We need an international climate strategy
While media attention is almost obsessively focused on climate change as a unique civilizational-level challenge, the truth is that it is one of many global collective action problems addressed through international cooperation. Some problems are easier to handle than others, but the key to the best strategy is usually centered around two concepts: “cost of compliance” and “value of compliance.” In other words, what the participant’s cost is, and what is received in return.
The easiest problems to tackle are the ones that cost the least to solve and give the most benefit. It is an international standard that all pilots speak English, everywhere. An Italian pilot flying into Mexico speaks English, and vice versa, because international air travel becomes difficult to organize without a common language. The economic burdens of the rule are tiny, and the benefits of international air travel are so substantial that the cost calculation is ridiculously easy. Further, there is no value to be had in defecting or undermining the standard. A German pilot flying into America isn’t going to get anything out of throwing the air traffic controller a curve ball, and so the international standard remains.
The best example of a successful international environmental agreement is the Montreal Protocol, which required nations to replace ozone depleting chemicals. The Montreal Protocol was enormously successful, phasing out over 99 percent of ozone depleting substances. This success was achieved because substitutes were readily available, the costs of failure from a damaged ozone would have been high for all parties involved, and the economic value of defecting from the agreement was extremely marginal due to the low-cost differential among technologies.
Unfortunately, when the costs of compliance are high, the benefits are low or uncertain, and the incentives for defection strong, the traditional model of international cooperation becomes tougher to attain. The Kyoto Protocol, the world’s first attempt at a multinational climate change agreement, failed spectacularly as it burdened only developed nations, and demanded nothing of developing ones such as China. The United States never ratified it, and President Barack Obama didn’t even sign it.
Climate change is difficult to address with conventional international agreements because, despite the common political rhetoric, it is an expensive and difficult task to transition to clean energy. The Global Financial Markets Association (GFMA) estimates that $100-150 trillion is needed to address climate change, and the International Energy Association estimates the cost at $44 trillion. Even more bullish reports, like those referenced in the Intergovernmental Panel on Climate Change’s Special Report (IPCC), estimate a cost of $1.6 trillion per year. The cost challenge is compounded when you consider that over 80 percent of the world’s energy consumption still comes from fossil fuels, and most of that consumption will occur in developing nations that are poorer and less able to absorb the costs of an energy transition. Climate change is a classic “Prisoner’s Dilemma”—the incentives are strong for nations to try to shirk costs and pass them onto others, which perpetuates the problem and makes it hard to “win.”
The strategy of “leading by example” on climate change can work if the example one sets illustrates that it is easier and more fruitful to make climate progress than initially perceived. Unfortunately, the example set by some of the most progressive governments and policies has been the opposite.
California has been one of America’s most ambitious states for integrating climate change into all facets of governmental policy, but the endeavor has not been without tradeoffs. California’s electricity price, a result of ambitious renewable portfolio standards, is $0.17 per kilowatt hour—roughly 60 percent higher than the national average. Further, the median home price in California is $550,800, more than double the national median, and these costs are exacerbated by climate-related regulations like rooftop solar that add an estimated $8-10,000 per home. And homeless rates—one of the most important measures of poverty—has shown that California leads the nation with over 160,000 homeless residents, a nearly 40 percent increase since 2015. Additionally, more than two-thirds of those homeless persons are unsheltered.
The story is similar in other ambitious states. For instance, Massachusetts’ electricity price is $0.18 per kilowatt hour, and New York’s is $0.14. In testimony to the Federal Energy Regulatory Commission, R Street noted the world looks to our electricity systems only when we are leading on costs that are lower, not higher. Even in Europe, the hallmark example of climate success, we see exorbitant energy prices: electricity in Germany costs over 30 euro cents per kilowatt hour, and 21 percent of that is dedicated purely to subsidies for renewable energy.
We’re also forgoing ample opportunities to set an example for reducing energy costs while promoting climate progress. As noted by the Montreal Protocol, we should be showing countries the way to reduce the underlying costs of developing and deploying new technology, rather than showcasing a need for unending subsidy. Regulatory barriers continue to stymie clean energy deployment and the electricity transmission needed to service it. And even as a more efficient tax code post-tax reform has stimulated research and development (R&D) investment, politicians are already promising to revert the changes and raise taxes on capital. Reducing clean energy costs, rather than passing them onto taxpayers via subsidies, is the true opportunity replicable in developing nations, but not the example set thus far.
A more effective international strategy on climate change would instead be to treat it as we do other “Prisoner’s Dilemma” problems. The rapid proliferation of nuclear powers during the early Cold War was staunched by the Nuclear Nonproliferation Treaty (NPT). The NPT’s success has come from the recognition that participation and compliance afford access to the markets and technologies of developed nations, and noncompliance is met with stiff sanctions and economic pain. The United States and other developed nations leverage access to their consumers and capital to impel concessions from foreign actors. They did not unilaterally disarm and hope for reciprocation.
But critiques of Biden’s strategic approach to securing climate ambition abroad should not be taken as critiques of the Paris Agreement itself. The treaty has some virtues, not the least of which is its voluntary nature sidestepping the potential for “spoilers,” which is when a few nations can block any progress (low-lying nations existentially threatened by climate change, for example, would never accept a climate deal that doesn’t fully commit to progress). It also creates a standardized means of emissions accounting and allows the United Nations to act as a verifying body.
The Paris Agreement is, in effect, a building block for alternative international agreements that may not even be climate-focused at all. The United States could, for example, negotiate a free trade agreement with another nation and insert an environmental provision, which would then be complied with and verified through an amendment to that nation’s NDC under the Paris Agreement. It is much easier to forge small bilateral or multilateral agreements that are more focused on mutual economic cooperation and then attach an environmental issue to it. Indeed, this was generally the strategy for promulgating human rights progress, as when the post-Cold War former Soviet nations that sought closer ties with the West had to demonstrate their human rights improvements to the Council of Europe.
When it comes to a massive global collective action problem like climate change, we shouldn’t lose sight of the fact that the United States represents only a fraction of global emissions and can’t solve the problem alone. Either the costs of climate progress need to come down considerably, perhaps through innovation, or the United States and its partners need to focus on the resources they do have that can induce reciprocation abroad. The Biden administration’s strategy of hoping that the high-cost policies he has endorsed will be popular globally is wishful thinking. Instead, it is time for the United States to have a climate strategy, using its limited resources to produce the desired outcome, just as it has for other major foreign policy issues.
Image credit: Arthon.Meekodong