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Pollin: For developing countries going green doesn’t mean slowing growth

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to Amherst, Massachusetts. We’re at the PERI Institute, which is the Political Economy Research Institute, and we’re with its codirector, Bob Pollin. Thanks, Bob.


JAY: So we’ve been talking about the lead-up to Copenhagen. And I guess the underlying theme or conflict here is that going green and dealing with carbon emissions is seen as an opposing force to growth. And particularly at a time of recession, countries want to grow. And then there’s the more overall issue of countries like China and India and certainly all the developing countries think it’s their time to be able to grow, now’s not the time. On the other hand, African countries and others that are like Bangladesh and others that are going to get so affected by climate change, they’re demanding these developed countries get off their rears and do something far more quickly, and there seems to be great inertia there. So when you’re looking at it from the point of view of developing countries, how do you deal with this issue of climate-change crisis and growth?

POLLIN: Well, first of all, as we talked about before, I mean, I think we can show that investing in a clean-energy economy in a rich country like the United States can be an engine of growth, in that you are creating more jobs, number one, a lot more jobs, per dollar of expenditure; you’re moving economic activity into the domestic economy; and you’re also dealing with climate change, which itself, by the way, can enhance growth, because the effects of climate change, like severe weather patterns, are damaging to growth. I should also mention that all of the models, by the way, not mine—I mean, I’m going to talk about all the models, without exception, that have estimated the impact of a cap-and-trade type measure, that is, a measure that insists on reducing the level of greenhouse gas emissions per level of economic activity, okay, every single one of them has shown that there is no discernible impact, negative impact, on economic growth. All of them, including the most conservative business groups, like the American Council on Capital Formation, have been unable to show in their models—. Now, in their headlines they say, “Oh, this is a disaster for growth.” But when you actually read the models, that’s not what the models say. The models say it has almost no impact on growth.

JAY: But the critique of cap and trade is that it may have no impact on carbon emissions, because it’s hard to imagine a derivatives market that isn’t a boondoggle.

POLLIN: Yeah, well—.

JAY: Or a Ponzi scheme.

POLLIN: Okay. So these models, what they model is—yes, they are showing the goal, you know, 80 percent reduction in carbon emissions relative to 1990 levels. So these models may be totally screwed up. Okay? But they’re saying you can get there and you can get there without reducing economic growth, each and every model, including the ones from the most conservative groups. So, you know, the methodologies of building these models, you know, we can debate them. But, anyway, it’s their models, and they all say that.

JAY: So what do you say to China, for example, which apparently is bringing new coal-generated electrical plants online? I can’t remember the exact numbers, but it’s, like, three, four new ones a month or even more than that. What do you say to them when you say, “Well, the coal plants are one of the biggest problems in terms of carbon emissions,” and they say to you, “Well, we can’t get to alternative energy fast enough, and who are you to tell us we have to postpone our growth until there’s alternative energy”? What’s the answer to that?

POLLIN: Well, I mean, in the short term they can make large investments in energy efficiency. That is something, actually, that some of my colleagues and I here, Chinese colleagues who are visiting here, are researching for China right now. And so it’s not true that they are absolutely squeezing out every unit of energy efficiency that they can. So the point that they don’t understand and that the world is only slowly grasping is investments in energy efficiency pay for themselves almost immediately.

JAY: Give us a specific example and some numbers.

POLLIN: Okay. So, like I was discussing, you know, in an earlier session, investments in building efficiency. So you can invest—I mean, the standard numbers are that the investments pay for themselves in three or four years. That is, you’ll get a 30 to 35 percent reduction in energy costs at current prices through relatively modest investments. And that, you know, a 30 percent rate of return, is a very, very high rate of return. Now, in China it might not be 30 percent, but it still would be, say, 15 percent, 18 percent. Those efficiencies are available to China now. And they can make those investments, and it will create jobs, because to make the buildings more efficient entails work, in turn, as a project. So that’s number one. China is committed to investing very heavily in putting renewable energy online. It might not happen fast enough at the current rate. And that’s where interaction with the US and other Western countries becomes very important, because the US had been the technological leader in renewable energy a generation ago and then let it lapse. Now, if we create a dynamic where we’re actually competing and we’re saying, you know, like we said, we want to be the first country to go to the moon, the cost of wind energy now is about a $1.50 per kilowatt, and the cost of coal is about $1. So it’s not that far off. Another five years of intensive investment and innovation in wind energy and in solar energy could bring solar and wind to the point of cost-competitiveness with coal. And in the meantime, let’s make those massive investments in energy efficiency, and that will enable China’s growth engine to keep going and go on the foundation of efficiency and renewable energy.

