Sensible Policies to Address Global Warming

NEW YORK (TheStreet) -- Once again, President Obama has declared the U.S. must respond to the threat of climate change; however, putting the U.S. economy in a straightjacket -- as many of his supporters in the environmental community advocate -- would likely hasten the pace of global warming.

Instead, the U.S. should accentuate several environmental policies President Obama already put in place and exploit its new bounty of natural gas to strengthen the U.S. economy and global environment.

Many Americans are persuaded that the buildup of greenhouse gases (GHG) in the atmosphere is responsible for shrinking mountain ice caps, rising sea levels and the ferocious destruction of Hurricane Sandy and similar storms, CO2 emissions account for more than 80% of GHG and a larger share of what government policies may curtail. During President Bush's second term, Congress considered several bills that would cap U.S. CO2 emissions -- those failed to become law, as did a similar proposal offered by President Obama in his 2010 Budget.

Such regimes would allocate emission permits among businesses that process fossil fuels, like petroleum refineries, and use fuels intensely, like electric utilities and aluminum. Businesses may meet their goals by directly cutting emissions or purchasing permits from other firms that exceed their goals or shut down. Dubbed cap-and-trade, this approach is used in Europe, where a private market in trading permits has emerged.

Such an approach would bring the U.S., de facto, into the Kyoto Protocol. Implemented without U.S. ratification, this agreement commits most industrialized countries to reducing GHG emissions to 6% to 8% below 1990 levels. Importantly, developing countries are absolved, though industrialized countries may meet part of their abatement goals by financing cleanup projects in them.

Unfortunately, this regime encourages carbon-intensive manufacturing, like steel and aluminum, and consuming industries, like automobiles and appliances, to leave industrialized countries for places like China and India where fossil fuel use is unregulated and often subsidized. This increases global emissions and reduces global GDP, because developing countries often use fossil fuels, capital and labor less efficiently to make the same goods.

This madness is illustrated by the fact that China, with a GDP less than a half that of either the European Union or U.S., emits more CO2 than either economy.

Every year, Chinese emissions growth adds another country the size of Japan. It is hard to imagine that one year of China's growth, which comes to about $600 billion, could replace the emissions of Japan's $5 trillion economy. Yet, that is the kind of economic accounting cap-and-trade requires.

Moreover, government allocations of limited carbon use permits among businesses would create a new sandbox for Washington dealmakers, exacerbating the economic damage, and the opportunity for New York to establish a national trading platform -- yet another occasion for Wall Street to create synthetic securities and expand gambling that distorts economic decision making and hampers growth.

Having failed to persuade Congress to implement European-style regime, President Obama has embraced policies that are reducing U.S. CO2 emissions about 2% each year. These include higher mileage standards for cars and moving electric utilities from coal and oil to natural gas.

If Obama and Congress choose to go further, they should embrace policies that encourage participation and sacrifice by all nations, and strengthen, not weaken the U.S. economy.

For example, the U.S. should require that foreign products sold in the U.S. meet the same emission standards as those made here. This would require that developing countries like China not exploit the cost advantages from dirty production methods, and these requirements could be crafted to meet World Trade Organization requirements by treating domestic and foreign producers equally. That would reduce U.S. CO2 emissions without encouraging U.S. energy-intensive industries to migrate to China and other developing countries where they make the problem worse not better.

Further, many heavy industries like petrochemicals and primary metals are energy intensive, and the recent bounty of U.S. natural gas offers domestic producers new cost advantages to win export markets.

Currently, the U. S. Department of Energy is considering proposals to boost exports of liquefied natural gas -- a costly and environmentally dangerous process -- that generates fewer jobs and less growth than keeping the natural gas in the U.S. for use by energy intensive industries. Given the cleaner production methods applied in the U.S. than in developing countries, reserving natural gas for domestic industrial use would positively affect the global environment.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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