international trade

It was only a matter of time:

Japan files trade dispute over Ontario solar power rates


GENEVA — Japan has initiated a trade dispute against Canada related to renewable energy equipment in the province of Ontario, the World Trade Organization confirmed on Monday.

The Japanese mission to the WTO said the dispute centres on guaranteed long-term pricing for solar and wind generators made with a certain percentage of locally-produced components.

Some industrial strategy.

Ontario aspires to become one of the global leaders in green energy, like Spain. Apparently, we have a lot of catching up to do. Let’s hope the gap stays wide:

All this bluster about trade wars, burying the opposition in wind turbine blades and biogas feedstocks, only works if you don’t really mean it.  What would be really great is to convince your rivals to overpay for energy – by a lot.[1] The EU has already volunteered to do this and is watching its future slowly sink into a sea of red ink created by renewable energy subsidies and excessive taxes on electricity and fuels to pay the subsidies (okay, welfare state benefits hurt, too, a lot).  Spain’s annual subsidy bill for renewable energy is now about $38 billion—more than twice what the U.S. federal government spends—to subsidize energy for an economy just one-ninth the size of the US. 

Once you get past the gratuitous dig about “junk science,” Paul Krugman’s column today about reducing carbon emissions makes a lot of sense.

As a card-carrying economist, I cringe when “green economy” enthusiasts insist that protecting the environment would be all gain, no pain.


Let’s talk first about those costs.

A cap-and-trade system would raise the price of anything that, directly or indirectly, leads to the burning of fossil fuels. Electricity, in particular, would become more expensive, since so much generation takes place in coal-fired plants.

Electric utilities could reduce their need to purchase permits by limiting their emissions of carbon dioxide — and the whole point of cap-and-trade is, of course, to give them an incentive to do just that. But the steps they would take to limit emissions, such as shifting to other energy sources or capturing and sequestering much of the carbon dioxide they emit, would without question raise their costs.

If emission permits were auctioned off — as they should be — the revenue thus raised could be used to give consumers rebates or reduce other taxes, partially offsetting the higher prices. But the offset wouldn’t be complete. Consumers would end up poorer than they would have been without a climate-change policy.

He then goes on to suggest that these costs would not be very high and is critical of those who say the costs will be higher:

To be sure, there are many who insist that the costs would be much higher. Strange to say, however, such assertions nearly always come from people who claim to believe that free-market economies are wonderfully flexible and innovative, that they can easily transcend any constraints imposed by the world’s limited resources of crude oil, arable land or fresh water.

So why don’t they think the economy can cope with limits on greenhouse gas emissions? Under cap-and-trade, emission rights would just be another scarce resource, no different in economic terms from the supply of arable land.

Now Krugman is a very smart guy — he did win a Nobel Prize in Economics after all. Yet he seems rather dismissive of the unintended consequences of the policies he puts forward to limit emissions. The beauty of markets is that people and businesses will adapt to any change in incentives. But despite this adaptive capacity, bad, poorly thought out policy is still likely to result in bad or unwelcome outcomes.

If you raise costs in one market, say by introducing a cap-and-trade system, economic activity will tend to shift to other markets which do not face such costs. That is why it is so important to include countries like China in any agreement on greenhouse gases.

Politicians will not sit idly by as economic activity in their jurisdictions shifts to carbon havens. They will be under enormous pressure to do something, raising the possibility of new trade barriers and other protectionist measures using climate change as the pretext.

The great risk is that such measures would induce retaliatory actions and result in a trade war, which is the last thing the global economy needs at this juncture. While pushing the global economy into deep depression would have the salutary effect of reducing global GHG emissions, the cost of such reductions would be very high. Krugman knows better.


Update: Peter Dorman, of the left-leaning EconoSpeak, criticizes Krugman from another angle, noting his failure to consider the capital-trashing aspect of cap-and-trade.

Is Barack Obama committed to addressing climate change? Or is he simply using it as a pretext to raise trade barriers to protect American industry?

For all Barack Obama’s talk about rejecting new trade barriers, there is an increasing awareness around the world that the United States is planning to introduce climate-change legislation that amounts to little more than green protectionism.

The Chinese get it. This week, a top advisor to the Chinese government warned that a proposed tax levied on imports to cover carbon contained in U. S.-bound products “smells like protectionism” and threatened to challenge the law at the World Trade Organization.

Now, Jim Prentice, Canada’s Environment Minister, appears to get it, too.

He said the border tax proposed in legislation introduced into the House of Representatives by California Democrat Henry Waxman “is an issue.”

As Ivison suggests, the Obama administration is proposing to make others pay for U.S. reductions in greenhouse gas emissions. In effect, the U.S. will become the carbon free rider of the international economy.

In the process, Obama’s actions will provoke an increase in trade barriers around the world (à la Smoot-Hawley) that risks turning a nasty global recession into a full-blown depression. Sadly, I don’t think that is what most people thought he meant by “change”.

In a recent column, Terence Corcoran argues that Canada’s National Roundtable on the Environment and the Economy is charting the course for Canada to “move boldly backwards into the disastrous world of central socialist planning.”

This week the NRTEE produced the latest report in its current mission, which is to turn Canada’s market-driven energy economy into a what Prof. Ellman would call a centrally planned indirectly bureaucratically controlled low-carbon economy.

Titled “Achieving 2050: A Carbon Pricing Policy for Canada,” the report adds hundreds more pages to the NRTEE’s existing volumes on carbon and climate issues. It also adds a fresh batch of horrifying economic ideas to a planning agenda that is already on the brink of parody.


Despite the uncertainty [of their modeling], the NRTEE report never hesitates in throwing out numbers on how much a carbon pricing policy will cost consumers ($2,000 to $4,000 a year for the average household), how much new annual spending will be needed ($3.4-billion), compliance costs ($1.9-billion) and other items.

Also modelled are tariffs in case Canada ends up in a carbon trade war. New tariffs would be needed on imports to make sure foreign suppliers are not evading Canada’s carbon pricing regime. And, of course, the carbon control system will require a massive permanent bureaucracy of independent forecasters, plus constant reviews, audits and evaluation by new authorities and departments.

Of course, new tariffs will be needed to force others to do as we do.  And more bureaucracy and trade protectionism to implement their scheme. These guys are dangerous. Let’s pull the plug on them.

Environmentalists are not going to stop until they get their way. The latest lever to impose their designs on an unwilling population is the threat of trade protectionism

The most immediate problem Canada faces from greenhouse gas emissions is economic rather than environmental. At least that was the message at a news conference on Thursday held to unveil a report from a government advisory body on carbon pricing.

Bob Page, the chairman of the National Round Table on the Environment and the Economy, said that if Canada does not introduce an effective, national carbon emissions control program, it will face potentially ruinous trade retaliation from the United States once Congress and the Obama administration introduce their own emissions control programs.

Just what we need another pretext for trade protectionism. As if the problems of the current global economic crisis are not great enough. Great Depression II anyone?