PrintDecember 8, 2009
Climate Treaty Reparations Would Cost $50-$200 Billion Per Year
Here's a quiz. What's the worst thing on the table at the U.N. Climate Control Conference in Copenhagen from December 7 to December 18? If you guessed cap-and-tax, you're wrong. The reparations could be much, much worse.
The draft of the treaty encompasses 181 pages and recites that it shall be the obligation of developed countries (Europe, United States, Japan, Australia, etc.) to pay the developing countries (China, India, Africa, etc.) huge reparations in the form of annual sums to erase poverty and to share technology. Australian lawyer Janet Albrechtsen explains the most recent draft of the treaty:
Clause after complicated clause sets out the requirement that developed countries such as Australia pay their "adaptation debt" to developing countries. Clause 33 on page 39 says that by 2020 the scale of financial flows to support adaptation in developing countries must be at least $US67 billion ($73bn), or in the range of $US70bn to $US140bn a year.
How developed countries will pay is far from clear. The draft text sets out various alternatives, including Option 7 on page 135, which provides for "a (global) levy of 2 per cent on international financial market (monetary) transactions to Annex I Parties". This means industrialized countries such as Australia, if we sign.
In the behind-the-scenes negotiations, the developed countries have already agreed to pay $167 billion per year, but the developing countries are holding out for $400 billion per year, according to BusinessGreen.com:
Developing nations ... are insisting on a minimum of £242bn [$400 billion] per annum by 2020 to help them fight global warming, compared with the developed world's offer of only £100bn [$167 billion] per year.
It is not clear what share will come from the United States. But based upon the totals cited by BusinessGreen, it can be safely assumed that Obama will volunteer somewhere between $50 and $200 billion per year by 2020 as the U.S. share.
The treaty has been complicated by the "Climategate" scandal, which gives additional evidence of the unscientific behavior of the proponents of reducing carbon dioxide emissions, which is the backbone of the treaty.
The scientific consensus that once backed the man-made global warming theory has disappeared, and a new theory, based upon cosmic rays and solar activity, is proving to be much more predictive of climate change -- with carbon dioxide playing a minor role, if any. If the science backing the Copenhagen treaty is wrong, we shall discover in ten to fifty years that the world community has wasted tens of trillions of dollars.
Moreover, the distribution of the benefits and costs of global warming is very uncertain. Global warming would benefit colder countries while harming coastal countries. And carbon dioxide is in general a great help to plant life and agricultural production in general.
The costs of the treaty, however, are far clearer. The largest share of the burden would be borne by the United States. Students of history may remember that the reparations forced upon Germany by the victors of World War I resulted in hyperinflation, destroyed the German middle class, and eventually brought Adolf Hitler to power, causing World War II. Economist John Maynard Keynes predicted this disaster at the time. In a 1919 paper ("The Capacity of Germany to Pay Reparations") he correctly predicted:
The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable -- abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe. ...
Keynes was arguing that Germany would not be able to pay the reparations because it would not have the necessary surplus of exports over imports. Germany had an excess of imports in the years just before World War I, not an excess of exports. Not only that, but it had lost raw materials resources in the peace treaty that were needed for its iron goods exports, and its merchant marine and manpower had just been decimated by the war. Keynes was simply pointing out that Germany could not afford to pay the reparations.
America is in a similar position. We have had a huge and growing excess of imports over exports for more than a decade. Our manufacturing exports have already been compromised by the currency manipulations of developing countries and by their policies of keeping out American products through one pretext or another. For example, both China and India have labeled their automobile sectors as "strategic sectors" so that they can keep out American-produced vehicles through the high tariffs permitted by WTO rules. Using this pretext, China also applies tariffs to American auto parts, motorcycles, and mining machinery.
China will continue to manipulate the dollar-yuan exchange rate to ensure that new solar panel and windmill factories will be located in China and not the United States. They have already ensured that Chinese-made windmills and solar panels will not contain many American-made parts.
Basically, what this Copenhagen treaty proposes is that the United States go ever further in debt to China, selling China our remaining assets so that we can pay reparations to the developing countries. The receiving countries will in turn be able to buy windmills and solar panels from China.
The result would greatly accelerate the present trends. We would become a nation unable to get out of debt, even with the falling dollar. We would stop being an "ownership society" and become, in the words of Warren Buffett, a "sharecropper society."
President Obama will pull out all the stops to get the treaty negotiated in Copenhagen next week and ratified in 2010 by the U.S. Senate. He knows that time is against him. Given time, more and more Americans will discover the new scientific realities. Moreover, his huge Democratic Party majority in the Senate will likely disappear in November 2010, and he may never again get another chance to get the two-thirds vote needed to ratify it.
The authors maintain a blog at tradeandtaxes.blogspot.com and co-authored the 2008 book, Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before It's Too Late, published by Ideal Taxes Association.
