## Saturday, November 03, 2007

### Lieberman-Warner climate bill: reactions

U.S. Senators Lieberman and Warner are proposing a new bill to reduce greenhouse gas emissions. The bill
• forces the economy to get back to 2005 levels by 2012
• wants to be 10 percent below these 2005 levels by 2020
• imposes a dream of a 70 percent reduction by 2050 on everyone
• has no safety valve but subjects may borrow money

In his new book, The Age of Turbulence, Alan Greenspan emphasizes that there is no effective way to reduce CO2 emissions substantially without negatively impacting a large portion of the economy. The popularity of such bills will evaporate once real people lose their jobs, he says.

Joseph Lieberman himself estimates the costs to the economy as hundreds of billions dollars - another war in Iraq, if you wish - which I consider to be an underestimate.

John Edwards criticizes the bill because a "correct" bill should not give indulgences to anyone for free. Instead, it should try to decimate the corporations even more than this one.

The U.S. Chamber of Commerce says that the bill is fatally flawed because the economy will simply move overseas. The National Petrochemical & Refiners Association says the same thing and reminds us that China is already the #1 producer of greenhouse gases and India is not far behind.

(Local hat tip: Marc Morano.)

Scenarios

What do I think? The U.S. greenhouse gases have approximately doubled from 1960 which corresponds to a 2 percent annual growth in average. This growth recently slowed down in the U.S. because fossil fuels got more expensive and energy saving got very fashionable. Because of the recent evolution of the emissions, I find it imaginable that the emissions will stagnate up to 2012: it's not so different from what I predict anyway. Such a plan will surely cost money and cause some additional outsourcing but it would be finite.

The 10-percent reduction between 2012 and 2020 will be more painful. And unless a completely new viable replacement for fossil fuels exists in a few decades, the proposed 70-percent reduction by 2050 is suicidal: the figure corresponds to systematic 3-percent reductions every year for quite some time. Because the GDP growth and CO2 emissions growth are pretty well correlated, you should imagine that the plan could mean something close to a 3-percent decrease of the GDP every year.

It will mean that all industry that requires a lot of energy, transportation etc. will move to countries that won't be enforcing similar measures. And be sure that such countries will exist. Their comparative advantage of not having the ban will make them much more powerful and they will have no interest to listen to others. For example, if Iran decides to avoid these measures, good for them. Unless some politicians decide to nuke Iran because of CO2 emissions, which I find unlikely, Iran could start to become a superpower.

On the other hand, if the Lieberman-Warner bill were hypothetically approved, it would literally start greenhouse races among countries that are plagued by fashionable hypocritical politicians. The European Union, Canada, Japan, and a few others would probably vote for even more drastic reduction scenarios while others would be less excited. Such a combination would effectively make what we call the Western world insignificant in a few decades. The Lieberman-Warner plan is a gradual societal suicide whose positive effects are equal to zero.

Experience with planned economy

I want to say one more thing. By writing down these plans, Lieberman, Warner, and others are entering waters of planned economy. Planned economy is always a bad idea but nevertheless, there are better versions and worse versions of planned economy. Hitler and Stalin might be viewed as the most famous achievers who used this approach.

Lieberman and Warner who want to follow the basic philosophy of those two Gentlemen should however notice that Hitler and Stalin never imposed any 43-year-long plans. In fact, the main difference between those two historical figures was that Stalin had five-year plans while Hitler had four-year plans.

There exist very good reasons why Hitler didn't have 43-year plans even though he expected a 1000-year empire. What reasons? Well, four or five years is a long enough period of time to realize certain mistakes and re-evaluate prices and optimal values of many other things. For example, the communists would plan a certain increase of coal production for five years but they eventually realized that ever increasing amounts of coal are not necessarily the best path to progress. That's why every new five-year plan differed from the previous one, at least a little bit.

Communism was inherently unable to make the subjects operate effectively at the microeconomic level but at least the leaders understood that the desired macroeconomic parameters were changing. Our knowledge of climate science, the interactions of the climate and the economy, and technological know-how will surely be evolving as well which is why it is extremely counterproductive to impose 43-year plans based on our incomplete knowledge of 2007. Paraphrasing Thomas Jefferson, the current generation has no right to fill the air with Lieberman-Warner and other zombies and restrict the decisions of future generations. The world belongs to the living.

Lieberman and Warner have a lot to learn from the experience of other policymakers who decided to prescribe certain macroeconomic parameters - such as coal and steel production or greenhouse gas emissions - to the economy in a similar way as they do. I think that only an irresponsible, intellectually challenged policymaker who is unfamiliar with economics and history could vote for such a crazy bill that is not justified by anything whatsoever and whose consequences are uniformly negative.

And that's the memo.

#### 1 comment:

1. If the glow-bull warming people are really serious there is only one serious answer ... nuclear power. The rest is just communism in a green suit.

I predict the sun will have the last laugh at these loons.