As one chanced upon an interesting article on climate change and industrialization, it brings back to the fore the critical question of climate change being a tool to protect domestic industries in the western world. Without doubt, climate change is something of a topic that opens up fissures across board. While there is a school of thought that believes climate change will adversely impact the society and thus needs to be redressed, there is another school which stresses primacy on industrialization and economic growth as against environmental protection being a primary concern. There is a pervasive feeling in many European countries over the need to combat the issues that might arise of a prospective climate change. As greenhouse gases increase in emission, there is a need to reduce the same to combat global warming and other unforeseen dangers. The costs of present day inaction would perhaps be borne by the future generations. The argument against increased fossil burning lies in it externalizing today’s costs to a future point of time while benefits being concentrated in the present.
In the pursuit of green innovation and measures to build up technologies and processes that would reduce emissions, it is Europe which is essentially taking the lead. US while having a strong lobby for climate change, has equally a conservative lobby against climate change and thus environmentalism is more of strategic tool to sermonize others than something to be replicated back home. As part of risk minimization due to prospective climate change, the European Union are moving forward with a proposal what they term as border tax adjustments. In other words, they are introducing to the lexicon a new tariffs, tariffs that are aimed at countries that do not meet standards for European emission norms. Europe has some stiff environmental standards. These are something not met by many other countries. So beginning perhaps 2023, they are seeking to impose specific tariffs to those products from select countries not meeting the standards set by Europe. Implied in the proposal is not about bringing some kind of common approach to global climate change but an environmental barrier of entry.
Given the relative unpopularity of globalization in Europe, the increasing unemployment in the continent, all point out towards support to environmental standards of higher order by a population uncertain about job security. To a vast section of population, uncertain about their future, the green deal would be a kind of a model that would protect industries in Europe by reducing imports. If the tariffs are imposed, the imports from countries like India would reduce thus creating new opportunities for job creation in the continent. Rather than global approach for common good which is the stated intention, it is apparent that the domestic protectionism which has higher priorities given the political magnifications is driving the strategy. In other words, Europe went through the process of greenhouse emissions, wasn’t bothered till others caught up, were responsible for those emissions in part due to their colonial policies, given the relative asymmetries in technological progress, the continent manages to progress, and now seeks to sermonize the rest about the dangers of climate change.
Yet, while the European continent might afford to adopt technologies that mitigate greenhouse emissions, the same cannot be said for the developing countries like India. There is an apparent trade-off which skews decisively towards development and economic growth as opposed to containing greenhouse emissions or environmental protection. Given the energy needs of the growing population, there would obviously be an increasing in consumption and oil. This is despite India achieving impressive strides in renewable energy sources like solar, wind, hydel etc. The renewables account for less than 10% of the total energy needs in the country. While the country has made progress towards creating a base for solar power etc., it would be necessary for it to continue adoption coal based power. The cost effectiveness of the existing energy system will skew the decision in its favor. At this stage, an imposition of tariff would essentially hurt the country’s manufacturing base. India can adopt the technologies are environmental friendly. Yet these technologies come at a certain price. The price is not something that country would want to spend at this stage. The cost of production is likely to rise resulting in higher priced output. Given the price sensitive economy, this would set back its competitive advantage and comparative advantage in manufacturing. It must be reiterated yet again that the Western world embraced environmental technologies only when they could afford them at a ‘China Price’ to borrow from Friedman.
The preferences of various countries obviously differ. The European Union might be inclined towards a more progressive change whereas to countries like India, the priority would certainly be inclined to ensuring large masses of population get out of poverty with sustainable disposable incomes. A section of population still perhaps lives on subsistence though the numbers have drastically fallen over the last couple of decades or so. Yet the disposable income has not increased significantly. Their export promotion would be imperiled if the Green Deal were to go ahead. What the Green Deal seeks to do, is to create a sort of level playing field so that the European firms do not lose on price disadvantage. In a free-for-entry model, the firms would shift to India where they can reap lower costs. India, China among others can leverage their Porterian cost leadership paradigms something the Europeans or the Americans cannot do. The counter solution would be price-equalisation policy which through tariffs make it indifferent for the firms either to produce in Europe or in India. While it might sound politically convenient, it hardly does any significant productive benefit to combating global environmental challenges.
It might prima facie seem an inclination to works towards mitigating the ill-effects of climate change. Yet behind the façade, lies the objective of protectionism. The protectionist barriers were sought to be eliminated by the provisions of the Marakkesh accord that led to the creation of World Trade Organization (WTO). Instead of a global free trade, the developed world continued to protect their own industries. The market were supposed to be good for the developing world while the developed world continue to practice market avoidance. What however changed was the shift from tariff to non-tariff barriers. The environmental standards, the labour standards etc. were all a smokescreen for continued rationale for domestic protectionism. The tariffs that are sought to be levied under the Green Deal are just another step towards this tendency of market avoidance. The rest is commentary.
Thoughts on Theory and Practice 