In “The Legacy of China’s One-Child Policy,” (Time, Dec. 13, 2016), Hannah Beach reports on the sad reality of China’s misguided 1979 policy of limiting most families to one child.
Some costs of China’s family planning, which limited most urban families to a single child, are well known. Because of the abrupt lowering of the birth rate, China will grow old before it grows rich. The nation is already facing a labor shortage.
Fears of worldwide overpopulation and natural resource depletion influenced 1970s textbooks and classroom instruction around the world. Videos from ZPG (Zero Population Growth) shown to high school classes highlighted year-by-year population growth that accelerates rapidly with the Industrial Revolution in 1800s (similar YouTube world population video here). (Actually, the birth rate stayed much the same, but the death rate fell dramatically. Costs of food and clothes fell as farms and factories were able to produce far more at lower costs. Plus transportation costs fell some 80%, so food, raw materials, and people could travel less expensively around the world).
Here is abstract from ZPG report from 1985 critical of the Reagan Administration for ignoring the benefits of China’s one-child policy:
The Reagan administration refuses to recognize the achievements of China’s population program and the practical and humanitarian considerations which lead to China’s adoption of vigorous family planning policies. … The national census of 1982 revealed that China’s population doubled between 1949-1982 and in 1982 exceeded 1 billion. Severe famine and economic chaos were forecasted for the near future if population growth was not severely and immediately curbed.
But forecast by whom? Economist Julian Simon in his book The Ultimate Resource, emphasized that though every new child was at first a burden (as well as a joy) to parents, new mouths to feed soon became new hands able to produce and new minds to create and innovate. In open societies (unlike China under communism) people can produce far, far more in their lifetime than they consume.
Environmentalists and population-control advocates also feared the world was running out of resources, and demand for the oil, coal, natural gas, copper, zinc, aluminum, and other natural resources would soon exceed supplies that could be found. For more on 1970s overpopulation and natural resource fears see the 1977 Global 2000 Report to the President, and 1972 Limits to Growth study from The Club of Rome. (Students are encouraged to research both scholars who believed in natural resource depletion and other scholars (often economists) who believed markets and innovation would continue to innovate and discover new natural resources.)
Along with government population control, international ownership and planning of scarce world resources was advocated. For example, the 1975-1976 national high school debate topic:
Resolved: That the development and allocation of scarce world resources should be controlled by an international organization.
Hannah Beach in Time reports another legacy of China’s population policy:
But for the 13 million or so unregistered Chinese, most of whom were born in contravention of family-planning regulations, the one-child policy’s devastating effects still endure. …
Since their births were not officially recorded, many of these individuals live in the shadows of Chinese society. They could not go to school or get a passport. All too often, their parents were fined prohibitive amounts or forced out of their jobs. Although some have managed to fight the system, others spend their days mired in endless paperwork. Their goal: to get their very existence recognized by the Chinese state.
An alternate path for China’s unregistered is to exit the country that does not recognize their rights as Chinese citizens or human beings.
In “Start-up cities” for refugees: a long-term solution to the migration crisis?,” Pieter Cleppe argues new charter cities could help millions of refugees around the world. New charter cities could help millions wishing to escape China. And there is no better example than the charter city that gave economic freedom to millions of impoverished Chinese refugees:
What was Hong Kong other than a city governed by Western officials and populated largely by refugees from Maoist China? If it was possible for the British to provide a safe home for millions of people on the run in much more challenging times, why wouldn’t it be possible for the whole of the developed world – not just Western countries – to give any refugee the most precious thing the developed world can offer them: the protection of the rule of law, which has propelled the US, Canada, Europe, Japan, and parts of East and Southeast Asia to the levels of wealth they enjoy today.
Desperate for economic reforms so China could catch up to the West (and with Hong Kong, Taiwan, SK, and Japan), Chinese government officials since the 1960s have implemented disastrously destructive economic policies.
More on charter cities for refugees: “A Place for the Stateless: Can a Startup City Solve the Refugee Crisis?” And a longer history of charter cities “The Politically Incorrect Guide to Ending Poverty” (The Atlantic, July/August, 2010). Economist Paul Romer suggests “A Charter City in Cuba?” to address a US problem, and poverty for Cubans:
An existing treaty between the United States and Cuba currently gives the United States administrative control over a piece of sovereign Cuban territory straddling Guantanamo Bay that is twice the size of Manhattan.
