“It is unfair to blame man too fiercely for being pugnacious,” the poet Christopher Morley once quipped. “He learned the habit from Nature.” And indeed, after the Arctic ice sheet melted at an unprecedented rate this summer and the largest storm ever recorded in the Atlantic Basin engulfed the East Coast last month, the pugnacity of our politics has grown proportionately.
Although President Obama did reiterate his concern about climate change while hyping his next phase of mitigation plans in the dignified quarters of an MTV interview, neither he nor Romney seized the fleeting opportunity to do so in front of 60 million debate viewers. But pontificating about the inexcusable omission of climate change this election season is both tiresome and vexing. It’s therefore vital in the post-election interim that we return to the nuts and bolts of economic policy—the only hope for averting further ecological ruin.
RomObam chose to remain silent on the climate crisis, not from insensitivity to the costs of worsening anthropogenic climate change but because both parties have adopted the orthodox economic consensus that sufficiently bold climate policies would undermine Washington’s grand strategy for global market and political dominance. The ruling party, unless it has the strength and will to do otherwise, must respond to the economic needs of the firms that coalesce to steer core policy agenda, leaving “infant” industries like clean energy to bite the dust. This core governing principle is operative in the Obama administration, which, while providing some support to green industries, follows an “all of the above” approach that can’t help but favor the fossil fuel incumbents. Obama’s “climate change” aide Heather Zichal was officially tasked with forging alliances with the oil and gas industry this year.
Things are much as they were during the early days of the oil and coal monopolies. In the late nineteenth and early twentieth centuries, Rockefeller’s Standard Oil (primordial ancestor of ExxonMobil, Chevron, ConocoPhillips, and BP) and the early coal trusts in Ohio and Appalachia (now Peabody, Consol, and others) benefited from very high tariffs granted by the McKinley and Dingley Acts. Foreign oil from Russia and coal from China were effectively excluded from U.S. markets. The tariffs added enormously to national revenue and produced massive economies of scale for American fossil fuel firms. U.S. trusts were pampered, to the devastation of everyone else trying to make an honest living in the energy business. A 1913 hearing of the Senate Lobby Inquiry Committee revealed what everyone already knew: legislators were receiving copious backdoor funding from oil and coal coffers. Energy trade liberalized after the Payne-Aldrich Act of 1909, but early protectionism inaugurated more than a century of collaboration between government and the fossil fuel industry, with generous subsidies, privatization of public utilities, bullying of developing countries to reduce trade barriers that protect competing fuel firms, and virtually unchallenged land grabs persisting to this day. These facts are curiously glossed over in books such as Daniel Yergin’s Pulitzer-winning history of oil, The Prize, but fortunately archives of congressional records and investigative reporting from that period are easily accessible.
We’re not the only ones with a politically connected fossil fuel sector. The Chinese coal industry accounts for 45 percent of global production—despite having only 17 percent of global reserves—and more than 70 percent of the country’s energy consumption. Their oil industry provides for another 19 percent. With an annual GDP per capita growth rate above 10 percent, total Chinese energy consumption has grown annually by 12 percent since 2000, putting enormous pressure on Beijing to expand mining and drilling. But the government no longer wants the distinction of leading the world in net carbon emissions and is unabashedly pursuing green industrial policy in the face of powerful coal and oil interests.
China has used the “villainy” of state-led industrialization to become the world leader in renewable energy investment, spending a record $257 billion in 2011, with $147 billion allocated to its solar industry alone. China now controls over half of the global wind turbine market and two-thirds of the global solar market. China’s Three Gorges Dam, completed this July, is now the world’s largest hydroelectric power station and is set to significantly reduce emissions from electricity generation. Beijing also recently lifted a moratorium on new nuclear plants and announced plans to produce 30 percent of its energy from nuclear and renewables by 2030 (the current figure is less than 2 percent).
The competitive edge this has given Chinese firms has fueled the bellicosity of Washington and its industrial partners, who have been eager to manipulate popular sentiment and scapegoat China for outsourcing. The reality is, inconveniently, far more self-incriminating. In the decade since President Clinton signed the U.S.-China Relations Act of 2000, enabling China’s permanent normal trade relations status and setting the stage for its accession to the WTO, the U.S. trade deficit has metastasized, eliminating 2.7 million U.S. jobs, 77 percent of which were in manufacturing. That’s more than half of all manufacturing jobs lost during that period. Meanwhile, there’s downward pressure on American middle-class wages, and Chinese labor is still shamelessly exploited.
Instead of admitting that the benefits of free trade were grossly exaggerated, RomObam zealously endorsed laying siege to Chinese chicanery in a rare moment of bipartisanship, with hardly a whimper of dissenting opinion in the press. What nefarious crimes are the Chinese allegedly perpetrating? Various protectionist policies, currency depreciation, intellectual property rights (IPR) laxity, and aggressive industrial policy investing billions to ensure native Chinese firms in various sectors are globally cost-competitive. In other words, precisely the kind of bold state economic intervention required for infant green firms to become cost-competitive with fossil fuel monopolies—and to have the slightest chance of lessening the perilous impacts of climate change.
