1. Given that we are risk averse and climate change poses a set of "known unknowns" and "unknown unknowns" we need to set up rules of the game to reduce our risk exposure. Reducing global GHG emissions is a type of insurance policy. This is why I support the flexible treaty.
2. While this treaty is weak in terms of enforcement and coddling of developing countries as they set their goals with respect to "Business as usual" scenarios and relative to carbon intensity, the treaty begins to set expectations so that investors in new capital (such as power plants and factories and innovations) begin to make these investments with the expectation that they will be penalized for high carbon activities.
3. The treaty would not be a "free lunch" for the U.S. It would raise gasoline prices and electricity prices. The devil is in the details. Since we do not know what technological innovation it would induce, we do not know how much these price increases would actually be. Read my 2008 discussion (see page 55) that is looking pretty good right now. As I spoke to a reporter yesterday, I started to think about the point that progressives here are "technological optimists" (i.e that the cost of the solar panels will continue to decline). Is this optimism correct or is it "wishful thinking"? What is the basis in truth for their technological projections? Is it "Moore's Law" for computers?
4. Suburbanites will bear the brunt of carbon pricing and these are Trump's voters. San Francisco progressives will bear few of the costs of this regulation. Read my 2015 paper.
5. American manufacturing (especially energy intensive industries) do respond to higher electricity prices by agglomerating where energy prices are lower. Read my 2013 paper.
6. The New York Times today writes that Pittsburgh is no longer a heavy industry town. It has transitioned to high human capital industries. Read my 1999 paper on the local environmental benefits of such a transition and this is one of our key pieces of logic for China's transition (and why I'm optimistic that their economy will decarbonize; (read our 2017 paper). President Trump has the noble intention of providing "good jobs" for less educated Americans. More manufacturing jobs would increase this set of jobs. Where there is a fight in economics is how much of the job loss is due to international trade, robotization, vs. regulations and unionization. Now that Pittsburgh is home to high human capital industries and blue skies, the incumbent voters do not want to bring back the 1950s jobs and smoke. But Trump's voters do want that but they don't live in Pittsburgh now. They have retreated to areas with cheaper housing.
China will face the same issue with its coal phase out. SOE bosses and coal miners will lose their $ but coastal educated people will gain blue skies and the leadership can claim GHG reduction leadership. The NY Times hasn't explored this issue that fighting GHG imposes costs on the blue collar workers. The NY Times would counter that the poor will bear the costs of adapting to climate change and thus even this group will gain from this fight. This is an interesting point that merits more research.
7. The U.S (as an urban nation) can adapt to many of the challenges that climate change will pose. The media tiptoes around the adaptation issue.
8. Is the U.S a leader in all international affairs? Can the world make progress on a global issue if the U.S free rides? While the federal government will free ride during the Trump years, the President will no longer be President in 3 to 7 years. The next President is likely to reengage on these issues and the rest of the world knows this and will plan accordingly. At that time, the U.S will in fact get a better deal .
9. As the U.S federal steps back, California and other progressive states will continue with their efforts. This means that chunks of the U.S will reduce their emissions and people like me who live in CA will bear these costs. I talk about whether California is a "hero or a sucker" in this 2010 interview.
Let me end by stating some economics questions that I don't know the answers to;
1. In Europe and other "green nations", how has their middle class's purchasing power been affected by the green push? How much more expensive are food, energy, water as these nations attempt to decarbonize? Are these price increases falling over time due to learning by doing in the green sector?
2. Progressives always mention "green job" creation. President Trump ignored this margin in his speech. How many "green jobs" are created in making solar panels, wind turbines, and electric vehicles?
3. How much do the U.S people value a small reduction in climate change risk? The University of Chicago conducted a contingent valuation survey suggesting that this valuation is high but voters keep rejecting gas taxes at the ballot box.
4. The economics of international treaties is a complicated field that not enough game theorists work on. Yes, there are multiple equilibrium here but what is the "Nash Equilibrium" now that the dominant player has walked out? In a Stackelberg Leader game, what happens when the Leader vanishes?