G L O B A L I S S U E S Climate Change Choices CLIMATE CHANGE POLICY AFTER KYOTO
By Raymond J. Kopp, Richard D. Morgenstern and Michael A. Toman
The Kyoto climate agreement signals a new level of international attention to limiting
"greenhouse gas" emissions. But many important issues remain to be resolved before ratification
by the U.S. Senate and implementation.
On December 10, 1997, 160 nations reached agreement in Kyoto, Japan, on limiting emissions of
carbon dioxide and other "greenhouse gases." The Kyoto Protocol is a significant victory for
advocates who have sought to persuade world leaders to address climate change. It is intended to
signal to governments, businesses, and households that limits will be placed on future emissions
of greenhouse gases, and that now is the time to begin developing the necessary technologies.
Advocates also express the hope that acceptance by industrialized countries of binding emissions
limits would make developing countries more willing to take emissions-limiting actions
appropriate to their own circumstances.
As we discuss below, however, the protocol itself has significant gaps; the costs of meeting the
stipulated targets are not tremendous but not trivial either; and there is still a great deal to settle
with respect to the domestic policy agenda.
A protocol that is both workable in practice and capable of being ratified by the Senate must
come to grips with three basic questions. First, does it represent a sound framework for attaining
long-term global emissions-reduction goals, and is it clear enough to serve as a sort of
international contract to which parties can commit?
Second, how costly are the targets and timetables for greenhouse gas reduction agreed to by the
United States and other Annex I (developed) countries -- are they as affordable as the Clinton
administration says, or as burdensome as the fossil fuel industry has asserted? Third, what
measures would the United States deploy to achieve the goals laid out in the protocol?
REFINING THE PROTOCOL
The negotiators deferred action on several important but controversial elements to a subsequent
meeting scheduled for Buenos Aires in the fall of 1998. President Clinton has indicated that he
will not send the protocol to the U.S. Senate for ratification until more progress is made on these
issues. We believe that, at a minimum, the following must be accomplished before ratification
and implementation can occur:
Article 6 of the protocol provides for emissions trading, but only in the vaguest of terms. How
the trading program is carried out will greatly affect the capacity to hold down compliance costs.
A program that establishes a freely functioning, largely private market in emissions permits,
where private entities may execute trades with minimal bureaucratic red tape, will be the most
efficient and will lead to the greatest cost savings. In contrast, a market permitting only trades by
governments, or a market where private trades are hamstrung by overly restrictive rules, will sap
the cost savings.
The rules and institutions governing joint implementation (the so-called Clean Development
Mechanism) must be developed in detail.
Under Article 12, Annex I countries can jointly undertake projects with developing countries to
reduce emissions in the latter countries and count those reductions toward compliance with their
own commitments where it is possible to establish meaningful baselines against which
reductions can be measured.
Again, however, the protocol does not address how such projects can be undertaken. A
well-supervised but freely functioning market, combined with credible certification and
enforcement of reductions, would yield real greenhouse gas reductions at lower cost. An overly
restrictive and bureaucratic system would sap possible gains.
The criteria used to judge compliance, and any penalties for noncompliance, must be clearly
articulated.
The protocol contains a number of technical provisions for assessing national performance in
measuring emissions and meeting emissions control objectives. These provisions build on
previous efforts under the United Nations Framework Convention on Climate Change but are
complicated by the more comprehensive nature of the new protocol. Beyond these technical
questions, the fundamental issue is what actions, if any, would be taken if a country were found
not to be in compliance. The emissions goals of Annex I countries are taken to be binding under
international law, but the protocol itself contains no stipulations for sanctions in the event of
noncompliance.
A binding agreement on the part of the major developing countries to limit their emissions at
some specified point in the future must be obtained.
The Framework Convention clearly states that developing countries do not bear the same
obligations as developed nations for emissions control in the short term. Nevertheless, the
protocol could and should contain commitments from developing countries to limit their
emissions growth. Developing countries could achieve such limits through "no regrets"
measures that would be prudent to take in any case and through agreements to eventually cap
emissions as their economic circumstances improve in exchange for assistance in adopting clean
technologies.
The lack of any early commitment by developing countries not only aggravates short-term
concerns in the United States and other industrial countries about international competitiveness
but also raises the specter of developing countries becoming "locked in" to more
fossil-fuel-intensive technologies.
To make longer-term objectives more credible, moderate but specific near-term goals should
be set for Annex I countries and these countries should be able to use early emissions reductions
to meet longer-term requirements.
Other than a passing reference in Article 3 to the need for "demonstrable progress" in achieving
commitments by 2005, the protocol is silent on interim measures. Yet without interim targets,
prospects for achieving more ambitious longer-term goals become problematic and the incentives
to engage in long-term investments in new capital and technology are undercut. Incentives for
cost-effective reductions before 2008 to meet long-term requirements also are limited since the
protocol makes no provision for emitters to "bank" such reductions.
