Rich countries are promising to end fossil fuel use in 29 years. As this becomes excruciatingly costly, the G7 is now thinking about making the world’s poor pay for it. That will go badly.
The rich world has seen an incredible development on the back of enormous increases in mostly fossil fuel energy. Two centuries ago, most available power came from backbreaking human work. Even by the end of the 1800s, human labor made up 94 percent of all industrial work in the United States. Today, it constitutes just 8 percent.
If we think of energy in terms of “servants”, each with the same work power as a human, everyone in the rich world today has access to 150 servants who clean, cook, drive and do anything else for them.
Rich people still get 79 percent of their energy from fossil fuels. Ending that will be hard, socially destabilizing and surprisingly ineffective.
Take the United Nations’ pronouncement that our Paris Agreement promises really mean reducing world emissions by 7.6 percent every year this decade. The UN notes this was almost achieved in 2020 with pandemic-induced shutdowns.
But this year, we need twice the reduction, equal to two 2020-like shutdowns. And three times the reduction in 2022, ending with the equivalent of eleven global shutdowns every year from 2030. Economic models show this will cost tens of trillions of dollars a year.
This will also destabilize rich countries. They have seen their per-person growth rates decline — in Europe, it is now edging toward zero. As climate policies reduce growth, this will threaten long-term social coherence as people realize their children will not be better off.
Moreover, the cuts will matter little for the environment. Even if all Organization for Economic Co-operation and Development member countries cut their entire CO2 emissions today, the standard climate UN model shows it will reduce warming by just 0.4 Celsius by 2100.
The reason? Six billion not-rich people also want access to plentiful and cheap energy, lifting them out of hunger, sickness and poverty. They are more concerned about economic growth that will create welfare and resilience against disease and even climate change.
Climate policies harm the developing world. The Paris Agreement will force more into poverty by 2030 than otherwise would have happened. Aiming to keep temperature rise below 2 C or 1.5 C will, according to a recent peer-reviewed study, mean at least 80 million more poor by 2030 and more than 100 million more starving by mid-century.
Rich countries want the world’s poor to pay the costs through carbon tariffs. The United Kingdom is pushing such tariffs as a key priority of its G7 presidency, and the proposal is falling on sympathetic ears in Europe, the US and Canada.
More businesses will escape to less-burdened areas such as China, India and Africa. Slapping a border tariff on imports according to their underlying emissions reduces that move. But such tariffs also make it harder for the developing world to compete, because most rich countries use carbon more sparingly. Globally, these tariffs are inefficient and make climate policies even costlier. And more crucially, they act as backdoor protectionism for rich countries.
For the rich world to cut 20 percent of its emissions, a standard model shows it will cost them US$310 billion a year. Using carbon tariffs, the rich world can instead end up US$400 billion better off, making US$90 billion by forcing businesses to move back to the rich world. Instead, they impose more than half a trillion dollar in extra costs onto the world’s poor. As one highly quoted study concludes, “the main effect of carbon tariffs is to shift the economic burden of developed-world climate policies to the developing world”.
The European Union and other developed economies believe that higher tariff threats will force the developing world to adopt their own costly climate policies. This could be a disastrous misjudgment.
If the US were to implement a national US$40 tax per ton of carbon, one recent study shows, it would cost US$73 billion yearly in lost growth. If the US also decided to force Chinese exporters to pay tariffs equivalent to this carbon tax, it would confer a US$24 billion loss on China. But this would not help push China to implement its own US$40 carbon tax domestically, because that would cost the country an eye-watering US$210 billion a year.
Instead, it is likely that forcing developing countries to choose between losing billions and losing even more billions will lead to profound resentment with a rich world that claims to implement climate policies to help, but in reality shifts the costs onto the world’s poor. It could lead to a tariff war and the developing countries shaping their separate free trading regime.
The effective way to address the real problem of climate change is to dramatically ramp up investment into green energy research and development. If the price of green energy could be innovated below fossil fuels over the next decade, everyone would happily switch.
The author is President of the Copenhagen Consensus, a think tank that focuses on solutions for the world’s big problems.
The views do not necessarily reflect those of China Daily.