Why are politicians throughout the world arguing when the earth is burning? Politicians in the US can't seem to smell the smoke coming from the wildfires in Canada. Chinese officials are unable to feel the intense heat in Beijing. Don't the presidents and prime ministers of Europe recognize that certain stretches of the Rhine could become impassable in the upcoming weeks as water levels dangerously drop?
Politicians are aware of these issues, and some are taking action. For instance, a green subsidy competition between the US, China, and EU is bringing down the price of clean technology. It could, however, be too little and too late. Unofficial statistics show that the average temperature on Earth reached a record peak last week.
The "free rider" problem, as it's known in economics, is one reason why governments don't do enough. The expenses of combating climate change are borne by individual nations, but the rewards accrue globally. Any country can ride on the goodwill of other nations, so it has no incentive to act sufficiently. Everyone is negatively impacted as a result.
Theoretically, it is possible to find strategies to encourage all nations to contribute their fair share. One is for nations to consent to act jointly. That was the underlying principle of the 2015 Paris Climate Agreement. However, the agreement is toothless.
The formation of a "climate club" by ambitious nations is another option. The Nobel Prize-winning economist William Nordhaus has argued that such a coalition may be formed by nations that are eager to reduce their emissions quickly and use the fear of trade penalties to entice non-members to join.
A similar union is being formed by the large, wealthy democracies of the Group of Seven (G7), though not with the same heft as Nordhaus had envisioned. Another, slightly related proposal is for China and the US, the two greatest carbon polluters, to collaboratively agree to take additional steps to reduce their emissions and then utilize their combined influence to persuade other nations to do the same.
These solutions are still far from being ready due to geopolitical conflicts. Nevertheless, in the upcoming months and years, the stars might line up.
Carrot and stick
Begin with the climate club. The group need lofty goals and a sufficient number of members in order to make a significant impact on global warming. However, the likelihood of more nations joining decreases as the obligations increase.
The club need carrots and sticks for this reason. In order to hasten the decarbonization of their economies, rich economies should provide financial aid or guarantee them preferential trading possibilities to less wealthy members.
The club might impose tariffs on imported carbon-intensive goods as a warning to non-members who don't switch away from fossil fuels quickly enough. A carbon-based border adjustment will be applied to imports of industrial products like steel and cement starting in 2026, as agreed upon by the European Union.
The G7 is having trouble obtaining huge carrots, though. For instance, "friendshoring" programs, where wealthy nations try to lessen their reliance on China by establishing supply chains elsewhere, are creating new trade prospects for nations like India. However, they are not dependent on a decline in carbon emissions.
Although wealthy nations have pushed the World Bank to concentrate on addressing climate change and have inked so-called fair energy transition collaborations with nations like Vietnam, funding for developing nations is still sparse. The club may also promise to provide funds from any increased carbon taxes to its less fortunate members.
How to comply with the World Trade Organization's non-discrimination regulations is the key challenge when using the carbon tariff stick. As domestic manufacturers are already required to purchase permits for each tonne of carbon they produce, the EU believes it has dodged the problem. Foreign producers will be forced to pay the same amount due to the carbon border tariff.
However, without a substantial incentive and a sizable stick, the climate club will remain a low-key event. Only Argentina and Indonesia, two significant growing economies, have joined thus far. The organization is currently concentrating on the important but scarcely revolutionary task of developing standards for environmental industrial products.
Jumping together
It will also be challenging to realize the other option, which calls for China and the US to jointly make more ambitious decarbonization commitments.
True, more needs to be done by both nations. According to Isabel Hilton, creator of China Dialogue, Beijing's resolve to reach peak emissions of carbon by 2030 and bring them to net zero by 2060 is weak. Given the pace at which it is implementing renewable energy, the People's Republic ought to be able to comfortably surpass its goals. Adair Turner, chair of the Energy Transitions Commission, notes that despite the US Inflation Reduction Act's significant advancement, Washington's actions are still insufficient to achieve its goal of reducing emissions by 50% compared to 2005 levels in 2030.
If other countries were willing to set higher goals, China might be willing to tighten its targets. The issue is that President Joe Biden won't be able to take additional action until after the election of next year. The fight towards climate change would suffer if Donald Trump were to win another term as president.
The fact that the destiny of the globe hinges on the course of American politics is unsettling. However, the other G7 countries can continue to develop their carrots and sticks, while China can keep implementing its solar and wind energy plans.
Additionally, the chances of working with China and the G7 Climate Club would increase if Biden is elected again next year. The climate free rider issue could be resolved by any of these two options, or both.