23 December 2012

Africa: Why Trade Talks Matter Most


The latest Doha meeting continued 20 years of failed climate negotiations, since the original Earth Summit in Rio, in 1992. There, countries pledged to cut greenhouse-gas emissions to 1990 levels by the year 2000; the developed countries fell short by almost nine percent.

The Kyoto Protocol, from 1998 has almost entirely failed, and the effort intended to save the world, in Copenhagen, in 2009 also collapsed spectacularly.

So far, the world's emissions have continued to rise, and at an accelerated pace, with emissions in 2011 about 50pc higher than in 1990. The last 20 years of global climate negotiations have reduced that increase by only about half a percentage.

Assuming, somewhat optimistically, that this reduction will be maintained throughout the century, it will reduce the temperature increase by about half of one-hundredth of a degree Celsius (about one-hundredth of a degree Fahrenheit) in 2100. Sea levels will rise about one millimeter (one-twentieth of an inch) less. Even in a hundred years, these changes will not be measurable.

The cost of achieving these underwhelming results has probably run to between 20 billion and 30 billion dollars a year, mostly foregone economic growth, owing to the forced use of more expensive energy. The benefits to humanity, measured in terms of marginally less flooding, an almost negligible reduction in heat waves, and so forth, total roughly one billion dollars annually. Thus, in terms of bang for the buck, each dollar spent on climate policy has so far done about a nickel's worth of good.

It is time to change track. There are smart ways to address global warming, through innovating downward the price of green energy; unfortunately, they are not pushed in the United Nations-sponsored climate negotiations.

Whilst we need to tackle climate change, however, it is also worth remembering our priorities. As usual, a flurry of alarmist reports about climate change tried but failed to beef up interest aroundDoha.

The World Bank, in a disappointing departure from its usual, careful reports, put out the alarmist tract Turn Down the Heat, coauthored by William Hare, a longtime climate policy director for Greenpeace. At its launch, World Bank President Jim Yong Kim claimed, "We will never end poverty if we do not tackle climate change."

Really? Climate policies so far have proved to be extremely costly ways of offering very little help, in the very distance future. This is especially true for the world's poorest. Maybe, we should start thinking about the otherDohanegotiation that started 11 years ago, on global free trade, which could help the world's poor many thousands of times more.

Models from the World Bank show that, even the least ambitious agreements to liberalise trade further and reduce agricultural subsidies, would generate substantial benefits. The classic argument for free trade, states that specialisation and exchange benefits everyone, because goods are produced where they are produced best. The Bank's models show that this so-called static benefit could increase annual global gross domestic product (GDP) by several 100 billion dollars, by the end of the decade, with perhaps 50 billion dollars accruing to developing countries. Towards the end of the century, the annual benefit would reach 1.5 trillion dollars, with half going to the developing world.

Over the last two decades, however, a growing number of studies have demonstrated that this is only a small part of the argument. History shows that open economies grow faster. Examples includeSouth Koreasince 1965,Chilesince 1974, andIndiasince 1991; all recorded markedly higher growth rates after liberalisation.

The same message comes from computable general-equilibrium models of the global economy: even modestly freer trade helps domestic markets to become more efficient, supply chains to become better integrated and transfer knowledge more readily available, thereby spurring innovation. Overall, this dynamic benefit helps to increase the GDP growth rate.

In a recent review of the economics literature, one of the World Bank's leading modelers, Kym Anderson (Prof.), showed that the long-run benefits from even a modestly successfulDoharound of world trade talks would be vast. Annual GDP around 2020 would be about five trillion dollars higher than it would be in the absence of an agreement, with three trillion dollars going to the developing world. Towards the end of the century, slightly higher growth rates will have yielded a cumulative increase in income, exceeding 100 trillion dollars annually, with most going to the developing world.

By then, the benefits of freer trade would add about 20pc annually to developing world GDP. The total costs, mostly to wean developed world farmers from subsidies, are more than 10,000 times smaller, at approximately 50 billion dollars per year for a decade or two.

This matters, and not just because of the money. Freer trade will allow more people to escape poverty and secure sufficient food and clean water. It will increase education and develop health care. It will make societies more resilient against floods and hurricanes, and with higher incomes, more people will be able to afford to care for the environment. In short, it will make a better world.

Even an extremely optimisticDohaclimate outcome would have cost 500 billion dollars annually, with benefits of less than five cents on the dollar. A modestDohafree-trade agreement, by contrast, could help the world's poor thousands of times more, much sooner, and at a much lower cost.

Yes, we need to tackle climate change, and tackle it smartly, but the Doha climate talks were always a dead end. If we truly want to help the world's poor, we should get serious about the other Doha talks.

Bjorn Lomborg, adjunct professor at the Copenhagen Business School, Denmark.

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