JAY: But China, India, and the other countries look at the United States, and they look at the bill that’s actually in front of Congress, and they say, you know, “You’re moving towards more coal. You’re going to go to a cap-and-trade where the cap seems to be without any teeth in terms of enforcement. Your financial regulation’s a mess, so your derivatives market on the trade side of this is likely to be as much of a Ponzi scheme as the rest of your financial transactions.” And they say, “Well, until you get your house in order, why are we supposed to be the ones that do something?”

POLLIN: Well, that’s a fair criticism, because the US per capita is by far the largest energy consumer. There’s no one even close. So a lot of the action has to take place here. And, you know, these measures—again, I will, generally speaking, defend the stimulus program as a major step forward. The cap and trade is right now still an open question. I mean, there is a reasonably good version coming out of the Senate from Senator Cantwell which is a much tougher cap-and-trade type provision, where it’s a—I mean, the actual term you could use fairly is “cap and dividend”, where the government collects money, companies have to purchase their permits to emit carbon at all, and the revenues from that are given back to communities and working people that are hurt by any increase in fossil fuel prices. So the Cantwell version, Senator Cantwell version, which is on the floor, is something around which progressive people, I think, should mobilize and say, “We want this.” The other version, the Kerry-Boxer version, is much weaker and it does have too many loopholes. Now, whether it’s, you know, worse than nothing or not, I think it’s probably better than nothing, but, you know, that would depend on what happens beyond just the passage of the measure.

JAY: And whether it’s energy efficiency in building or whether it’s cap, does any of this really work as pure market mechanism? Or does there need to be real government regulation with real law with repercussions—you know, you break the law, you go to jail?

POLLIN: Oh, yeah. Well, it has—I mean, if we’re going to have these measures in place, there has to be enforcement, number one. Number two, I—.

JAY: But within that, is it mostly market mechanism and, like, you know, a carrot and not that much stick? Or is there a lot of stick?

POLLIN: Well, okay, the notion of a carbon cap is a stick. You know, it’s different than a tax, because a tax is a disincentive. You raise the price because you—you know, if you want to—okay, you can emit as much carbon as you want, but you’re going to pay a tax. But if you could afford it, that’s up to you. The cap says, you know, we are reducing carbon emissions in this country by, say, 10 percent this year, period, and unless you have a permit that enables you to emit 10 percent less, then you’re breaking the law and you are not allowed to emit any more carbon. So then, of course, the government has to be ready to enforce that and put people in jail that are breaking the law. And that way it could work.

JAY: And does that look like it’s really going to happen in a reasonable time frame?

POLLIN: Well, if the law is passed, then, you know, the presumption is this is law: you cannot emit more than the law says you can; otherwise, you are going to have to go to jail. Now, what happens in terms of enforcement? You know, that’s another whole issue. Now, you know, we know what happened with the financial regulations. Securities and Exchange Commission, for example, did investigate Bernie Madoff three times and never did anything. So, yeah, the role of government in terms of enforcement, in terms of shifting the way people think about these things, that, yeah, it’s not—. Okay, Bernie Madoff knew there are laws in place; he knew he could break them; he knew he’d never get caught. That could happen with cap and trade, but we have to insist that it not happen. So it has to be progressive forces. We can’t just depend on Obama or his administration. It has to be people pushing that these things actually do get enforced.

JAY: Thanks very much.


JAY: Thanks for joining us on The Real News Network.

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Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.