Monday, October 27, 2014

Frack = Defect

The New York Times today has an informative article on BASF, the German chemical giant, centered on the effect that fracking in the US has on business decisions in Europe.  To sum up, natural gas prices in the US have plummeted due to the widespread use of this dubious technology, which affects chemicals in two ways—lowering the cost of fossil fuel feedstocks and the energy needed to process them.  BASF has responded, logically enough, by shifting new investment from Germany to cheaper energy locations, including the US.

But this has an effect on energy policies in Europe too.  It shifts the political economic balance away from a decarbonizing energy transition (Energiewende), which raises costs there even as they are tumbling here.  In other words, by pushing fracking and generally supporting (non-coal) fossil fuel production, the Obama administration is undercutting foreign efforts to respond to the climate crisis.  In the global collective action game of planetary sustainability, the US is a defector.

We are unlikely to see a global agreement on reducing fossil fuel use in the next several years; what can be done to at least protect the space for effective action at the national level?  At the top of the agenda should be a framework for carbon tariffs, border taxes that offset cost differences due to differences in carbon emission policies.  This would involve at the least a legal framework; ideally it should also spell out tariff-setting formulas to reduce the scope for manipulating the system to serve other ends.  If we can’t get everyone to cooperate on sensible action to forestall catastrophic climate change, at least we should try to limit the damage caused by defection.

1 comment:

Thornton Hall said...

For crying out loud. When market based solutions prove to be easily evaded by firms whom economists explicitly task with the moral imperative to do exactly that, the economists blame the black man in the White House.

Another view: Obama's command and control regulations are the best way to stop a problem caused by the free market.