Imagine that the United States and Cuba agree to disengage by closing the military base and transferring local administrative control to Canada. Canada works with Cuba to draft a charter for this special zone and promises to enforce its terms. Under this charter, a new city blossoms. It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy.
Some students debating the Mexico/Venezuela/Cuba debate topic from a few years ago researched Romer’s proposal for a new Hong Kong in Cuba.
See also “Could Refugee Camps Be Startup Cities?”
Back to China’s One-Child Policy
Nicholas Eberstadt in the Wall Street Journal (October 29, 2015), calls China’s population control policy: “The one-child mandate is the single greatest social-policy error in human history.”
The Chinese government’s draconian one-child policy followed soon after Mao Zedong’s death in 1976, and was a response to incredible poverty across China following decades of top-down economic planning.
The one-child policy created an utterly new social system for China, notes Eberstadt:
And China’s cities are now producing a new family type utterly unfamiliar to Chinese history: only children begotten by only children. They have no siblings, cousins, uncles or aunts, only ancestors (and perhaps, one day, descendants).
China’s population problems aren’t yet fixed. It’s current two-child mandate still has government officials trying to regulate families, limiting those without wealth or political connections to just two children.
On the positive side, there is this recent article: “Researchers may have ‘found’ many of China’s 30 million missing girls,” (Washington Post, November 30, 2016):
Academics often talk about between 30 and 60 million “missing girls” in China, apparently killed in the womb or just after birth, thanks to a combination of preference for sons and the country’s decades under a repressive one-child policy.
Now researchers in the United States and China think they might have found many — or even most — of them, and argue they might not have been killed after all. …
“If we go over a course of 25 years, it’s possible there are about 25 million women in the statistics that weren’t there at birth,” Kennedy said.
So, it is very good news that millions of Chinese girls long thought lost by academics may be found in rural areas and among the 200 million floating population (those who migrated illegally to work in Chinese factories).
However, many of these young people long fenced out of official Chinese society might well wish to depart regulated China and migrate toward opportunities in freer and more prosperous cities around the world.
The two readings are required. Your submission will be graded in part according to how carefully and thoughtfully you engage with these challenging articles. They are:
Make sure to include a bibliography citing any outside sources you choose to reference. Incorporating outside research into your writing, although not required, may improve the overall quality of your essay. Your bibliography does not count against your word total.
Entries will be judged on the quality of their writing (style and mechanics), their level of engagement with the topic, and the strength of their reasoning. Essays that make an argument and support it well will out-perform essays that only provide a neutral overview of both sides. Judges will not consider their personal feelings on the topic when evaluating the essays.
Earlier posts have discussed supply-chain networks that bind U.S. manufacturers with Chinese and Mexican factories producing intermediate goods and materials. “Trump’s Tough Trade Talk Could Damage American Factories,” (New York Times, December 2, 2016) examines the US/China trade debate, looking first at a successful and growing manufacturing firm in Michigan:
But many existing American manufacturing jobs depend heavily on access to a broad array of goods drawn from a global supply chain — fabrics, chemicals, electronics and other parts. Many of them come from China. At Mr. Reid’s factory, imports account for roughly two-thirds of the cost of making a recliner chair.
In short, Mr. Trump’s signature trade promise, one ostensibly aimed at protecting American jobs, may well deliver the reverse: It risks making successful American manufacturers more vulnerable by raising their costs. It would unleash havoc on the global supply chain, prompting some multinationals to leave the United States and shift manufacturing to countries where they can be assured of buying components at the lowest prices.
The article emphasizes that in addition to fabrics imported from China, Mr. Reid’s firm, First Class Seating, uses U.S. materials as well as employing US workers:
Mr. Reid takes pride in using American products. His designers here in Michigan dreamed up his sleek recliner. Local hands construct the frames using American-made steel, then affix molded foam from a factory in nearby Grand Rapids. They staple upholstery to hunks of wood harvested by timber operations in Wisconsin. They do all this inside a former heating and cooling equipment factory that shut down a decade ago when the work shifted to Mexico.
New and higher tariffs on materials imported from China would raise costs for First Class Seating, likely leading to lost sales to competitors still able to access Chinese made goods and materials.