In the runup to Kyoto, a number of experts pointed out that both the environment and the
economy might be served by following a slower path to emissions control than the protocol
stipulates while developing the technologies for more aggressive and affordable emissions
reductions later. Others disputed this view. In any event, the agreement reached in Kyoto sets
the stage for discussion and for future debate in the Senate.
Some have claimed that meeting the protocol's targets ultimately will be inexpensive or even free
because there is a large untapped reservoir of cheap energy-efficiency opportunities available
today and new technologies will materialize in the near future. Others predict economic
collapse.
In our judgment, neither extreme view is correct. The likelihood is substantial, however, that the
proposed target and timetable will impose significant costs on the United States and the global
economy, even after accounting for new technology stimulated by domestic policies. The limit
agreed to by the United States implies a reduction of about one-third compared with what the
U.S. Department of Energy estimates carbon dioxide emissions will be by the end of the next
decade.
Even with the flexibility to reduce emissions of other gases, achieving emissions reductions of
such magnitudes in fifteen years at most will lead to higher energy prices and thus costs that will
be borne throughout the economy.
These costs in turn will give rise to serious debates about fairness. Recent public opinion polling
indicates increased concern about climate change and some willingness to shoulder burdens to
curb greenhouse gas emissions, but there is no compelling evidence that the public is ready to
accept significant increases in energy prices or other costs. In light of these costs, it is an open
question whether the Senate is willing to ratify the target and timetable stipulated in the
protocol.
An important first step in fostering a productive debate nationally and in the Senate over the
protocol is better understanding of its benefits and costs. Advocates should dispense with the
pretense that emissions reductions of the scale and speed proposed can be achieved at negligible
or even negative cost, or that reductions necessarily doom the economy. To shine a brighter light
on the costs and consequences of the protocol requires an investment in better and more inclusive
analysis and review of estimates, so that competing claims can be adjudicated and new ideas
introduced.
Even after questions about the protocol itself are settled, domestic policy options for achieving
the targets and timetables require more thorough consideration. The United States deserves
credit for advancing some specific measures. Still, the proposal the administration offered in
October -- $5,000 million in incentives for new technology -- will not be enough to move the
economy from where it is today to where it needs to be to meet the Kyoto goals.
Ultimately, if the United States even is to approach the Kyoto goals, energy prices must rise
enough -- especially for coal, the most carbon-rich fossil fuel -- to induce enough conservation,
energy efficiency, fuel switching, and development and deployment of new technologies and
energy forms. How large this price rise will have to be depends on what domestic policies are
used. No agreement yet exists on this policy menu. Even if an efficient mechanism like
emissions trading is used within the United States, important questions of who gains and loses
from the policy remain to be settled.
To cut U.S. emissions as cost-effectively as possible, Congress and the administration should
commit to the use of incentive-based policies for emissions control. Well-intentioned but costly
proposals to mandate energy efficiency through rigid command-and-control measures must be
avoided. In addition, policies aimed at encouraging the development and dissemination of
low-emissions technology need careful scrutiny to avoid waste (for example, through an
ill-focused subsidy policy).
The institution of some modest interim measures to limit greenhouse gases is important for
establishing the credibility of longer-term reduction goals. A domestic emissions trading
program with looser controls than the protocol requires is one example. Such a program could
be combined with a "safety valve" to cap the price of a tradable emissions permit at some
prespecified level that would rise over time, with the government offering additional emissions
permits as needed to maintain the price caps.
Such an approach would complement the policies the administration already has announced and
provide valuable information about how emissions control policies work, as well as their costs to
the economy. It also would offer such near-term benefits as improved air quality from reduced
conventional air pollutants and encouragement for the development of lower-emissions
technologies. Even stronger incentives for early demonstrable progress would be provided if any
early emissions reductions below an established baseline (for example, actual 1997 emissions
levels) could be banked to meet subsequent constraints.
NECESSARY ACTIONS
To enhance the prospects for an effective climate policy, U.S. negotiators at Buenos Aires must
take the lead in establishing the basis for well-functioning emissions trading and joint
implementation. They must also take the lead in developing an approach for truly meaningful
participation by developing countries. To enhance the credibility of the longer-term goals in the
protocol, the United States needs to work to establish cost-effective and affordable interim
measures. These initiatives need to be combined with a renewed effort to better gauge the costs
and benefits of the protocol obligations and a search for effective and innovative domestic policy
tools. Last but not least, the American public needs to better engage in debating this complex,
long-term issue.
----------
Raymond J. Kopp directs the Quality of the Environment Division of the Resources for the
Future (RFF). Michael A. Toman directs RFF's Energy and Natural Resources Division.
Richard D. Morgenstern is a visiting scholar on leave from the U.S. Environmental Protection
Agency.
This article first appeared in RESOURCES, Winter 1998, a quarterly publication of Resources
for the Future.
|