Since 2007 the United States has filed several dispute-settlement actions with the WTO, alleging the Chinese were violating an intellectual property agreement as well as dumping subsidized imports at “below-market” prices to the detriment of U.S. manufacturers. On September 17, the Obama administration leveled another WTO suit, this time alleging China illegally provides excessive production and export subsidies to aid their auto industry. Never mind the enormous “market-distorting” Detroit auto bailout. Practically speaking, Toyota and other leading auto manufacturers have an insuperable advantage in the production of traditional gas engines and hybrids, after years of reaping benefits from national industrial policies. It only makes sense that China heavily subsidizes its auto industry, especially by investing in electric vehicle and advanced battery storage technology, advancements that have been lagging among competing firms. The same day of the latest WTO suit, the Chinese retorted with their own pointless trade litigation.
And just as Washington protects domestic auto manufacturers and the jobs they provide, it now extends such industrial parenting to the (less labor-intensive) renewable sector. Last May, the United States, under pressure from SolarWorld USA and other manufacturers determined not to become the next Solyndra or A123, imposed a tariff of 31 percent on numerous Chinese green tech products, even as it simultaneously induces developing countries in the WTO to reduce average tariffs below 8 percent. China responded combatively in August by alleging the U.S. tariff violated a WTO agreement. (A similar back-and-forth took place between China and the European Commission, which is investigating Chinese state subsidies and product dumping, to which China responded on November 1 with its own investigation of EU solar polysilicon imports.)
The U.S. wind sector is also receiving government protection, to the dismay of certain Chinese capitalists. In October, the Chinese Ralls Corporation sued the Obama administration for unilaterally blocking foreign direct investment (FDI) in an Oregon wind farm near restricted Navy air space on the dubious grounds of “national security” concerns. National security means, in the parlance of grand strategy, freedom from economic competition. Until, of course, the competition in question is native fossil fuel interests. This is why the Obama administration is expected to eliminate a wind production tax credit that was just beginning to make wind power cost-competitive with fossil fuels.
Successful climate policy requires a careful balance between multilateral economic cooperation and nationalist green industry protection. The fact that these two agendas need not be perpetually at odds is lost in all the trade war hype. It’s time to quell the trade hysteria and save all the valuable time and energy squandered on litigating ourselves to ecological ruin. Levying high tariffs on low-cost Chinese green products isn’t necessarily folly; but if we’re going to pursue the import-substitution route, it must be matched with enough environmental worker training, R&D, and production subsidies to allow indigenous green firms survive on an unequal playing field. Otherwise tariffs will only contribute to more emissions. Inexpensive Chinese solar panels are better than no solar panels.
Green infant industry promotion shouldn’t last forever—we don’t want to create a government-capturing monster like the fossil-fuel industry—but it also shouldn’t end prematurely. Spain’s energy policy provides a painful example. In the past decade the Spanish were world leaders in clean energy production, on the verge of achieving grid parity (where renewables reach the same average cost as fossil fuels). But right after Mariano Rajoy took office last December, his administration hastily abolished its clean energy subsidies in a draconian austerity package, forcing more than a dozen growing Spanish firms to leave the country.
The more earnestly and expeditiously the United States pursues green industrial growth, the sooner the fossil fuel industry will lose its stranglehold on national energy policy. It’ll suddenly have viable rent-seeking competitors, and policy deliberation won’t be so unduly lopsided. Fossil fuel firms, in the meantime, are being partially appeased with big state investment in integrated gasification combined cycle (IGCC) and carbon capture and sequestration (CCS) innovations. The green movement shouldn’t be so quick to dismiss such investments since they could potentially reduce coal emissions to near-zero as technologies mature. This will update our dilapidated infrastructure, reinvigorate the middle class, and reduce emissions.
Obviously, massive green stimulus spending is required. Arguing endlessly with deficit hawks about how soon we should worry about the debt is idle; currency devaluation will happen whether we like it or not. As Dean Baker writes: “if we want to have something near a balanced budget without a bubble driving our economy then we have to get the dollar down to get our trade closer to balance. This is not an optional policy or a debatable point. It is a simple matter of logic.”
It’s also worth pointing out to free-trade dogmatists that higher tariffs on certain goods could put upward pressure on wages and contribute enormously to national revenue, preventing dangerous debt accumulation even at times of progressive state-led growth. We should not deny developing countries the right to use such methods to fortify their renewable sectors, which means the WTO will have to be more flexible on climate-related development and low-cost technology transfer. Once poorer countries have further developed and eventually reduce average tariffs in turn, our native manufacturers and even the financial sector will ultimately have access to far greater and more mature markets than they ever could today. In other words, robust climate policies will probably be beneficial even for obstructionist multinationals in the long term, if only their ownership structure didn’t force shortsighted shareholders to dominate management decisions.
Adam Smith warned that if a government leader ever has the audacity to challenge the dominant business interests he’s expected to serve, then “neither the most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.” The current governing elite is far more fearful of the financial orthodoxy and fossil fuel monopolists than the latent militancy of the general population and future generations. If serious climate policies stand any chance, this power dynamic must change, preferably sooner rather than later. It shouldn’t take another ecological disaster to spur in us the pugnacity required.