The American Clean Energy Act, Global Warming and the Position of China and India

The American Clean Energy and Security Act (Waxman-Markey) was recently approved (narrowly) by the U.S. House of Representatives. The bill now goes to the U.S. Senate for consideration.

There are several provisions of the bill -- some are bold and others modest, some progressive and others status quoist. With respect to Global Warming and Carbon emission reduction, the Act mandates, "Starting in 2012, ACES establishes annual tonnage limits on emissions of carbon and other global warming pollutants from large U.S. sources like electric utilities and oil refiners. Under these limits, carbon pollution from large sources must be reduced by 17% below 2005 levels by 2020 and 83% below 2005 levels by 2050. To achieve these limits, ACES establishes a system of tradable permits called “emission allowances” modeled after the successful Clean Air Act program to prevent acid rain. This market-based approach provides economic incentives for industry to reduce carbon emissions at the lowest cost to the economy."

So, per ACES Act, the United States is using 2005 as the benchmark, and hoping to reduce the carbon emissions by about 17 percent in 2020. 

On China and India: Governance and Economic Institutions

In addition to the democratization of its polity, and liberalization of its economy, the autonomy and democracy of India’s financial institutions and corporations make India a more alluring investment destination. The norms and regulations of the financial markets, and the enforcement and supervision by Securities Exchange Board of India of these regulations are credible, if not perfect. They have made the Indian stock and bond markets transparent and investor-friendly (Swamy 2005). India’s stronger infrastructure in terms of far more efficient and transparent capital markets is enabling the growth of entrepreneurship and free enterprise (Huang 2006).

Empirical research (Khanna, Kogan and Palepu, 2006) now shows that each successful society develops its own set of governance institutions, standards and practices. While there may some de jure similarity in standards, there is no de facto convergence. India has evolved fairly robust and indigenous governance institutions and standards (e.g., dispute resolution bodies such as courts, recognition and protection of private and intellectual property rights, a well-developed private sector, and a modestly better score on corruption and rule of law in World Bank’s governance indicators) over the last 50-60 years (Swamy 2005, Wolf 2006). It may take China the next 30-40 years to develop its own institutions and standards (North and Thomas 1971, Swamy 2005).

President Bush's decision to attend the Olympic games in China

President Bush has announced that he will attend the opening ceremonies of the Olympic games in Beijing, China next month. Simply put, the President did not want to insult China. Historically and culturally, Chinese citizens are nationalistic and take affront rather easily (and hold these grudges for a long time) to any perceived insult to their country, culture and society.

So what is the point in leaving the Chinese political leadership all upset with the United States? After all, the next President -- whoever it is -- will have to face the consequences of that. President Bush has made the right decision in not complicating the governance for the next President -- after all, President Bush is in the last 6 months of his presidency.

The responsibility and restraint shown by President Bush is to be lauded though it can be argued that China should not be rewarded for its strong arm tactics with Tibetan people and other human rights issues. May be President Bush would have not attended the opening ceremonies if he had at least one full year -- if not more -- to deal with the fall-out of such a decision instead of leaving that to the next President.

After all, President Bush has has been clear in always identifying China as a "competitor." President Bush has also been respectful of Dalai Lama and the Tibetan aspirations. So instinctively President Bush would have wanted to keep away from the Olympic games but he made the right strategic decision.