The Fault Lines on Global Warming

A very interesing piece in the Guardian, “Davos ’07: it’s gone green,” points to surprising areas of agreement amongst the commercial cohort at Davos, but also exposes predictable fault lines. First the good news:

Davos has gone green. The first thing you see on entering the conference hall is an invitation to make your visit carbon neutral by way of a handy offset programme. And the agenda is packed with discussions about climate change, often with a surprisingly green flavour.

Thus in one series of debates, business leaders voted against the motion that markets were superior to regulation in leading companies down the path of righteousness; against the idea that a global carbon tax would do more harm than good; and against the idea that nuclear energy and clean coal were the only viable alternatives to oil.

Perhaps it’s the crisp clean mountain air that is turning the delegates’ heads.

If any of these notions survives the trip back to the real world, the most important is that regulation is a more viable way to get companies to take action on climate change than free markets. The problem with the market doctrinnaire persepctive is that it has no way to deal with externalities, namely, the costs of production and sale of goods that are borne by parties external to the transaction. If the elite who went to Davos can sell that to their corporate bretheren, real progress has been made.

However, an ugly but predictable split between the first and third world has come to the fore:

Speakers from China and India are taking every opportunity to make clear that the problem has been caused by the developed economies – and it’s those countries that are going to have to fix it.

The developing world is not going to accept limits to its growth in order to get us out of the mess.

Montek Singh Ahluwalia, deputy chairman of India’s planning commission and right hand man of its prime minister, made the point with absolute clarity. “The fundamental principle of environmental economics,” he said, “was that “every country should have the same per capita rights to pollution.”

Ooof, if we accept that premise, we might as well kiss the earth (as far as human habitation is concerned) goodbye.

And that in turn can undermine the lofty commitment of first world executives. When the EU announced its commitment to moving to a low-carbon economy, some business leaders protested, fearing it could undermine competitiveness. If China and India refuse to take aggressive steps to combat global warming, we could see a continued rush to the bottom as advanced countries insist on staying their current destructive course rather than lose market position.

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