International Energy Outlook, and a scary thought

This graph is from the Energy Information Administration's International Energy Outlook for 2007 (full report, press release). World energy consumption is predicted to rise by somewhat more than half today's level by 2030 in the absence of policy and price changes.

The report also highlights 2004 as a landmark from an environmental point of view (see graph above):

From 2003 to 2004, carbon dioxide emissions from the non-OECD countries grew by almost 10 percent, while emissions in the OECD countries grew by less than 2 percent. The result of the large increase in non-OECD emissions was that 2004 marked the first time in history that emissions from the non-OECD exceeded those from the OECD countries. Further, because of the expectation that non-OECD countries will rely on fossil fuels to supply much of their future energy demand growth, carbon dioxide emissions from the non-OECD countries in 2030 are projected to exceed those from the OECD by 57 percent.

Strong economic growth in the developing world, especially China and India, is one of the main drivers of the changing geography of CO2 generation. I expect another reason to be important, however, and that's the migration of 'dirty industries' to the countries with the least stringent environmental standards and the lowest taxes on fossil fuels (here is a previous post on the Summers memo).

Can global warming in a world with widely varying taxes on C02 emissions provide an argument against free trade? Trade is beneficial when a country has a comparative advantage in producing a certain good, but what if that advantage is borne out of differences in energy taxes? Is trade in private goods as beneficial as mainstream models suggest in the presence of global externalities?

I'll try to get my thoughts together in a simple model - stay tuned, more on this coming up soon.