The Carbon Lie, part two

The crucial role of international trade in global warming

I’m going to do some speculating. The reason the rate of embodied, trade-based carbon emissions discussed in part one is so significant is that overall CO₂ emissions are intimately connected – not to the degree of economic growth per se – but to the amount of international trade.

Foreign direct investment – and thus global trade – mushroomed from the 1990s onwards as globalisation took root. Manufacturing companies upped and left the deindustrializing West and relocated to countries like China*.The products they made had to be transported back to consumers in rich countries via container ships and aeroplanes and therefore emissions shot up. Between 2000 and 2008 the emissions’ growth rate reached 3.4%.

Everything came to a juddering halt in 2008 with the global financial crisis. But the respite was short-lived – in 2010 emissions’ growth returned with a vengeance, hitting 5.9%.

Then something strange happened. Global economic growth continued, albeit at a historically subdued level, but carbon emissions did not follow suit. They were, in fact, flat for three straight years (2014-2016). For the first time ever emissions were not rising in tandem with GDP growth. This prompted notions that the world had reached peak emissions and that CO₂ pollution was finally “decoupling from economic activity”.

However, such hopes were dashed almost as soon as they were raised. In 2017, carbon emissions started growing again, reaching a historic high.

These developments become a lot less puzzling when global trade, as opposed bare economic growth levels, is brought into the picture. According to the United Nations Conference on Trade and Development (UNCTAD) Status of World Trade 2017 report, world trade grew at less than 2 per cent a year from 2011-14, declined by 10 per cent in 2015 – during which time the profitability of global shipping companies sank like a stone – and dropped by a further 3 per cent in 2016. However, reports UNCTAD, the “dismal performance” of world trade over the previous eight years came to an end during 2017.  

After an unpromising beginning at the start of the year, “Trade growth”, notes the report, “picked up substantially in the second and third quarters of 2017”. In the fourth quarter, trade was expected to achieve growth rates 10% higher than those of 2016. Trade was anticipated to outperform GDP growth in 2017 (4 percent points compared with 3.6), something it had done consistently since the middle of the 19^th century, except for the period 2011-2016, when coincidentally carbon emissions remained flat or fell. Importantly, noted UNCTAD, trade growth was widespread across both developed and emerging economies.

Hence, the years in which global CO₂ emissions did not rise were concurrent with declining world trade, and the return to rising emissions synchronous with the revival of world trade. I don’t think that’s a coincidence.

It is true that global economic growth has increased as well, but to nothing like the same degree. According to the International Monetary Fund it was 3.1% in 2015, 3.2% in 2016, 3.6% in 2017 and projected to reach 3.7% in 2018: an incremental rise but nothing spectacular. If trade growth – as anticipated – has continued into 2018, it is a sure fire bet that carbon emissions will have increased as well.

Why does international trade cause emissions? Through a combination of the pollution caused in the manufacture of goods or extraction of raw materials and in transporting them often thousands of miles to end user markets.

The Establishment in denial

But this connection between global trade and global warming is anathema to both liberal and conservative commentators. Donald Trump, for example, is roundly lambasted for stoking a trade war with China by introducing tariffs on commodities like steel. Such restraints on trade and protectionism are seen as dangerous and potentially leading, as they have done in the past, to actual physical conflict. These worries are warranted – protectionism and tariff imposition preceded the massive conflagrations of the First and Second World Wars, although it should also be pointed out that most countries, including the US in the 19^th century, industrialised precisely because they protected their domestic enterprises.

However, we also know that the way the world economy is currently configured – a configuration in which unfettered trade between nations is considered sacrosanct – will cause drought, mass poverty, the inundation of coastal areas, a refugee crisis to dwarf anything we have so far experienced and, very likely, physical conflict in just over 20 years.

The fixation on international trade as beneficial and leading to peace, not war, among nations is immensely hard to dislodge. It is, as this article points out, the most venerable of the “numerous ideological shibboleths” of the liberal-capitalist order, which can be traced back to the notion of the 19^th century economist David Ricardo that free trade allows countries to exploit their ‘comparative advantage’. Unimpeded trade between nations, said Ricardo, would maximise benefit to consumers and allow for the most efficient use of domestic natural resources.

