Getting Right the Global Part of Fighting Global Climate Change

Eakinomics: Getting Right the Global Part of Fighting Global Climate Change President-elect Biden has indicated that climate change will be the paramount policy issue of the next administration. Most of the focus and discussion has centered on domestic initiatives, but getting right the international aspects of the issue is crucial. As noted by AAF's Ewelina Czapla in her recent paper, over the next 20 years developing countries across the Indo-Pacific are projected to see growth in greenhouse gas emissions as well as two-thirds of global energy growth. Efforts to mitigate the impact of climate change will require increased investment in clean energy technology across the entire globe. (See here for Czapla’s discussion of clean energy opportunities in Eastern Europe.) There are two economic policy issues in play. The first is the desire of U.S. policymakers to rely on domestic manufacturers of clean energy technologies (e.g., solar panels), allowing them to provide domestic power and at the same time sell their products around the world to meet the clean energy needs of other countries. Indeed, some view this as a “great power” competition with China and seek to aid U.S. companies in competing with China. The problem with this approach is that it fundamentally tilts the domestic playing field and favors certain incumbent firms over both others and potential entrants. This diminishes competitive forces, undercuts innovation and productivity growth, and raises the cost of the overall clean energy policy. Having vigorous domestic competition is an essential element of a good clean energy policy. How does one compete internationally? The first step is to not hide from competition. So, for example, do not follow the lead of the Trump Administration and put tariffs on imported solar panels. Indeed, because other countries (e.g., Japan, Korea) retaliated, these tariffs actually harm the ability to compete globally. The second, as Czapla notes, is to remove self-inflicted regulatory wounds that inhibit U.S. exports. As it turns out, good economic policy for global climate change is simply good trade policy. But continuing to get it wrong will make any Biden-era clean energy policy overly costly and underproductive.