## Monday, November 12, 2007

### Trillions for CO2 regulation & propagation of guilt

Two years ago, some people criticized the Kyoto counter in the sidebar because it assumes that the Kyoto protocol costs USD 150 billion per year which seemed too high to the champions of CO2 regulation. Well, times are changing. Almost no one would raise such a childish criticism today because most people realize that the actual costs of CO2 regulation are much higher.

The Guardian explains that according to Nicholas Stern's calculations, a U.S. climate bill would cost USD 212 billion per year while its EU counterpart would cost USD 164 billion. Add a few more countries that could also participate and you are well above USD half a trillion.

These are huge numbers that are completely comparable to trade surpluses and deficits of various countries. And as you know, these surpluses and deficits are no details or small perturbations of the economies. Their small changes add whole percentage points to the GDP growth. One percent of the world's GDP is a lot. If you assume that companies and societies invest and increase their capacities only from the "last" resources after everything else is subtracted, you would conclude that the annual costs around one percent of the GDP are equivalent to a reduction of the GDP growth by one percentage point.

Such a percentage point makes a huge difference. For many developed countries with the growth potential about 2 percent, it means that their growth rate is reduced to one-half. For countries that would otherwise grow a bit more slowly than at the one-percent annual rate, it means recession. Even the countries that used to have a three-percent GDP growth might switch to a two-percent regime, changing the time needed to double their GDP from 25 years to 35 years.

And we are still talking about CO2 policies that will have no discernible and demonstrable effect on the climate.

The article in the Guardian argues that one must carefully divide the CO2 emissions into the "politically correct ones", for example those in India, and the "luxurious ones", a point repeated by The Independent and others. Let me ask a rhetorical question: do you think that such a classification of CO2 emissions can be scientifically derived from physics or climatology? These things show that this whole hysteria about a "dangerous climate change" is politically driven. The greenhouse effect and all these things are just cheap tricks that are blown out of proportion in order to justify completely different things that those people actually care about.

But as Václav Klaus has emphasized, no country in the world is safe. If these CO2-regulating proposals win in some countries, their proponents will gain self-confidence and propagate the policies to ever broader set of countries.

Propagation of guilt

The Wall Street Journal explains that China, the country that generates the highest amount of CO2 emissions, might start to blame its rising CO2 emissions on the Western buyers. This question about the propagation of "guilt" is another important aspect of this whole debate. Imagine, for a little while, that CO2 emissions are harmful. Who is responsible for the Chinese emissions? Is it the buyers?

One of the comparative advantages of Asia is that a marketplace can be unified with a train station. Isn't it practical?

Well, the transactions between the Chinese producers and the Western buyers is arguably a contract that benefits both parties, much like most other contracts. But when the product is already completed, the hypothetical harm to the environment has already been made. It is very hard to realize this obvious fact in the case of CO2 that really causes no harm. But if you replace CO2 by mercury, you won't have any doubts who is guilty.

The Chinese products usually don't contain dangerous concentrations of mercury which makes it OK for consumers to buy them. In the same way, the products don't emit additional CO2 - except for cars that are made in China. So I find it obvious that if someone were guilty, it is the Chinese producers who could have used clean technologies or produce something completely different. One simply can't be viewed as a criminal for buying a legitimate product from a criminal, if you want me to amplify this language.

Of course that one can feel somewhat bad for having something - or anything - to do with some bad guys. But one of the principles of an enlightened modern society is that guilt simply cannot propagate in this way. For example, you shouldn't be held responsible for your parents' being killers even though you have had relationships of many kinds with your parents.

Guilt for well-defined sins must be localized to those who are really responsible. Indirect relations between these people and others cannot become a justification for the government to control those other people because if it became one, the government could control everyone. Why? Because everyone is indirectly connected to some people who do bad things, either more directly or less directly.

There are many other subtleties associated with these ambitious projects to regulate the carbon cycle. But if the goal were really to reduce total CO2 emissions, it is clear that their price would have to be universal for the whole planet, much like the price of oil. This conclusion might be controversial for those who mix science and economics with politics and religion. But a universal price would be necessary for these policies to regulate the net emissions instead of just moving them from one place to another.

Let me emphasize. These considerations are hypothetical in character because I don't believe that any CO2 regulation is rational.

Incidentally, the coal-oil price ratio is about 5 times smaller than what it was a decade ago. If this situation persists, I think that people, companies, and societies start to realize that. Someone should work on modern versions of gadgets that burn coal - for example 21st century steam engines in cars. ;-)

Thanks to Benny Peiser for the links.