Montreal, August 15, 2009 • No 269


Vincent Geloso has a diploma in economics and politics from Montreal University and is currently studying at the London School of Economics and Political Science for a in economic history.




How markets can avoid "Climate Wars"


by Vincent Geloso


          In the last decade, climate change has become a pressing issue. It is even said to be the defining issue of our times. We are expected to believe that sea levels will rise and submerge entire coastal cities as depicted in doomsday Hollywood movies. We are also told that malaria will move northward and that natural resources will become scarcer.


          We are to believe that with the still-rising global population, world food production will not suffice and millions will perish of hunger. This famine will generate conflicts over food in which millions more will be killed. The expansion of deserts, the rise of sea levels, and gigantic catastrophes will reduce the supply of natural resources like fresh water and certain sources of energy. These scarcer resources will generate still more conflicts, and again millions will be killed as a result. Hoards of individuals will become migrants and will destabilize other countries and thus bring about the end of the civilized world.

          Of course, this is all pure nonsense. We have to remember that, in spite of all the apocalyptic claims made in the past, global population increased and hunger went down. In 1970, 37% of the world's population suffered from hunger. In 1996 that had fallen to 18% and it was predicted that it would slip down to 12% in 2010 (FAO, 1998). That was due to a green revolution that saw new processes applied in agricultural production and genetically modified crops, which dramatically increased the global food supply (Hollander, 2003). What we must remember is that human beings are equipped with the ultimate resource, as Julian Simon coined it; their brains. The human brain allows us to innovate, create and generate new techniques and technologies that make it possible for humanity to solve its problems, not through government intervention but through the independent work of the independent mind.

          This is why the father of the green revolution, 1970 Nobel Peace Prize winner Norman Borlaug, believes that biotechnologies will be the tools of the second green revolution (Hollander, 2003). Where famines persist, we have to look at the nature of the political regimes in power to see that most of them are not democracies and tend to limit economic freedom tremendously. No democracy with a market economy ever suffered from hunger, not even poor democracies (Norberg, 2003).

          We also tend to forget that genetically modified crops not only reduce CO2 emissions and the use of pesticides; they also generate magnificent amounts of wealth for those who use them (Brookes and Barfoot, 2006). The only places where hunger would become an issue due to global warming is countries where economic and political freedoms are rare, which has absolutely no relation to global warming itself.

          What about wars linked to natural resources like water? There have been several conflicts in which hydraulic resources played a role. We can think of Malaysia, Namibia, Angola, Ecuador and Bangladesh (Balen, 2005). But not one of these political regimes is an open democracy with a market economy. Let's take the example of the Israel-Palestine conflict in which water plays a key role. In the Middle East, where water is scarce, it seems Israel should go to war to acquire water reserves from other nations, but it does not do so. One of the reasons might be that one week of war costs more than the construction of five desalination plants (Lomborg, 2001).

          As a matter of fact, Israel is one of the only countries in the world to introduce market mechanisms for the management of its scarce water resources. Thus, it is in Israel that we find the lowest rates of waste and the most efficient uses of water (Balen, 2005). Considering that the agricultural sector is the main source of water usage in the world, we can appreciate the fact that Israeli farmers are the most efficient when it comes to the use of water in farming, especially with their use of micro-irrigation (Elgrably, 2005). If conflicts are generated because of water scarcity, it will be because of government intervention through regulations, restrictions, price controls and subsidies which will stop market signals from expressing themselves. Such governmental actions will eliminate incentives, innovation and efficiency and will deliver more waste of water resources as a result (Balen, 2005).

"Contrary to what doomsday ecologists say, it is not the scarcity of resources that generates instability, but rather their abundance in a context of government control."

          As for energy resources, the only problem could again come from government intervention through price controls, protectionism and regulations. When governments step in, competition walks out (North, Miller, Benjamin, 2004). In a free market, if the price of a particular energy product goes up, substitutes become more attractive, new techniques are developed and new ways of doing things are adopted. In the 1970s, when oil prices surged, new plants were opened, offshore platforms went operational and new techniques were developed, notably in Canada for the extraction of tar sands. At the same time, energy efficiency went up.

          As the price of oil goes up again these days, nuclear energy becomes an alternative (The Economist, September 2007). In the United States, producing 1KwH of nuclear energy cost 1.28 cents in the 1980s. Now it is 0.44 cents, and that applies even if uranium prices go up (World Nuclear Association, 2007). One kilogram of uranium generates more energy than 1500 kilograms of coal (International Energy Agency, 2007).

          For OECD countries, having a strong nuclear energy sector would imply a reduction of 10% of global CO2 emissions or 1,200 million tons. Such a thing will never happen as long as nuclear energy is strongly regulated and the energy supply is manipulated by government intervention. Countries like the United Kingdom can boast that they nearly attained their Kyoto targets, but we tend to forget that this was mostly due to the privatization of coal mines in the 1980s, which led to the elimination of old technologies, fostered innovation and encouraged the development of newer forms of energy like nuclear energy (Clougherty, 2006). The adoption of markets in the management of natural resources would allow us to avoid resource-based conflicts.

          Contrary to what doomsday ecologists say, it is not the scarcity of resources that generates instability, but rather their abundance in a context of government control (Rosser, 2006: Gleditsch Nordås, Salehyan, 2007). Countries like Venezuela, where the untapped oil reserves are owned by crown corporations, are the ones that oppress their countrymen the most. We can also think of Russia, where journalists are assassinated for writing against the regime; or Nigeria, where newspaper offices are burned down; or Saudi Arabia, where being homosexual is a crime. These countries act this way because they can. With oil prices high, they can afford to play tough without political retaliation from Western nations (Friedman, 2006). Political instability results from the nature of such political regimes and has nothing to do with global warming. To put the blame on something else for this instability would absolve these regimes of their responsibilities for the misery of their people (Gleditsch Nordås, Salehyan, 2007). It is worth noting that no two countries with McDonald's restaurants have ever fought a war (Friedman, 1999).

          No conflicts will emerge as a result of global warming because human beings are highly adaptive and responsive to environmental modifications. But if governments intervene by pretending to help and by repressing the creative forces of the human mind, then conflicts will become an all-too-real possibility.



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