In “Globalization isn’t killing factory jobs. Trade is actually why manufacturing is up 40%,” (LA Times, August 1, 2016), Daniel Griswold also emphasized the key role of imports for US manufacturing:
Imports also play a critical role in the success of U.S. manufacturing. Measured in terms of value, more than half of what Americans import each year is not for consumption but for production. Being integrated into global supply chains allows U.S. manufacturers to source more affordable parts, components, raw materials and production equipment, making their final products more competitive.
Around the world women wash clothes and most wash by hand since they lack access to electricity, or access to enough electricity to power a washing machine.
Access to modern washing machines, like access to cars, matters for teenagers and adults in wealthy countries as well as poor. Protectionist policies that tax foreign goods can shield some jobs and companies, but taxes on imports raise prices that especially hurt low-income families and limit consumer choice. Protectionism shelters domestic firms, which may protect jobs in the short run also leads to less competitive domestic firms over time by reducing incentives for innovation in domestic companies.
Tariffs on foreign cars and washing machines reduce the competitiveness, profits, and, over time, employment of U.S. firms. So Whirlpool’s dumping charges against Korean/Chinese washing machines will hurt Whirlpool employees and stockholders in the years to come as well as hurting U.S. consumers now. (See “U.S. to Charge Duties on Some Samsung, LG Washing Machines Built in China,” (WSJ, July 20, 2016) and “Whirlpool Wants Tariffs for Chinese Washers,” December 30, 2015, and more on Asian washing machine protectionism below.)
The U.S. Commerce Department is:
upholding a complaint by competitor Whirlpool Corp. alleging that the companies [LG and Samsung] sold their washers in the U.S. for less than they cost to produce.
The concern is “predatory pricing,” where large firms care said to sell goods below cost for a time to drive competitors out of business, then later raise prices to recover early losses. So have LG and Samsung, both South Korean companies with Chinese factories, been manufacturing washing machines and selling in the US below their cost of production?
In “The Mounting Costs of Antidumping Laws: Time for Action?” (Truth on the Market blog, May 23, 2016), Alden Abbott argues for reforming US Antidumping laws:
Although the original justification for American AD law was to prevent anticompetitive predation by foreign producers, I explained that the law as currently designed and applied instead diminishes competition in American industries affected by AD tariffs and reduces economic welfare.
Abbott cites and quotes from an October 2015 World Bank study, “Antidumping and Market Competition: Implications for Emerging Economies,” he says “confirms that the global proliferation of AD laws in recent decades raises serious competitive concerns.”
Over a century, antidumping has gradually evolved from an obscure and rarely used policy tool to one that now constitutes an important form of protection not subject to the same WTO [World Trade Organization] controls as members’ bound tariff rates. Rather, antidumping is one of several instruments that allow members to exceed their bound tariffs, albeit subject to very detailed WTO procedural disciplines. Moreover, while the application of antidumping was until the WTO era mainly the province of a few traditional users, emerging markets have become some of the most active users of antidumping and related policies as well as important targets of their application. And though these policies are known collectively as temporary trade barriers, WTO rules governing the duration of antidumping measures are much weaker than for safeguards.
Antidumping policies have, under pressure of special interests at home and abroad, developed into a complex network of trade barriers used both by and against US manufacturers.
Virginia Postrel’s New York Times column, “Economic Scene: Wealth Depends on How Open Nations Are to Trade,” (2001) quotes from economists Stephen L. Parente and Edward C. Prescott’s book Barriers to Riches on the cost of protectionism in India:
In other words, says Professor Parente, “poor countries are poor because some groups are benefiting by the status quo,” and those groups use the law to block change. India has a long history of this. In the early 20th century, strikes kept Indian textile mills from increasing the number of looms each worker operated, and the government protected the old ways through steep tariffs on foreign textiles. As a result, from 1920 to 1938 textile productivity rose by only a third as much in India as it did in Japan, which was beginning its climb to prosperity.
Indian government policies blocked imports of Japanese and other foreign cars and blocked foreign direct investment. Special interests limited competition within India (blocking new firms). Established companies working with labor unions and government blocked imports of foreign manufactured goods. So India protected existing firms and jobs and stayed poor through the 1960s, 70s, and 80s, and only started prospering after barriers to international trade and foreign direct investment were lifted in the early 1990s.
