Common Tragedies

Thoughts on Environmental Economics

WTO it was

Posted by Daniel Hall on November 12, 2008

In response to my post on energy subsidies Ryan Avent writes:

You may remember me arguing that the WTO might be the best place to pursue international climate rules. Well, an energy subsidy is not only a carbon subsidy, but it’s also a trade subsidy. Subsidizing the inputs to traded goods, and fuel counts, is roughly the same as subsidizing the traded goods themselves. We have a trade interest, then, in removing these subsidies.

I like Daniel’s idea of initially trading pricing in developed countries for subsidy removal in emerging markets. I think the WTO might be a good place to start hammering out such deals, given their impact on the prices of tradable goods.

Quite right, and a good suggestion in theory.  But I wonder whether in practice the WTO is the right forum.

I was reminded of this yesterday at a Brookings panel on recommendations for the new President on energy and climate change.*  Bill Antholis pointed out during Q&A that one of the major shifts that has happened in Congress over the past 10-15 years is that attitudes among legislators about free trade and clean energy have essentially flipped: support for free trade has eroded while support for clean energy has strengthened.

I think the idea of using the WTO as a venue for climate negotiations is not without merit.  But I also think it is a political non-starter.  Due to a combination of history and political momentum the international climate negotiations are going to be carried out under the UN Framework Convention on Climate Change.

And given the domestic political environment, I think this may be a good thing on balance.  In negotiating with countries like China or India I think it is better for us to be trading off things like the stringency of our domestic policies against their approach to energy subsidies, rather than pulling trade policy onto the negotiating table.  Trade has been freed up quite a bit in the last 15 years, mostly for the better.  It would be a shame to see these gains reversed in the context of the climate negotiations.

*One in a series of events focusing on recommendations for the new administration.

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