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Can Trade Wars Help Save the Climate?

Can Trade Wars Help Save the Climate?

There is something ironic, almost poignant, about Europe’s furious response to the Biden administration’s flagship climate law. For the past six or seven years, European officials have spoken regularly about how a climate-friendly economy was the future. “I am convinced that the old growth model that is based on fossil fuels and pollution is out of date,” Ursula von der Leyen, the European Commission president, declared in 2019. It was time to embrace a “new growth strategy,” she said, one as much about “cutting emissions” as “about creating jobs and boosting innovation.”

That’s exactly what the Inflation Reduction Act is designed to do. But since President Biden signed it into law last August, European leaders have called it a “super aggressive” protectionist affront to global cooperation on climate change. The law invests at least $370 billion to conjure new American industries in hydrogen, solar panels and zero-carbon aviation fuels. And one of its most important subsidies — a tax credit of up to $7,500 for electric vehicles — can be applied only to E.V.s assembled on this continent with mostly American-made batteries using minerals from the United States or one of its free-trade partners.

That kind of protectionism is the opposite of how experts have historically imagined the battle against climate change. Even calling it a battle reflects our hope that climate change will require a final showdown in which all of humanity clasps hands and annihilates fossil fuel use forever. But there’s now reason to think that certain kinds of competition — not cooperation — might be inherent to solving the climate problem itself: that all else being equal, fighting climate change might lead to more protectionism, more economic tension, more trade wars.

For nearly half a century, scholars have grasped that a stable, habitable climate is a public commons — perhaps the biggest, gnarliest, most important commons that humanity has ever had to manage. At the same time, however, economists saw that fossil fuel consumption — and thus carbon emissions — have strongly correlated with economic growth. So countries in climate negotiations had to make a terrible choice: They could “cooperate,” and work with their neighbors to lower emissions; or they could free-ride on their neighbors’ emissions cuts to opportunistically grow their economies.

In other words, solving climate change was a prisoner’s dilemma, where each country had individual incentives that worked against the world’s. Scholars, including William Nordhaus, the Nobel-Prize-winning Yale economist, spent a tremendous amount of time trying to finesse the free-riding problem. Outside of an international agreement, the problem seemed intractable.

But about a decade ago, something began to change. Rich countries grew their economies, but saw their emissions fall. China, which emits more climate pollution than any other country, reaped enormous economic and strategic benefits from its booming green-technology industries. And the world began to understand that climate action was not in fact a trade-off — cutting emissions does not mean giving up on growth. In fact, low-carbon technologies, especially batteries and renewables, are the future of the economy; they can generate energy more cheaply and support human flourishing at lower cost than the fossil fuels and combustion engines that they replace.

In 2020, the political scientists Michaël Aklin and Matto Mildenberger showed that based on the historical evidence, countries haven’t backed off on their climate commitments when their neighbors have. Instead, what dictates climate policy is political competition within countries — domestic coalitions vying for power over society and the economy. Climate policy generates “new economic winners and losers,” Aklin and Mildenberger wrote, and countries pass more of it only when the winners have the upper hand.

You can see this now as America and Europe fuss over their respective climate policies, and exactly how profits and future growth should be divided among manufacturers, fossil-fuel companies, workers and consumers. Meanwhile, executives, activists, lobbyists and officials have their own ideas about how the economy should be run , and these, too, shape the outcome.

Last year, Jonas Nahm at the Johns Hopkins School of Advanced International Studies,observed that countries with export and manufacturing-oriented economies, such as Germany, adopted national climate policies before import-dependent countries did. Manufacturers and their political allies‌ ‌saw the opportunity in green technology and pushed politicians to seize it, he reasoned.

But these dynamics aren’t limited to exporting countries. The Inflation Reduction Act will help boost manufacturing the United States because our industries are after the same opportunity, and politicians are hoping to create a base of popular support to drive down even more pollution in the future.

And here’s the rub: Once‌ every country wants a slice of an industry, trade conflict is likely to follow.

That’s because clean energy is a growing and highly strategic industry, and trade conflict always arises from these very industries, Maureen Hinman, co-founder and executive chair of Silverado Policy accelerator and a former director at the Office of the U.S. Trade Representative, told me. Civil aviation is a growing and strategic industry, and the United States and the European Union have been at loggerheads over Boeing and Airbus for years. Both the United States and the European Union want a chunk of the global aviation market.

This means that managing trade disputes isn’t some sideshow to the real work of fighting climate change. It is fighting climate change. Once you accept that, a few more ideas snap into place.

First, countries like the United States, Japan and those in the European Union need to calm down about the existence of climate-related trade spats. They’re here. They’re not going away. Second, officials and experts should pay close attention to worst-case scenarios. One might be that Western companies simply never get their act together. They devolve into infighting, and China continues to dominate the new-energy supply chain, essentially making the entire world dependent on a sole — and very politically fraught — supplier.

But another scenario might be that the United States, Europe, East Asia and China each builds its own domestic supply chain for zero-carbon technologies, and that none of these chains achieves sufficient scale to bring down long-term costs. Officials should pay particular attention to industries where trade competition could make climate change worse. Hydrogen is maybe the biggest example: Although it could potentially eliminate emissions from many industries, it’s also a leak-prone pollutant in its own right. If Europe and the United States get into a “race to the bottom” around hydrogen subsidies, supporting ever leakier and less stringent supply chains in a bid to dominate the industry, then the planet will suffer. We do not have much room for error.

Finally, we all must attend to the one truly catastrophic possibility of this new era of climate competition. The more that the United States and China see each other as enemies, the more that they sever their trade ties, the closer we get to the worst-possible outcome for humanity and the biosphere: a new world war. But if we are careful, decarbonization can be a solvent of sorts, dissolving the strife into a contest of mutual advantage. That will require a healthy vigilance and not a small amount of luck.

Robinson Meyer is the founding executive editor of Heatmap and a contributing writer at The Atlantic.

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