This is a lesson for the U.S. as well. Domestic regulations coupled with protectionist policies can slow and even stop advances across whole industries. Plus protectionism is often advanced under the guise of various policies claimed to be pro-consumer, antitrust, environmental, and pro-labor.
China is both a developed and an undeveloped country, much like Europe after the fall of communism. When Deng Xiaoping’s reforms began in 1978, parts of “China” were already market-based (Taiwan and Hong Kong). Agricultural reforms allowed mainland China families to essentially own farmland, which immediately and dramatically increased food production.
Reforms also opened a handful of southern and coastal regions, Special Economic Zones, to foreign investment and the most important early investors were returning Chinese investors who had earlier fled China and prospered in other countries.
By the 1990s firms and workers in these free-enterprise zones had surged ahead, with 40% annual growth rates in Shenzhen, for example. By 2016, hundreds of millions in China have enjoyed decades of sustained economic development. Western and rural regions, though, have been slower to enjoy the gains from market reforms and international trade and investment.
Access to electricity and washing machines plays a larger role in reducing poverty and gender inequality around the world. Swedish statistician Hans Rosling explains the magic of washing machines in his famous TED talk (now with over 2 million views).
Washing machines, or the lack of them, impact every family on the planet. Rosling is passionate in advocating access to electricity and washing machines for Earth’s five billion people still living below the “wash line.” Rosling says one billion live above the “airline,” with access to all sorts of machines and gadgets and even flying machines! Another billion can’t afford all that, but do have electricity and washing machines. But below the wash line, five billion live in families where women take dirty clothes to the river each week, bring water from wells, or, for those lucky enough to have running water, wash clothes by hand at home.
(My mother had a washboard in the utility room before we had any machines for cleaning. We later bought a washing machine and mom hung clothes out to dry in the patio or front yard (depending on rain). Later we bought a dryer and still later a dishwasher. These magic appliances made daily chores much, much easier for my mother and my sister.)
There are important ways this washing machine progress story connects to the U.S./China debate topic. Central to Hans Rosling’s TED presentation: Some environmentalists believe Earth’s ecosystems unable to cope with the economic expansion and surge in electricity use needed to power washing machines for the billions still washing clothes by hand. Rosling mentions his environmentally-conscious Swedish students who ride bicycles each day to reduce their “carbon footprint.” He asks for a show of hands on bicycles first, then on clothes washing. None of his students wash their clothes by hand.
U.S. trade policy with China is impacted by environmental concerns (especially CO2 emission) with policies involving energy use and global climate change (as well as separate labor, antitrust, and other policies).
Environmentalists want more renewable energy used in China, and find common cause for protectionist policies that would also protect relatively more energy-efficient U.S. manufacturers from Chinese competition. Chinese manufacturers are shifting to more efficient and less polluting natural gas power, especially in China’s more-developed southern and coastal provinces.
The Chinese government though, is spending billions to heavily-subsidize solar and wind power installations, and also running heavily-polluting coal-power for electricity in the north, and coal-powered state-owned steel production. These costly policies are driven by politics. Fears of jobs losses, plus local corruption sustain coal and steel subsidies.
Concern about foreign environmentalists and protectionism energize solar and wind power subsidies. Unless the Chinese government makes a big show of spending billions for solar and wind power, and being a leader in renewable energy, they risk U.S. and E.U. environmentalists joining with manufacturing and labor interests to build new protectionist barriers. This 2011 article, “Prospects for Green Protectionism under China-US Energy Cooperation” discusses this dynamic:
A typical example was that the US threatened to impose unilateral trade sanctions, especially the so-called “carbon tariffs”, on energy-intensive products imported from those developing countries that would not adopt CO2 mitigation policies “comparable” to that of the US. The Waxman-Markley bill, passed in June 2009 by the US House of Representatives, and most other proposed [laws/legislation] in recent years all contained such provisions, [with/regarding] China as the major target.
The Chinese government understands the threat of “carbon taxes” so continues to subsidize solar and wind power generation.
Separate from green energy policies are more traditional protectionist policies claiming foreign firms are hurting the U.S. by selling manufactured goods below cost. Cited above are efforts by Whirlpool to slap tariffs on Korean washing machines made in China. Courthouse New Service December 30, 2015 story, “Whirlpool Wants Tariffs for Chinese Washers.”
