Joeri de Wilde: Early death of globalisation disastrous for climate
This column was originally written in Dutch. This is an English translation.
By Joeri de Wilde, Senior Economist at Triodos Investment Management
Carrying fewer goods around the world is good for the climate. But globalisation itself is not the problem. We actually need more globalisation, but less focused on consumption and more on the climate.
Could Trump 2.0's madness actually yield something positive? With some creative thinking, you could come to that conclusion. In the short term, his import tariffs could lead to less global trade and economic growth, and thus to lower greenhouse gas emissions. And in the longer term, the aggressive, protectionist industrial policies of the major power blocs could lead to an ‘energy race’. Countries will want to outdo each other in the sustainability race towards green energy and technology.
But that is quite a leap of imagination. It ignores the fact that we are still in a growth-based economic system. And it goes against economic logic and existing climate scenarios.
Globalisation stalls prematurely
It is tempting to blame the increasingly interconnected world for the climate crisis. Western (over)consumption of cheap Chinese goods does indeed lead to unnecessary emissions. But in itself, it is logical that countries specialise and then trade with each other, as economist David Ricardo demonstrated two centuries ago. Everyone benefits.
However, you have to take all the costs into account, including the impact on the climate. If you don't, the current gains will be at the expense of future generations. That is what is happening now, with large quantities of (useless) goods being produced in countries with a high fossil fuel footprint and transported here in a polluting manner. The consequences will be dealt with later.
A global CO2 tax would largely solve this problem. In that case, production cannot always be relocated to countries where CO2 can still be emitted cheaply. Globalising CO2 taxation could therefore curb Western overconsumption.
Just as with the globalisation of world trade, initiated by the fall of the Berlin Wall and the establishment of the World Trade Organisation (WTO), climate globalisation also benefits from cooperation through intergovernmental organisations. But in today's world of protectionist power politics, walls are being erected again. Autocratic regimes are on the rise, and with them the Trumpian deal: bilateral and focused solely on economic gain. Consumption is still the highest good, but this autocratic approach full of trade barriers leads to a less efficient distribution of production between countries and therefore more pollution.
Globalisation has therefore not gone too far, but has died a premature death, even before the climate really had a chance.
Climate scenarios predict more warming
The climate scenarios of the Network for Greening the Financial System (NGFS) clearly show that global fragmentation is not good for the climate. These scenarios are an addition to ‘traditional’ economic models, in which greenhouse gas emissions are only related to production and consumption. In these traditional models, a more fragmented world therefore leads to lower emissions in the long term, as there is less trade and economic growth.
However, such a scenario does not take into account the other consequences of global fragmentation, for example in the field of climate policy and climate ambitions. The NGFS climate scenario ‘Fragmented World’ does take this into account by assuming delayed climate policy and divergent climate ambitions. This scenario calculates what it means if carbon prices vary significantly between regions. Conclusion: limited action by a number of countries undermines the ambitious policies of others. The result is much higher global greenhouse gas emissions than if there had been coordinated climate policy.
The irony is that this climate fragmentation is largely unrelated to the level of import taxes. Even if the levies are eventually reduced to a minimum, the damage seems to have already been done. Global mistrust has been fuelled, and with the United States rapidly descending into autocracy, multilateral cooperation seems increasingly unlikely. It appears to be up to the EU to breathe new life into international cooperation, but will the resuscitation come in time?
