Saturday, March 7, 2009

Green Trade War - WSJ Editorial

Green Trade War
Warming to protectionism.
Published: March 5, 2009

Just as more scientists acknowledge that we don't know as much about the Earth's climate as Al Gore says, it's becoming clearer that environmental policies won't lead to some green economic boom. See the latest trans-Atlantic spat over biodiesel.

EU trade ministers voted Tuesday to apply punitive tariffs to biodiesel imported from the U.S. The measure is supposed to level the playing field for European producers, who complain that U.S. subsidies for the crop-based fuel have led to a 25-fold increase in American biodiesel sales to Europe since 2006. Neither side is in the right here -- which makes the case such a good illustration of the way green policies warp markets.

Like other renewable fuels, biodiesel isn't commercially viable without subsidies. But the combined power of the U.S. environmental and farming lobbies is enormous, so subsidies they receive. And it doesn't stop at taxpayer cash: Congress, in its wisdom, has also mandated ever-higher biofuel production quotas. The result is a glut of biofuel capacity. So long as oil prices are sky-high, as they were for much of 2008, alternative fuels such as biodiesel didn't look bad to consumers. But now that gasoline prices have dropped sharply, even biodiesel subsidized to the tune of $1 a gallon won't sell.

Enter Europe, which claims U.S. biodiesel makers are dumping their excess fuel on EU markets, taking advantage of U.S. subsidies to undercut domestic firms. If EU environmental policies were really about the environment, this arguably would be a good thing. More green fuel for everyone, and on the cheap to boot.

Not so fast. It turns out that Europe -- which also isn't known for restraint in supporting farmers -- is more interested in protecting its own biodiesel industry than in seeing motorists fill their tanks with low-carbon fuel. Hence the new tariff, which comes out to $400-$500 per ton. Aside from the costs of all this subsidizing and penalizing, the EU's tariff makes things worse by encouraging its inefficient biodiesel producers to stay in the market. And all of this despite evidence that fuels like biodiesel increase CO2 emissions compared with fossil fuels.

This cycle of wastefulness is bound to repeat itself, and not only when it comes to biodiesel. Imagine if Europe finally liberalizes its electricity market. If, say, a German company tried to sell subsidized wind power to neighboring Poland, undercutting Polish competitors, Warsaw might well object -- just as Europe objects now to cheap U.S. biodiesel. EU leaders could carve out exceptions to trade reforms for renewable energy. But that would only undermine the good done by market liberalization.

We keep hearing about the coming "green tech" bounty. But green-collar jobs will continue to cost more in subsidies and lost efficiency than the jobs themselves are worth. Not to mention the positions that are lost along the way in other firms or industries, or never created because energy costs more for everyone. A report last year by the economic research institute RWI Essen found that €205,000 in subsidies were spent for each solar-industry job created in Germany, and that the net effect on employment was negative.

With a recession in full swing, neither Europe nor the U.S. can afford this kind of green revolution.

Source: The Wall Street Journal

No comments: