Kyoto Negotiations

In a press release issued August 10 assessing the state of nuclear power worldwide, the International Atomic Energy Agency regretted the lack of progress on Kyoto.


The relevant section reads, From the viewpoint of the IAEA, no progress was made in 2003 on the Kyoto Protocol, which would help make nuclear powers avoidance of greenhouse gas emissions valuable to investors.  The next round of talks on energy and sustainable development is scheduled for the 13th session of the United Nations Commission on Sustainable Development in 20062007.


A large increase in the supply of energy will be required in coming decades to power economic development, the IAEA recognizes, projecting that to the year 2030 the part nuclear power will play in the global energy supply will first grow and then decrease.


The agency estimates a 20 percent increase in global nuclear generation until the end of 2020, followed by a decrease, resulting in global nuclear generation in 2030 that will be only 12 percent higher than in 2002.  Nuclear powers share of global electricity generation is projected at 12 percent in 2030, compared with 16 percent in 2002, the IAEA said.


The agency expressed concern that the nuclear expertise that exists today might not be passed on to the next generation of scientists and engineers, now that the rapid nuclear expansion of the 1970s and 1980s has leveled off.

In remarks delivered at a press conference marking the end of the extraordinary meeting on climate change science in Moscow (July 7-8, see Science section below), Russian economic adviser Andrei Illarionov had the following to say about his countrys stance on Kyoto:

When we see one of the biggest, if not the biggest international adventures based on man-hating totalitarian ideology which, incidentally, manifests itself in totalitarian actions and concrete events, particularly academic discussions, and which tries to defend itself using disinformation and falsified facts.  It’s hard to think of any other word but “war” to describe this.

 To our great regret, this is a war, and this is a war against the whole world.  But in this particular case, the first to happen to be on this path is our country.  It’s unpleasant to say but I am afraid it’s undeclared war against Russia, against the entire country, against the left and the right, against the liberals and the conservatives, against business and the Federal Security Service, against the young and the old who live in Moscow or in provinces.  This is a total war against our country, a war that uses all kinds of means.

The main prize in this war for those who have started it and who are waging is the ratification by Russian authorities of the Kyoto Protocol.  There is only one conclusion to be made from what we have seen, heard, and researched:  Russia has no material reasons to ratify this document.  Moreover, such a ratification would mean only one thing:  complete capitulation to the dangerous and harmful ideology and practice that are being imposed upon us with the help of international diplomacy.

 This is not a simple war.  Like any war, it cannot be easy and simple.  Regrettably, like any war, it has its losses and victims, and we must understand that.  The main thing is that we have now obvious evidence that we have got over the past two days, although we had some hints before that time, and it was the approach to Russia practiced by some people attending the seminar, an approach to Russia as a kind of banana republic, an approach to a country that is not a colony yet but about to become it as soon as it ratifies the document.  At least we now know how people in colony feel towards other people who are trying to make them a colony.

And maybe the last touch.  During the discussion of the economic impact of the ratification of the Kyoto Protocol and of when Russia will achieve the 1990-emission level, one of the representatives of this official British team of scientists and government officials said quite bluntly:  Russia cannot expect an increase in the population; on the contrary, the population will decrease.  And as long as you reduce your population, you can meet the Kyoto Protocol requirements.

Dr. Illarionov also clarified President Putins statement on Kyoto, telling a reporter, I will permit myself to remind you of the words said by President Putin.  President Putin has never said that he supported the Kyoto Protocol.  President Putin said on May 24, 2004 that he supported the Kyoto process.

As the Associated Press reported on July 3, the newly-published draft of the Democratic Party platform for the November elections has dropped its Gore-era reference to embracing the Kyoto Protocol.

In 2000, the platform contained this statement: In 1997, we negotiated the historic Kyoto Protocols, an international treaty that will establish a strong, realistic, and effective framework to reduce greenhouse emissions in an environmentally strong and economically sound way.  We are working to develop a broad international effort to take action to meet this threat.  Al Gore and the Democratic Party believe we must now ratify those Protocols.

The current draft contains no reference to ratifying Kyoto.  Instead, it has these two mentions of climate change:

We will reduce mercury emissions, smog and acid rain, and will address the challenge of climate change with the seriousness of purpose this great challenge demands.  Rather than looking at American industries only as polluters, we will work with the private sector to create partnerships that make a profit and a cleaner world for us all; and,

We know that America‘s fight for a healthy environment cannot be waged within our borders alone.  Environmental hazards from around the globe reach America through the oceans and the jet streams encircling our planet.  And climate change is a major international challenge that requires global leadership from the United States, not abdication.  We must restore American leadership on this issue as well as others such as hazardous waste emissions and depleted fisheries.

The full platform can be read at http://www.democrats.org/platform/ .

Speaking at the conclusion of the European Union-Russia summit in Moscow on May 20, Russian President Vladimir Putin announced that Russia would “speed up ratification of the Kyoto Protocol.”  The news came as a surprise given the increasingly strong condemnations of the protocol’s effects on Russia by Putin’s chief economic adviser, Andrei Illarionov, and the report of the Russian Academy of Sciences that found the protocol lacked “scientific substantiation” (see story in Science section below).  Putin made clear that there was an element of quid pro quo in his announcement, saying, “The EU has met us half way in talks over the WTO and that cannot but affect positively our position on the Kyoto Protocol.”

However, Russia’s president left himself some wiggle room.  He said that Russia continues to have difficulties with the obligations it would have to take on-a clear reference to Illarionov’s disquiet at Russia having to pledge to reduce its emissions while no such restrictions would be imposed on countries like India and China, which Russia views as its rivals.
 
Putin also pointed out that ratification was the formal responsibility of the Duma (parliament).  In April, three Duma committees- for ecology, the economy and international affairs-issued a joint statement that, “Ratification [of the protocol] is inexpedient given the U.S. pullout and the non-participation of many countries with high levels of man-made impact on climatic processes.”
 
Moreover, the involvement of the Duma raises another interesting issue related to Russia’s internal politics and the perception of Putin’s rule as authoritarian.  Vladimir Milov, head of the Institute of Energy Policy, told newspaper Vremya Nostoy (May 25), “I am not convinced that the books on this matter have been closed.   The president gave quite a transparent hint, saying that this should be decided by parliament. This is generally a good argument for showing that there is in Russia democracy and a parliament, which might not agree with the opinion of the president.  Considering the overall negative background in respect to the Kyoto Protocol, there could, in my view, be a serious continuation of the parliament ‘story’.”

It is probably because of these caveats and recent history on the issue that reaction from environmental groups to the announcement was muted. Jennifer Morgan of the World Wildlife Fund said, “I think Putin’s announcement is a major step forward. But we need and urge Putin to specify a timetable.  He should encourage the Duma to do something as soon as possible,” recognizing that he said nothing to indicate what he meant by ‘speeding up’ ratification.  (Reuters, various reports, May 21-22)

Yomiuri Shimbun reported on May 17 that, “According to an estimate by the Economy, Trade and Industry Ministry, the amount of carbon dioxide emissions produced as a result of Japan’s consumption of energy in fiscal 2010 will increase by 5 percent over fiscal 1990 levels, despite anticipated progress in the nation’s campaign against global warming.”

The figures came from a report submitted to the Advisory Committee on Energy and Natural Resources, an advisory body to the economy, trade and industry minister.

The newspaper continued: “The latest report on energy supply-and-demand projections through fiscal 2030 was made taking into account the nation’s recent demographic, economic, and social changes, as well as potential technological advancements.  It revised projections made in a previous report, which said the country would see no growth in CO2 emissions in fiscal 2010.

“According to the latest report, Japan’s energy demand will reach its peak in fiscal 2021, after which it will decline. CO2 emissions are predicted to begin decreasing in the late 2010s. The report attributes all this to a projected reduction in the nation’s population and technological and other advancements in industry.

“But in fiscal 2010, the CO2 figure is projected to still be rising, meaning that it will exceed the 6 percent reduction promised by Japan under the Kyoto Protocol.  The projections state that the amount of CO2 emissions from the civilian and transportation sectors will increase 20 percent from fiscal 1990 levels, canceling out the predicted 7 percent reduction in CO2 emissions from the industrial sector.

“Recent changes in nuclear power plant construction plans are also bound to adversely affect the campaign against global warming. Initially, the government said it expected electric power companies to build 10 to 13 new plants by the end of fiscal 2010. However, it later lowered that number to four.”

On May 14, shortly before President Putin’s announcement (see Politics section above), the Russian Academy of Sciences issued a report that disputed the scientific basis of the Kyoto Protocol and argued that it would be economically harmful to Russia.  The summary of scientific opinion noted the “absence of scientific substantiation of the Kyoto Protocol and its low effectiveness for reducing the concentration of greenhouse gases in the atmosphere, as is envisaged by the UN Framework Convention on Climate Change,” and stated, “The requirements of the Kyoto Protocol are of a discriminatory character, and its mechanisms involve economic risks for Russia.”

Yuri Izrael, the distinguished climatologist who authored the summary, which was presented at a general meeting of the Academy, said, “The protocol is ineffective for attaining the goal set by it-the stabilization of the ecological situation and the world economy.”  At the same time, Interfax news agency reported that the Academy is still  formulating its stance on the protocol, with the Academy President Yuri Osipov saying, “Scientists have studied every aspect of this problem and will formulate their stance in the future, taking into account all the negative and positive consequences the protocol’s possible ratification may have for Russia.”

Professor Oleg Sorokhtin from the RAS’s Institute of Oceanography was quoted by TASS as saying that, “The Kyoto Protocol is not needed at all, as even considerable emissions of carbon dioxide in the atmosphere have almost no effect on the Earth’s temperature but contribute to agricultural productivity and to the restoration of forest resources.”

Nature magazine (May 27) dismissed this breach in the so-called scientific consensus on global warming by saying that “science in Russia.has been hijacked by the politics and economics of energy investment and emission reductions,” but stopped short of calling for Rajendra Pachauri, chairman of the IPCC, to discipline Izrael, a vice-chairman of the IPCC.  (TASS, May 18, Interfax, May 19).

‘The Kyoto Protocol and its future’

with:
Iain Murray
Senior Fellow, Competitive Enterprise Institute
Iain Murray is a Senior Fellow at CEI, specializing in global climate change and environmental science. Mr. Murray edits Cooler Heads, the biweekly newsletter of the Cooler Heads Coalition, and writes regularly on scientific and statistical issues in public policy.
Full Biography


Moderator: Welcome to the globalwarming.org live chat. Remember to  REFRESH THE PAGE to see the questions and answers as the hour progresses.

Question: Zeke in Arkansas asks:
Many people say the Kyoto protocol is flawed, particularly in that it exempts developing countries.  If it is important to reduce the emissions of these gasses that cause global warming/climate change then what kind of treaty would you propose instead of the Kyoto Protocol?

Murray answers: This is an interesting question because it presupposes that it is important to reduce the emissions of greenhouse gases.

I don’t accept that emitting greenhouse gases will be catastrophically bad for the Earth.  Indeed, one team of economists has determined that moderate warming caused by greenhouse gases will be beneficial to the Earth.

That’s backed up by better information that suggests that the Earth isn’t warming as much as the alarmists say it is.

James Hansen of NASA now suggests that we’ll only be facing a 1 degree F rise by 2050 even if nothing is done to restrict greenhouse gases.

So I’m not sure we need anything to replace the Kyoto protocol.  Perhaps we might need to do something in 50 years time, but it’s likely that the world will be a very different place then and it’s possible technology will have solved the problem for us without needing to put restrictions
on energy use.

Question: Mary from Orlando asks –
I’m confused — I thought that Russia had said that under no circumstances would they ratify the Kyoto Protocol.  But recently they seem to have said that they will, in a supposed deal with the EU to support their entry into the World Trade Organization.
What’s the story?

Murray answers: Russian officials have been saying since November that they would need to decide whether Kyoto was beneficial or not for Russia before ratifying.

Some officials, such as Andrei Illarionov, President Putin’s chief economic adviser, have said that they think it’s a bad idea, but they’ve never said explicitly that Russia will not ratify.

Essentially, president Putin repeated his officials’ line last Friday. Russia is moving towards ratification, but there are still some concerns about downsides for Russia and anyway, it’s the Duma’s (Parliament’s) decision.

Russian accession to the WTO needed Europe’s support, but it also needs the support of other countries, like the US.

I expect there’s a lot of horse trading to go on before any firm action is taken on either treaty.

Question: Jim in Virginia asks –
What is going on with the Kyoto Protocol in Australia?  Will Howard ultimately sign on?

Murray answers: John Howard stated again this week that he will not ratify Kyoto.

However, it is looking more and more likely that his Liberal Party may not win the upcoming election.  If the opposition Labour Party win, Australia will probably ratify.

It is also possible that Howard – already weakened by Iraq – might lose the support of his MPs and someone else will become Liberal leader. Whoever does might have a different stance on Kyoto.

Question: Liz in Washington, DC asks –
Will Russia’s promise to ratify the Kyoto Protocol affect U.S. business interests, and/or the presidential election?

Murray answers: If Russia ratifies, then the Kyoto protocol will come into effect globally.  Any American business interest in a country affected by Kyoto, like Western Europe or Russia, will be subject to the Kyoto restrictions.

This means that businesses in those countries will have to restrict greenhouse gas (GHG) emissions or buy permits to allow them to emit.

Those permits will be openly traded and will become a big part of some companies’ business.  Enron was a big fan of such permits.

As long as the US stays outside of Kyoto, domestic operations should not be affected.  However, it is possible that the protocol could be extended to the US by legal action, as “customary international law.” That is more likely while America’s signature remains on the treaty. Despite President Bush withdrawing from the process, he has not “unsigned” the Kyoto Treaty

Murray continues: As for the Presidential election, Sen. Kerry is on record as doubting whether Kyoto is good for America.  It is likely to lead to fewer jobs and higher energy prices, two things he’s been campaigning on.

I don’t think Sen. Kerry will be too keen to bring up the issue.  It could cost him and Democrats votes in areas like West Virginia.  I don’t expect the issue will be raised unless Ralph Nader looks like taking too many “green” votes away in key states.

Question: Kristina in Maryland asks —
Will the recent expansion of the European Union effect the EU’s position on Kyoto?  Does Eastern Europe think differently than Western Europe on global warming?

Murray answers: Eastern Europe stands to benefit from Kyoto as the protocol was designed to give Eastern European countries credit for the smokestack industries closed down after the collapse of communism there.  They will be able to sell those credits to western european countries like Germany who need them.

As their economies recover, however, they will have fewer credits to sell.  It is possible that Kyoto might become burdensome on them, at which point there may be some friction within Europe over the issue.

Question: Patrick in Louisiana asks —
Are Sens. McCain and Lieberman or anyone else in Congress planning to introduce more pro-Kyoto or similar legislation this year?

Murray answers: Yes, Sens. McCain and Lieberman are reintroducing S.139, their Kyoto-lite measure that failed on the Senate floor this time.

It is unlikely to come to the floor unless Sen. McCain engages in political horse-trading with Majority leader Frist, as it does not have the votes to get out of Committee.

There is a parallel bill in the House, but that is very unlikely to come to the floor.

Question: DeWitt in Tennessee wants to know —
You were rather dismissive  in a column not too long ago of the theory that variations in cosmic ray flux affect the climate in the short term and are more important to climate change than greenhouse gasses.  Are you not aware that the solar wind, which varies with the decadal sunspot cycle and not just galactic rotation over millions of years, affects the cosmic ray flux to the earth?

Murray responds: I was dismissive because I thought that the research, with its million-year timescale, was unable to tell us about changes in the last 30 years or so with precision.  I have no doubt that the solar wind and other cosmic phenomena affect climate, but I don’t think this particular research is precise enough to say that the temperature rises since 1970 were due mostly to cosmic ray flux.

Murray revisits an earlier question: I want to add something to my answer to Kristina about Europe above. Many of the central European countries have areas dependent on coal. Thus Germany is seeking exemptions from Kyoto obligations to protect its brown coal industry.  Poland’s province of Silesia, I believe, is still coal-centric.  This could be an issue.

Question: Joel from California asks —
Isn’t it true that the fact that the US refuses to ratify the Kyoto Protocol is used by Europeans to show the country is isolationist?  Do you think that President Bush will give in on this to try to win some goodwill?

Murray answers: There are two things that are always advanced to demonstrate that the US is “out of step” with the rest of the world.  Kyoto is one and the International Criminal Court is the other.

I know that the President is being lobbied heavily on the issue by his chief ally, British PM Tony Blair.  However, given the almost certain effect Kyoto would have on American jobs, energy prices and the economy as a whole, I don’t think President Bush will cave on the issue.  It is noticeable that Sen. Kerry and even Gov. Howard Dean have questioned whether Kyoto is good for America.

However, if Kyoto dies as a result of Russian non-ratification, I can see America participating in something less stringent designed to replace it, to win international goodwill.

Question: Blaine in Maryland asks —
Didn’t the US sign the Kyoto Protocol?  Doesn’t that mean we have some obligations already?

Murray answers: As I mentioned, the US did sign in 1998.  However, we withdrew from the decision-making process, which exempts us from having to take action. It is, however, possible that the signature could be used in the courts to force America to abide by “customary international law.”  The signature therefore represents a hostage to fortune.  President Bush “unsigned” the treaty about the International Criminal Court.  It is mystifying that he hasn’t doen the same with Kyoto.

Question: John in California asks —
What do you think the ultimate effect of this “Day After Tomorrow” movie will be in the political debate on climate change?

Murray answers: From the reviews I’ve seen so far, like that in the New York Times today, it looks like people will remember it as much for its clumsy dialogue and ham-fisted politics as for its spectacular special effects, so I think those who see it won’t be affected either way.  I’ve got tickets to see it tomorrow morning so I’ll have a better idea then.

But the movie is certainly giving the issue a higher profile among the public at large.  I think there will be a small surge of interest in the environment as a political issue, but gas prices and terrorism will keep in the public’s mind longer than the movie.

I wouldn’t be surprised to see the DVD release timed to coincide with the Presidential election, though.

Question: Kimberly in Texas writes –
When you say that technology will probably solve the problems of emissions by 2050,  doesn’t that mean that if we support such things as solar, biomass, etc. we would be better off?

Murray answers: Not necessarily.  Perhaps those things will become cheaper and therefore as cost-effective as hydrocarbons.  The International Energy Agency doesn’t think so, though.  I think it’s more likely that technology will increase fuel-efficiency and lead to fewer emissions from traditional energy sources.

Murray continues: I should add that there are other considerations that could cause problems.  For instance, in Europe the authorities want car manufacturers to reduce emissions, which they can do by reducing the car’s weight so that it only needs a small engine.  However, they also want cars to be safer to passengers, for instance, which normally increases the weight and requires a more powerful engine.  There are trade-offs involved in all these decisions.

Moderator: This will be the final question —
Ron in the US asks:
Is there any change in the ratio of scientists [in Russia] for or against the Kyoto agreement?

Murray answers: There are no definitive figures either way on what “scientists” think about Kyoto, which is at heart an economic issue.  Most scientists agree that it will do little to reduce forecast temperature rises (temperatures will be 0.15 degrees C lower than they would be without Kyoto in 2100).

However, the Russian Academy of Sciences issued a report last week which noted noted the “absence of scientific substantiation of the Kyoto Protocol and its low effectiveness for reducing the concentration of greenhouse gases in the atmosphere, as is envisaged by the U.N. Framework Convention on Climate Change,” and stated that, “the requirements of the Kyoto Protocol are of a discriminatory character, and its mechanisms involve economic risks for Russia.”

Moderator: Thanks to Mr. Murray and all of our questioners.  Be sure to tune in next Thursday at the same time for a live chat with top climatologist Dr. James J. O’Brien on the “science” portrayed in the upcoming film The Day After Tomorrow, and other issues.

Jami

The Marshall Institute put on an event at the National Press Club in Washington, DC today to announce the new book, Adapt Or Die: The science, politics and economics of climate change.

Adapt or Die is a project of the International Policy Network, edited by IPN’s Kendra Okonski. At the event today, Okonski introduced several contributors to the book, who each gave remarks on pressing issues in climate change.

Professor Paul Reiter of the Pasteur Institut in Paris spoke about the history of malaria. Reiter pointed out that malaria was present during the Little Ice Age, at longitudes ranging all the way up to the Arctic Circle. This historical perspective severely undercuts the manic arguments insisting that malaria is a tropical disease poised to explode with any semi-significant climate warming.

Professor Nils-Axel Morner of Stockholm University discussed his research on sea level in the Maldives which contradicts dire predictions of sea-level rise in the the next century. Morners humorous remarks emphasized the need for scientists to not go too far astray from their respective specialties lest their research come off more like a summer blockbuster than a serious scientific effort.

Barun Mitra of the Liberty Institute in New Delhi, India talked about the effect proposed global warming policies could have in forcing “energy poverty” on the worlds poor, leaving them far worse off than under any theorized climate warming where they could afford amenities such as air conditioning

Rounding out the program were IPNs Julian Morris and Indur Goklany, a visiting scholar at the American Enterprise Institute. Simon discussed the Kyoto Protocols impact on trade and Goklany focused on the wisdom of mitigation versus adaptation as a strategy for dealing with global warming.

Okonski emphasized that the book does not take any one side on the scientific debate concerning anthropogenic global warming. Adapt or Die is available from Amazon UK and from IPN.

The Edison Electric Institute (EEI), the association of shareholder-owned electric power companies, opposes the Kyoto Protocol, the McCain-Lieberman Climate Stewardship Act, and kindred proposals to regulate carbon dioxide (CO2), the inescapable byproduct of the carbon-based fuelscoal, oil, and natural gasthat supply 86 percent of all the energy Americans use. Why, then, is EEI pressing the Bush Administration to institute an early credit programthe accounting framework and political setup for Kyoto-style energy rationing? Edison has a lot of explaining to do.

Liebermans Ploy

Although the implementing rules of an early credit program can be bewilderingly complex, the basic idea is simple. Under such programs, companies that take steps now to reduce emissions of greenhouse gaseschiefly CO2 from fossil energy useearn credits (emission allowances) they can use later to comply with Kyoto or a similar compulsory regime.

 All such schemes are Trojan horses for Kyoto-type policies. Credits awarded for early reductions are assets that mature and attain full market value only under a mandatory emissions reduction target or cap. Consequently, every credit holder acquires an incentive to lobby for emission caps.

 Unsurprisingly, credit for early reductions originated as a brainchild of the Green Left. Senator Joseph Lieberman (D-Conn.), Environmental Defense, and the Pew Center on Global Climate Change championed early credit legislation during the 105th and 106th Congresses. Liebermans bill went nowhere, attracting only 12 co-sponsors on its second go-round. Similarly, a House companion bill in the 106th Congress garnered a mere 15 co-sponsors. Neither bill saw floor action or even made it to the committee markup stage. By mid-2000, credit for early reductions was politically defunct.

 So why is this an issue today? On Valentines Day 2002, the Bush Administration naively resuscitated Liebermans ploy. President Bush directed the Department of Energy (DOE) to enhance the measurement accuracy, reliability, and verifiability of the Voluntary Reporting of Greenhouse Gases Program (VRGGP), established under Section 1605(b) of the 1992 Energy Policy Act. More importantly, Bush tasked DOE to develop recommendations to give transferable credits to companies that can show real emissions reductions under a revised, more rigorous reporting system.

 To carry out those directives, DOE in May 2002 launched an extensive stakeholder dialogue, which has included three public comment periods, four regional workshops in November-December 2002, and a national workshop in Washington, D.C. on January 12, 2004. A fourth comment period is planned for this summer, and DOE may host another workshop as well.

 Legally Challenged

Scores of industry representatives have spent literally thousands of hours helping DOE enhance the VRGGP, and will likely spend thousands more before the years end. Alas, Bush officials not only endorsed early credits without thinking through the political ramifications, they also never bothered to check whether current law allows DOE to set up a credit program in the first place.

