Wednesday, March 2, 2011

China's growth and the climate

Here's a pessimistic post from Climate Progress asserting that China's currency policy has led to the country taking an increasingly dominant role in the production of greenhouse gases. The charts are quite interesting, including a nifty Herfindahl index of the concentration of CO2 emissions across countries.

Whether China's export-led growth policy really provides a causal account for the trend in its share of GHG emissions I am not sure: the authors of the post don't provide a counterfactual under, say, a more neutral currency policy. But even taking their story at face value, the news seems more mixed to me. According to the story, if China had not manipulated its currency, more of these dirty industries might be dispersed in other countries, but it’s not clear that the total global GHG emissions would be any lower. Indeed, the high concentration of GHG emissions in a few countries could facilitate reductions over time. As the post notes, China will suffer significantly from climate change. The fact that they produce a huge portion of the problem and will suffer a big adverse consequence implies that, in economics jargon, they have partly internalized the externality. This should increase their incentive to do better. Concentration could also make it easier to achieve international agreements, since negotiation would be between a smaller number of major players.

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