Appliances maker Whirlpool wants the federal government to impose tariffs on imported Samsung and LG washing machines made in China, claiming they are priced too low. Whirlpool Corp. filed an anti-dumping petition with the U.S. Department of Commerce and the U.S. International Trade Commission, accusing its Korean rivals of circumventing federal orders. Dumping refers to selling a product in the United States at a price that is lower than “the price for which it is sold in the home market,” or the fair value, according to a government handbook.
Does it seem reasonable that Samsung and LG would invest hundreds of millions in design, factories, tooling, production, and shipping to sell their new washing machines in the U.S. for less that it costs to produce them?
The popular theory is that firms engage in “predatory pricing,” with big firms selling below cost in order to drive their smaller competitors out of business. Once competitors are bankrupt or leave the business, these “predatory” firms plan to recoup their losses as monopolists by raising prices much higher.
It is an interesting theory, but according to economists, doesn’t work in practice. “Antitrust,” an article in The Concise Encyclopedia of Economics, notes:
Likewise, belief in the efficacy of predatory pricing—cutting price below cost—as a monopolization device has diminished. Work begun by John McGee in the late 1950s (also an outgrowth of the Chicago Antitrust Project) showed that firms are highly unlikely to use predatory pricing to create monopoly. That work is reflected in several recent Supreme Court opinions, such as that in Matsushita Electric Industrial Co. v. Zenith Radio Corp., where the Court wrote, “There is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.”
Those researching US/China trade policy should ask: who benefits from current and proposed trade policies? Past posts have noted that trade restrictions are often proposed and promoted by concentrated interest groups expecting to benefit from anti-dumping policies and other trade barriers.
Trade policy is not so different from other regulations. Regulations restricting Uber and Lyft ride-sharing, for example, are passed in the name of protecting the public but serve to protect established taxi and limousine companies from competition.
Everyday people benefit from wider transportation options, but not enough to lobby, protest, or vote because of this single issue. Taxi companies and drivers are concentrated and motivated, and they will lobby and protest to defend their government-protected privileges, just as Whirlpool and worker unions do to try to raise costs for Korean/Chinese companies.
Relatively open trade with China was originally easy because in the 1980s China was so poor and rural that manufacturing there was little threat to U.S. firms. As China under Deng Xiaoping opened up parts of the economy to foreign direct investment, manufacturing boomed. The Chinese economy integrated with the U.S., South Korean, Japanese, and Taiwanese economies. Now hundreds of millions of jobs across these five economies are woven together through tens of thousands of interconnected companies, supplier contracts, and distribution agreements.
The results of this relatively open trade and investment policy over three plus decades has been lower costs for goods for world consumers and astonishingly good news for hundreds of millions across China. A Huffington Post article, “Global Poverty Will Hit New Low This Year, World Bank Says,” reports the amazing story that as world population grew by billions since 1990, extreme world fell:
…a stunning decline from the numbers reported over the last 25 years. According to the World Bank, 37.1 percent of the world’s population lived in extreme poverty in 1990. In 2015, that number is estimated to drop to 9.6 percent.
In an October 7, 2015 Cato at Liberty post, “The Dramatic Decline in World Poverty,” Ian Vasquez connects this poverty reduction with the expansion in economic freedom, especially in China:
The drop in poverty also coincides with a significant increase in global economic freedom, beginning with China’s reforms some 35 years ago and the globalization that followed the collapse of central planning in the late 1980s and early 1990s. As we celebrate this achievement and strive for further progress, we should not lose sight of the central role that voluntary exchange, freedom of choice, competition and protection of property play in ending privation.
Relatively open U.S./China trade and investment policies have been the major factor reducing world poverty, along with India’s economic reforms in the early 1990s. Tyler Cowen in “Trump’s Disastrous Pledge to Keep Jobs in the U.S.” (Bloomberg, November 29, 2016) argues that policies designed to protect US manufacturing jobs will backfire:
If regulations prevented, say, Ford Motor Company from transferring its own capital funds to Mexico, what would keep it from using affiliates, subsidiaries, commercial alliances, or a complex web of foreign transfers to achieve more or less the same ends?…
Furthermore, if we limit the export of American capital to Mexico, the biggest winner would be China, as one of its most significant low-wage competitors — Mexico — suddenly would be hobbled.
