A WTO Beyond the Price Mechanism

Disappointing piece on carbon pricing by Ngozi Okonjo-Iweala, director-general of the WTO, for a few reasons. (ft.com/content/b0bcc9…)

First, director-generals need to be choosy about which topics to get out ahead of members on. For many countries like the US, Switzerland, Australia, and others, domestic carbon pricing is not politically viable, let alone global pricing. (reuters.com/world/china/sw…) At a time of shaky WTO legitimacy, it would be preferable for the secretariat leadership to pick battles they can win — to show value and credibility. (thenation.com/article/archiv…)

Second, on substance, the piece displays an excessive faith that open markets setting global equilibrium prices could ever deliver something as complicated as total economic transformation. There is no precedent for it, and the DG hints at why: prices in emergencies whipsaw.

Luckily, we do have models of policy toolkits that have worked. Namely, the system of price controls and industrial policy that guided the US and global economies through the 1930s and 40s. See @JWMason1 @lrmelodia’s piece from earlier this week. (rooseveltinstitute.org/publications/r…)

Finally, the piece (and the headline, “Adopting a global carbon price is essential”, which she can’t control) tees up a project that the DG notes COP26 won’t deliver. But the consolation prize that the WTO could offer up is… underwhelming.

There’s a much more direct role that the WTO could play: namely, as the custodian of international economic law, it could be a locus for rewriting the global economic rulebook to deliver decarbonization with equity. (rooseveltinstitute.org/publications/g…) And, if such an ambitious project seems like overreach (remember point 1 about picking winnable fights), there are smaller sectoral efforts like a Green Steel Deal that could show value and deliver emissions reductions. See this with @Tim_L_Meyer (rooseveltinstitute.org/publications/a…)

In fact, the new report from the G7 expert panel on economic resilience lays out a more nuanced path forward, focusing on remaking investment and finance, modernizing WTO rules, creating domestic political coalitions

and using both explicit AND implicit carbon pricing. Methodological Catholicism is vital to keeping with the spirit of the Paris Agreement, as well as (ironically) the WTO’s own current rulebook. See this debate with @loyaladvisor @snlester @Tim_L_Meyer.

Also, I’ll cop to initially misreading the middle part of the DG’s piece. I saw “There is no argument against carbon pricing,” instead of the distinct (but perhaps concerning in a different way) point that the distributive concerns of LDCs are “no argument against carbon pricing.”

For the record, since this research does not seem to be well socialized among economists, there is a lot of research warning about the pitfalls of carbon pricing. See @dcullenward @greenprofgreen @leahstokes @mmildenberger — latter cited in the G7 report. See here.

And on the point about the distributive concerns of least developed countries, there are proposals on Capitol Hill right now that would accommodate precisely that.

(Adapted from this thread.)