Tuesday, October 23, 2018

econlife - The Problem With Emissions Outsourcing by Elaine Schwartz

When California’s Bay Bridge was built in 2011, the uproar was about jobs. U.S. steelworkers protested when sections of the bridge as big as half a football field were made in China and then shipped to the U.S. They said the bridge should have been made here.

Below you can (almost) see workers welding a section of the Bay Bridge in Shanghai: 


Now the protests have changed.

Outsourcing Emissions

The Buy Clean California Act requires state agencies and universities to consider greenhouse gas emissions when selecting firms for public works projects.  Called “global warming potential,” the emissions created from fabricating certain types of steel, glass, and wool board will be required in the bidding process. Enforcement starts during 2019, after lawmakers have quantified their criteria.

A California congressmen explained that he proposed the law “to support clean manufacturing.” He might have added “everywhere” to the end of his sentence. After all, the Bay Bridge used steel from a heavy polluter in China. So buying steel from them increased “global warming potential.”

The goal is to limit this emissions outsourcing. Called a carbon “loophole,” (mostly) developed countries are sidestepping their emissions admissions. The California law makes them responsible for what other nations emit. A new paper calls it “embodied emissions” in globally traded goods.

Recognizing the surprising proportion of emissions in traded goods could help us reduce them:


These are the carbon emissions importing and exporting nations:



Our Bottom Line: Negative Externalities

Polluters create a negative externality. If there is no penalty, they incur no cost for the harm they impose on the environment. Instead, uninvolved third parties experience the illnesses their emissions create.

To graph the problem, an economist would draw a supply curve that should shift to the left:


British economist Arthur Pigou (1877-1959), proposed that a tax be levied on a good or service that creates a negative externality. California has a different solution. Still though, they too create less supply.

My sources and more: You might find it fascinating (as did I) to compare the 2011 NY Times article on the Bay Bridge with this one. Then, if you want to read some analysis, do look at this paper on outsourcing emissions. And finally, for more legislative insight, here is the goal of the California law and its content.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.