China’s government is struggling to halt industrial and automobile pollution, even inspecting barbeques. Heavy winter smog in Beijing and other Chinese cities causes a range of health problems. In addition to coal-burning industries and cars, Beijing is up against mountains holding pollution in place as well as temperature inversions (the kind that contribute to smog in Los Angeles and Mexico City). The coal powering China’s industrial growth over the last three decades has a long history of generating both power and pollution.
Coal is the magic black rock that powered England’s Industrial Revolution then industrialization across western Europe and the United States. Thick pea-soup coal pollution smothered Pittsburgh. For pictures, see the June 5, 2012 Atlantic CityLab article: What Pittsburgh Looked Like When It Decided It Had a Pollution Problem. More here on Explore PA History:
“Hell with the lid off,” was an apt description of Pittsburgh during its peak decades of industrial production. In the late nineteenth and early twentieth centuries, Pittsburgh ran on bituminous coal. Each month the steam boilers and furnaces of its industries, railroads, and homes dumped 100 tons of pollutants on its streets.
Natural gas power is the key to cleaning up Beijing’s skies, along with nuclear and renewable energy. “For China, pollution and climate change are not the same problem: Kemp” (Reuters, November 14, 2014) blames coal power, but notes a complexity with reducing both pollution and CO2 emissions:
Climate campaigners blame the problem on China’s inefficient coal-fired power plants and argue that the solution is to replace them with cleaner burning natural gas power stations as well as zero-emission sources of electricity such as wind, solar, hydro and nuclear.
Conflating air pollution with global warming is a useful tactic for getting action because it suggests action to prevent the long-term threat of climate change would also yield tangible health benefits in the short term.
But the pollution problem is more complicated. The causes of air pollution are not the same as climate change. China’s leaders tend to see them as distinct issues and reducing air pollution is a far more pressing political problem.
Communist-era policies of providing “free” heating to the colder northern half of China are still in operation today, with electricity still generated by older polluting coal-fired power plants:
Due to budgetary limitations, free heating only extended as far south as the Huaihe River and the Qinling Mountains, which as well as the traditional boundary is roughly as far south as the freezing weather extends, according to researchers at the Massachusetts Institute of Technology (“Winter heating or clean air: unintended impacts of China’s Huai River policy”, 2009).
Most of the district heating systems, which are still in use today, employ old, inefficient coal-fired boilers to produce steam and hot water. They have few pollution controls and spew soot and mercury as well as sulfur and nitrogen compounds into the urban air.
Energy-intensive industries employ more advanced pollution control than the district power sources:
Almost all power plants have been fitted with baghouses and scrubbers to capture fly ash and sulfur and nitrogen oxides. District heating and industrial boilers are fitted with much more primitive controls and in many cases none at all. …
Cutting the air pollution in northern cities means first and foremost tackling district heating and industrial boilers. In some cases, district heating and industrial systems could be retrofitted with pollution controls or converted to cleaner burning gas.
This undated Shell Global promotional article, “Cleaning the Skies Over Beijing” offers some good news in the shift to natural gas:
That all came to an end on March 19, 2015, when the historic plant – said to be the cradle of China’s power industry – was shut for good. A day later, the 66-year-old Guohua Beijing coal-fired power plant in the heart of the central business district was also closed.
The last of Beijing’s major coal-powered stations will close in 2016, with four natural gas-fired plants replacing them as part of the city’s transition to cleaner energy. The new gas power stations can supply 2.6 times more electricity, according to the Beijing city authority, and help tackle the city’s serious air pollution.
Top-down programs and policies are limited to plans and powers of government agencies. Many economists recommend market-based reforms to create pollution and carbon credit trading. Give all firms a “right” to, say, 80% of their current emissions, then allow trading of those emissions rights to enable discovery of least-cost pollution reduction strategies. Money-losing state industries could shut down quickly (and could sell pollution credits to other firms for severance payments to workers). Pollution credits could be traded separately from CO2 emission “carbon credits.”
