The Adam Smith Institute has a good summary of China’s role in your pain at the pump. In even more brief, China’s increasing energy usage is outstripping supply, and will continue to drive up fossil fuel prices.

Unfortunately, China is not using that oil as efficiently as large Western countries. However, the Kyoto protocol, which Western countries (infamously save the US) signed, doesn’t let Western countries get credit for emissions reduction in developing countries like China. This is profoundly stupid.

The largest growth in raw material consumption will be in the less-developed countries, as they have further to go to achieve the state of the art in development. So if they are going to be burning more oil for the same kilowatt hour of electricity, doesn’t it make sense to make them more efficient as they grow, rather than trying to limit consumption in the West which is much closer to the theoretical maximum of efficiency?

If you redirect pollution reduction efforts to areas where they can be done most cost-effectively, everybody wins—assuming you’re dead-set on making the reductions. China gets more efficient plants and reduces energy expenditures, and the West doesn’t have to pay as much per ton of carbon eliminated from the atmosphere.

However, I suspect that vision would enrage many environmental activists who are more interested in economic hairshirt practices and ideological purity than actual reductions in pollution.

Plus setting targets for pollution reduction in developing countries scares the bejebus out of them, as they instinctively know what the EU claims not to know: any distortion of the market results in lower overall wealth creation. Their legitimacy is now tied to how well they sustain their rates of growth, and they fear any measure that might mitigate that. At the same time, there is an overall lack of trust in true market mechanisms to distribute pollution reduction more efficiently than bureaucrats.

To tie this all together, if Kyoto had allowed reductions in developing countries, the US would have likely signed. If the US had signed and started making reductions in China, Chinese demand might be slightly reduced, and projections of its future demand would definitely be reduced. In all likelihood, you’d pay less at the pump.

In the meantime, enjoy the last few years you can use your SUV without taking out a third mortgage.