In time, the notion that countries that trade with each other were unlikely to go to war was added to the carapace justifying unfettered trade. Not only does international trade benefit the consumer but is also forges links of mutual self-interest between nations. Hence, UNCTAD’s synonym for world trade – “economic interdependence”.

In our era, the significance of trade has grown beyond its relevance to the consumer. A lot of trade is now intra-industry. International supply chains allow corporations to shift production or assembling to where it is cheapest (a process known as ‘global labour arbitrage’), while more intricate, technical processes take place in developed countries. The most famous examples are Apple’s iPhone, iPads and iPods. Their components are manufactured in multiple countries – including the US, China, South Korea, Japan, Germany, Switzerland and the Netherlands – but assembled in just one, China. The threads of international trade involved in constructing Apple’s products, and then transporting them to the consumer, are immense.

The transformation that isn’t

But still – in spite of the acknowledged gravity of the situation – proposed solutions to climate change eschew structural change in favour of financial incentives and technological transformation, demonstrating, if nothing else, the stubbornness of the liberal-capitalist faith in international trade.

The IPCC paints a picture of the calamities that will ensue if CO₂ emissions are not drastically reduced by 2040 but places its hopes in widespread carbon pricing – charging producers for the amount of CO₂ they emit. This is despite the fact that carbon pricing has been introduced by many countries but global emissions have continued to rise.

We need an economic transformation, says the IPCC, for which there is “no documented historical precedent”. But in terms of how to achieve this radical change the well documented precedent of neoliberalism reigns supreme.

The International Maritime Organisation has agreed a non-binding commitment to reduce shipping emissions by 50% by 2050. But the way to achieve this is purely technological. Projections that global trade is to increase dramatically over the coming decades are accepted without question. Rather it is proposed that the currently 50,000-strong global shipping fleet rapidly adopt zero-carbon technology, such as batteries, renewable fuels derived from hydrogen and bioenergy.

Such a transformation is regarded as quite possible with “the correct level of investment”.  Studiously ignored is the fact that investment – the financing of new equipment or machinery – has steadily fallen in advanced capitalist countries, including in export giants like Germany, over the past four decades (see Chart 5.2, p 143). Contemporary, financialised capitalism specialises in extracting profit but not in long-term technological transformation.

Introducing tariffs and stoking trade wars is not the way to achieve the necessary slashing of carbon emissions. Even if it did succeed in reducing emissions – which is far from certain – the consequences are perilous. Notwithstanding the rampant racism involved, rising international tensions might well lead to war.

The rational reduction of global trade

Nonetheless, if climate change is to be mitigated significantly, which must be the aim of any rational political movement, the shibboleth of uninhibited world trade must be tackled. As Naomi Klein says in This Changes Everything, long-haul, energy intensive transport has to be rationed – “reserved for those cases where goods cannot be produced locally or where local production is more carbon-intensive”.

So it falls on the Left to steer a delicate course – reducing world trade in such a way that does not provoke xenophobia and international conflict, economic or physical. This, to be frank, is not an easy task. Jeremy Corbyn’s ‘Build it in Britain’ campaign and assertion that a future Labour government would try to ensure that “we build things here that for too long have been built abroad” was a step in the right direction. But, inevitably, insourcing – the reversal of outsourcing to the other side of the world – is going to have to happen on a large scale.

But there are clear non-capitalist consequences that should be embraced. The ultimate source of profit can be endlessly debated but, in essence, profit is a mark-up over costs. Hence, enormous profits are made from the trading of oil and gas (oil has to be extracted, transported and refined; all occasions for the insertion of profit). However, renewable energy embodies a completely different logic. It does not have to be transported and is freely available. Beyond the high costs of infrastructure development, the price of transmitting the resultant energy to consumers and enterprises, is minimal. There is no reason at all why the production and transmission of renewable energy should be privately owned or a source of profit.

Likewise, the technological future of production, for example 3D Printing, is not for goods to be transported thousands of miles to end markets but to be produced locally. If global trade is to be radically curtailed in the coming years – as it has to be – such a development will likely go with the grain of economic development, not be in conflict with it.

