr (79.53) wrote:

Hey Porte, btw regarding chart #1 where's China and India?

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#15) On April 17, 2011 at 1:25 PM, ikkyu2 (99.26) wrote:

I've read the IPCC consensus report - while I was doing a master's in statistics - and the data and statistical models are a load of hooey.  The standards of 'proof' and 'certainty' (defined in the consensus statement - look up the definition of certainty to see if it's something you would rely on) are nowhere near what it would take to, for example, get the FDA to permit you to infuse one dose of one drug into a human being. 

Still, I don't think either option 1 or 2 that you present are correct.  I think climate change is a load of hooey, but the investment into clean technology and energy savings is economically viable in its own right; represents a use of government money and mandate that is highly stimulative, appropriate for a downturn; and is likely to produce extremely valuable but unpredictable tech spinoffs.

Unfortunately, this makes me a climate change 'denier' and I am not permitted to converse with any of my Prius-driving friends on this topic any more! 

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