BloombergMarkets in China Turns to Free Markets to Tame Fossil-Fuel Pollution, August 16, 2016, reports on new emissions trading plans:
In China, authorities have previously ordered factories closed and cars off the street to combat smog. Trading will cover eight industries, including areas such as papermaking, aviation and power utilities. They will buy credits covering their emissions and can sell any surplus. A link to overseas markets may also be possible, giving another way to profit.
For China, carbon trading is part of President Xi Jinping package of emissions cuts promised in a deal with U.S. President Barack Obama that revived the global climate talks and led to the deal in Paris in December.
Economists have long focused on the wide range of pollution reduction costs from company to company. Some firms can reduce emissions inexpensively while similar reductions for other firms would be very expensive. A top-down regulation requiring all firms in a region to cut emissions by 10% or 20% wouldn’t engage emissions cost differences across companies and industries. But a market in exchangeable emissions permits could, creating incentives for engineers and entrepreneurs to search for least-cost emissions-reduction technologies.
In China some of the heaviest pollution comes from inefficient and money-losing state-owned district power and manufacturing companies. The Chinese government could actually save money if these industrial dinosaurs closed. Revenue from selling emissions credits helps incentivize the whole process (replacing incentives to hide pollution and bribe officials).
Pollution markets usually call for extinguishing 10% to 20% of emission permits with each exchange, so a firm has to purchase 110% or 120% of the emission amount they need. The more active the pollution trading market, the faster pollution levels decline.
Separating CO2 emissions from pollution in cap and trade schemes is important. Coal burning releases a range of pollutants, depending on sulphur and other impurities in the coal, how inefficient the burning process, and the pollution control equipment in place (scrubbers, for example).
Wikipedia entries on cap and trade and on carbon credits provide an overview. “China Will Start the World’s Largest Carbon Trading Market” (Scientific American, May 16, 2016) reviews political battles over access to scarce resources like water in the Western U.S. and clean air, and the opportunity in market-based approaches:
[Environmental Defense Fund’s Dan] Dudek wanted to introduce a market-based system to protect scarce resources that he’d seen debated in California, where for decades disputes over water rights were settled by legal and political fights. The winners were usually farmers and ranchers who lobbied the government to dam the state’s remaining wild rivers to irrigate more crops on dry land. Once they’d won the fight, Dudek recalled, it was “use it or lose it.” He felt the government should be encouraging people to find ways to save water.
As Dudek sometimes puts it, “the status quo is a vicious competitor.”
In 1985, Dudek, who had watched this battle as a U.S. Department of Agriculture economist and later as a professor at the University of Massachusetts, Amherst, joined EDF, the one group he felt might listen to his grand scheme to protect the environment.
The best place to do it was in China, Dudek urged Krupp, and the resource in the most trouble there was not water, but air. Dudek noted that China’s economy was exploding, and air pollution in its major cities was going to become a major health problem. He told Krupp he wanted to go China to get the government to explore using economic markets to provide incentives to reduce air pollution. …
Pollution trading markets are a challenge to put in operation, but compared to other regulatory schemes, markets in pollution credits have a fairly good track record (Though the EU’s carbon trading crashed, according to this 2013 article, “Europe’s Carbon Emissions Market Is Crashing.” (Bloomberg, March 28, 2013)
Stricter pollution controls in China could be good news for U.S. natural gas exports. In “Chinese Pollution Opens Door For U.S. Natural Gas Exports,” (Forbes, November 21, 2016), James Taylor argues for U.S. government approval of LNG export terminals:
Chinese provincial governments are shutting down everything from industrial manufacturing plants to outdoor barbecues to address oppressive air pollution, Reuters reports. The United States can economically benefit from the situation if our government will stop blocking the construction of liquefied natural gas (LNG) export terminals
Taylor says state and federal policies block LNG terminal construction, and that significant coal pollution from China makes its way to the western U.S.:
Failing to see that LNG exports would enable nations like China and India to convert their electricity base from coal to clean-burning natural gas, government officials are actively blocking the construction of LNG terminals in the name of environmentalism and opposing “fossil fuels.” Ironically, Chinese pollution swept over the Pacific Ocean by prevailing wind currents accounts for up to 11 percent of black carbon particulate matter and 24 percent of sulfates on the U.S. West Coast.
(Warning for debaters: James Taylor evidence will invite anti-James Taylor evidence. Here is his DeSmogBlog entry)