*This process, by the way, wasn’t exclusive to Anglo-European countries. South Korea, a major industrialised country by the 1980s, also shifted production to China and, as a result, trade between the two increased by 1431% between 1995 and 2015.

The Carbon Lie, part one

Officially, the United Kingdom has been stunningly successful in reducing its carbon footprint. Despite green-lighting fracking and the expansion of Heathrow, Britain’s CO₂ emissions have fallen by 38% since 1990 and are now as low as they were when Oscar Wilde’s The Picture of Dorian Gray was published in 1890.

However, this is a lie. Not in the sense the UK government is fiddling the figures, though many claim that emissions from major infrastructure projects are deliberately miscounted, but because the UK has only achieved this reduction in emissions because it has outsourced them to other countries.

Britain has gone through rampant and conscious deindustrialisation over the last three decades. When Margaret Thatcher came to power in 1979, manufacturing made up 30% of the economy and employed 6.8 million people. By 2010, at the end of the last Labour government, it had shrunk to 11 per cent of GNP and had a workforce of just 2.5 million.

However, people have not learned to live on fresh air. Many of the products that were once made in Britain are now imported. This increases CO₂ emissions in two ways – one because the manufactured products and commodities may be made or extracted under worse environmental conditions than might have been the case domestically (though still often under the aegis of western-based multinationals) and two because they have to be transported thousands of miles across oceans, usually by container ship, to their end markets.

Embodied emissions between China and the UK, for example, increased by 333% between 1995 and 2015. The kind of products traded in this manner includes both industrial goods – steel and cement for example – but also consumer items such as toys, trainers, clothes and office equipment.

Thus, while the UK’s territorial carbon emissions have been slashed, primarily because of domestic deindustrialisation, the overall carbon footprint that the UK is responsible for, which includes so-called embodied or traded emissions, has not. According to a report on the ‘Carbon Loophole’ from August 2018:

The UK’s territorial CO₂ emissions have been declining for decades, and it has been one of the few countries able to report a decline in absolute emissions. However, considering the embodied carbon in imports, this apparent success is partly reversed. The total carbon footprint, inclusive of embodied CO₂ in imports, has slightly increased since 1990.

Clearly, the UK is not alone, though its rate of deindustrialisation, and thus reliance on trade, is extreme. In the US, for example, embodied carbon imports grew rapidly from the 1990s onwards but declined following the 2008 financial crisis and have plateaued since then. The EU and Japan paint a similar picture. Thus, while the advanced capitalist countries officially claim they are mitigating climate change, they are in fact doing the opposite. As the report says:

Remarkably, in all cases, changes in emissions embodied in imports are comparable to or larger than changes in domestic emissions. Thus, under a consumer responsibility principle, developed countries have not recorded a decrease from 1990 levels, but rather an increase.

This deception arises from the fact that when countries report their greenhouse gas emissions they do so on the basis of their territorial emissions only. The emissions generated in the production of goods for trade go towards the territorial emissions of the country they are produced in (say China or India). And the emissions generated by transporting the products to developed country markets are not counted at all. This is an unfortunate oversight considering that emissions from shipping are predicted to double or even triple by 2050 (see executive summary).

The recent Intergovernmental Panel on Climate Change (IPCC) report that caused a sweeping gnashing of teeth for almost 48 hours stated that unless greenhouse gas pollution was reduced by 45% by 2040 and by 100% by 2050, coastlines would be inundated by rising seas and droughts and food shortages would become rampant. The IPCC said there was “no documented historical precedent” for the economic transformation that is required. Tragically, such an economic metamorphosis is even more difficult if the nature of the problem is misunderstood in the first place – if we are labouring under the misconceptions of, in Naomi Klein’s words, “a vastly distorted picture of the drivers of global emissions”.

What lies at the root of these misconceptions is an obdurate belief in the beneficence of global trade. International trade, in the dominant liberal-capitalist mind-set, is seen as both the wellspring of wealth and prosperity and a guardian against the dark forces that will be unleashed if it is impaired.

Unfortunately, the Left, too, seems woefully under-prepared for the scale of the transformation that is called for.

Which will be the subject of Part Two of this post.