Academic

So said a delegate from Papua New Guinea to the American delegation during the conference on climate change in Bali. America?s failure to provide leadership with respect to climate change has become a recurrent complaint. But is this criticism just?

Here is a simple way to look at the climate problem. The gain from limiting global warming is 100; the cost of abatement necessary to produce such a gain is 20. However, none of the gain will be obtained unless all of the cost is incurred.

A natural approach to this problem is for the main greenhouse gas-emitters?say, the U.S., the EU, and China?to negotiate an agreement that shares the cost. Given that China is a poor country, we could imagine a deal like this: the U.S. and EU each pay 8, and China pays 4.

However, China has said that it will not pay 4 or even 1, and so the U.S. will not commit to paying 8. Suppose (falsely but to simplify) that the EU has clearly committed to paying 8. This means that the U.S. and China must bargain over the 12.

?Leadership? in the context of the Bali talks apparently means that the U.S. announces that it will pay 8 as well, while China will not (yet) have any obligations. However, if the U.S. were to do this, it would hand China all the bargaining power. China might say to the U.S. and EU, ?Having committed to pay 16, you need to pay only 4 more in order to obtain a gain of 100. We don?t think your threat not to pay that 4 in order to punish us for failing to pay anything is credible. Therefore, either you pay the last 4 or give up any gains from a climate treaty.? In the end, we might imagine the EU and the U.S. splitting 3 and China paying a token 1 (effectively, the EU and the U.S. would have to pay China to reduce greenhouse gas emissions).

A similar argument was made during the cold war. Advocates of unilateral nuclear freezes or disarmament argued that if the United States moved first, the Soviet Union would reciprocate. Their argument was not accepted, so we do not know what would have happened if this had been tried. But the contrary view that the Soviet Union would not have reciprocated but instead have enjoyed greater power over world affairs was plausible then, and the similar argument about climate is plausible today.

We know several things about China. That the leadership fears, more than anything, political unrest of the sort that occurred in 1989, and believes that only continuing economic growth can prevent such unrest from recurring. That economic growth requires greater exploitation of energy resources, including China?s enormous natural supply of dirty coal. And that, for the Chinese, far more pressing environmental problems exist than climate change, including massive air and water pollution that kills lots of people today, rather than in the future.

Why, then, would one expect China to reciprocate if the United States, the EU, and other developed countries committed to greenhouse gas emission reductions? Why not expect China to free ride, instead demanding compensation for any greenhouse gas emission reductions on its own part that the rich countries desire?

Many people argue that poor countries imitate rich countries in order to be ?modern? or to ?be like them.? However, the evidence for this argument is weak. A more respectable argument is what economists call a ?signaling? argument, namely, that China does not believe that the rich countries take global warming seriously enough to cut their greenhouse gas emissions. The rich countries must unilaterally make significant cuts in their emissions in order to prove to China that they really do care about climate change, and that they would comply with any treaty they entered with China. Only after such steps have been taken, will China understand that the rich world is serious and that climate change is as big a problem as the rich world claims. And such steps have not yet been taken, not even by the Europeans (appearances to the contrary).

However, signaling arguments assume asymmetric information and it seems doubtful that China faces any information problem with respect to the intentions of rich countries. The science is widely available, as are the economic studies. And, anyway, the natural way of dealing with this problem is for all countries to engage in staged reductions of emissions, with built-in provisions for monitoring compliance.

The United States could have done better, and even have exercised some leadership, by refraining from expressing doubt about the science long after the science had become clear, and perhaps investing more in research in clean technologies (though the United States has invested quite a lot). It should also have advanced at an earlier stage a more positive agenda, such as a set of realistic commitments that would be applicable to all countries with significant industrial activity. But if by ?leadership,? critics mean committing to cutting greenhouse-gas emissions before other major emitters such as China have, rather than insisting that China be ready to deal, then this failure of leadership was justified.