To kick off 2011, the Obama administration has had the audacity to file suit at the World Trade Organisation (WTO) against China’s policies to build green technologies.
This action is deeply flawed. The US should not try to beat China down, but should pursue its own green jobs policy and reform the WTO, so the rules allow countries to combat climate change.
The United States and China are the world’s largest emitters of the greenhouse gases. Together and separately, each nation should be doing all it can to develop clean technologies to mitigate and adapt to climate change.
That is not how the Obama administration has seen it. Repeatedly, at United Nations climate negotiations, the US has said that it will do little to combat climate change unless China does. Moreover, the US has stated it will not provide any financial assistance to China to help reduce emissions. With no US support, China was left to its own devices.
Fortunately, the government rose to the challenge. In 2009, China added more wind power than any other country, including the United States. China already has the largest solar thermal capacity in the world and now leads the world in installed renewable energy capacity.
The US claims that such impressive feats have been achieved in part by the establishment of a green fund that helps firms make wind power equipment, with the stipulation that some parts be sourced from Chinese firms. If the WTO finds that China’s green fund targets only specific sectors, that such funds are conditioned on sourcing to local firms, and that the funds are channelled to trade activities that harm US firms and workers, then China may indeed be found in violation of the WTO rules.
But if that does prove to be the case, China should not be seen as the problem. The problem is the WTO.
Every nation should be given all the policy space they need to develop technologies to mitigate and adapt to climate change in a manner that creates jobs and harnesses development. Included in that space should be precisely these types of conditional requirements that have allowed China (like the US before it) to build its domestic capacity for economic development.
The use of climate-altering fossil fuels distorts trade. Subsidising alternatives can correct those distortions. Oil and coal prices seldom reflect their environmental costs and are thus overproduced. The World Bank’s 2010 world development report reckons that fossil fuel subsidies amount to at least $300bn per year. If prices reflected true costs, then much less polluting trade would occur and renewable energy would be on a more even playing field.
Subsidies to renewable energy, such as wind power, can help correct the distortions in the energy market and allow the world to climb the learning curve for renewable forms of energy. This brings major expansion of production and reduction in unit costs, which benefit everyone economically, including US consumers, while also saving the planet.
There should be room for such market-correcting subsidies in the WTO, and such subsidies should be linked to jobs and development. As I discuss in a report with Francisco Aguayo, there may be a window at the WTO for subsidies for alternative energy. Developed countries saw to it that the subsidies agreement at the WTO left room to support research and development, regional inequality and environmental protection. This window closed in 2000, but is under review in the (stalled) round of WTO talks, and could be expanded.
What is more, the record shows that nations such as Great Britain and the United States in the 19th century, and Japan and South Korea in the 20th, all used policies to foster domestic industry, as China does now, in order to promote development. Albert Cho and Navroz Dubash point out that the US rural electrification administration in the 1930s favoured domestic firms to electrify the US countryside.
Today, renewable portfolio standards in certain US states that are linked to US firms may also be questionable under WTO rules. And US department of energy’s support for renewables in 2010 was $3.8-$5.3bn.
None of this is wrong. Such policies should be ramped up across the globe. The US is understandably concerned about lost jobs. Really, though, it should be more concerned with its own weak job-creating green investments. Rather than beating on the Chinese, the US should follow China’s lead and build its own green industrial strategy.
In The Audacity of Hope, Barack Obama wrote:
“Indeed, countries that have successfully developed under the current international system have at times ignored Washington’s rigid economic prescriptions by protecting nascent industries and engaging in aggressive industrial policies.”
It’s time to practise what is preached.