 This was not a difficult topic to research. Section 1605(b) is only one and a half pages long. It makes no reference, or even allusion, to tradable credits. Similarly, the Conference Reports discussion of 1605(b) does not say or imply anything about credits. Equally telling, when House and Senate conferees produced the final version of 1605(b), they considered and rejected language that would have established a credit program.

 During the first (May 6-June 5, 2002) comment period, several stakeholders who support early credits in principlethe Pew Center on Global Climate Change, the Northeast States for Coordinated Air Use Management, and a coalition of environmental groups led by the Natural Resources Defense Councilcautioned DOE that it lacks statutory authority to implement a credit program. During the second (September 2002-October 2003) comment period, the Competitive Enterprise Institute debated the issue at length with the Electric Power Industry Climate Initiative, an association of which EEI is a member. In all that time, DOE declined to explain its understanding of the law.

 On November 26, 2003, DOE released its proposed revised general guidelines to make voluntary emissions reporting more rigorous, consistent, and auditable. Startlingly, the guidelines said not a word about credits, even though whole point of the exercise was to build the accounting system for a credit program. Pressed for an explanation at the D.C. stakeholder workshop this past January, a DOE official  s sss stated, sheepishly and without elaboration: DOE has determined it doesnt have explicit authority now to issue transferable credits.

 An EEI representative at the workshop chided DOE for waiting so long to address this matter and never requesting the legal authority it now believes it lacks. Behind the scenes, EEI has been advising the White House to move ahead with a credit program notwithstanding DOEs legal qualms.

Case Against Credits

Several free market organizationsthe Competitive Enterprise Institute, American Conservative Union, Americans for Tax Reform, American Legislative Exchange Council, Citizens Against Government Waste, Citizens for a Sound Economy, Consumer Alert, Frontiers of Freedom, National Taxpayers Union, Small Business Survival Committee, and 60-Plus Associationhave repeatedly warned the Administration about the political and economic perils of early credit programs. Not once has any Bush official attempted to rebut their arguments. 

However, EEI and its member companies spend millions of dollars on campaign contributions, and in politics, money talks.[1] Unless conservatives on Capitol Hill quickly weigh in, Lieberman, Pew, and Environmental Defense may achieve under Bush-Cheney what they could not under Clinton-Gore. In their conversations with DOE and White House officials, the friends of affordable energy in Congress should stress the following points:

(1) Transferable Credits Will Mobilize Pro-Kyoto Lobbying.

Transferable credit programs are inherently mischievous. Credits awarded for early reductions become valuable assets only under a legally binding emissions cap. That is because, although many companies would like to sell carbon creditsespecially if they can earn the credits by reducing or, easier still, avoiding emissions they would reduce or avoid anyway, in the normal course of business operationsno company will buy credits unless faced with a cap or the threat of a cap. Without buyers, there are no sellers and, hence, no market.

 Consider the embarrassingly low opening bids at the Chicago Climate Exchange (CCE). The Greenwire news service reported that, at the first auction, the exchanges 22 member companies and municipalities paid an average of less than $1 for the right to emit one ton of CO2.[2]  Why? Former CCE senior vice president for sales and marketing Ethan Hodel explained: Without regulation and governmentally imposed sanctions, the early evidence is that the American business community is not very interested in a voluntary greenhouse gas cap-and-trade program. Were it not for the risk that Congress may cap carbon emissions in the future, the bid price for credits today would be zero.

 Enacting a cap would instantly pump up demand, boosting credit prices by orders of magnitude. For example, according to the Energy Information Administration (EIA), carbon equivalent credits that sell for next to nothing today would fetch $93-$122 per ton under Sen. James Jeffordss (I-Vt.) Clean Power Act, $79-$223 per ton under McCain-Lieberman, and $67-$348 per ton under Kyoto.[3]  Clearly, credit holders must lobby for regulation and governmentally imposed sanctions if they want to turn voluntary reductions into real money.

(2) A Credit Program Will Coerce Companies to Volunteer.

 Proponents are fond of describing credits as voluntary and win-win (good for business, good for the environment). In reality, transferable credits would set up a coercive zero-sum game in which one companys gain is anothers loss.

 A explained above, credits have no value apart from an actual or anticipated emissions capa legal limit on the quantity of emissions a firm, sector, or nation may release. The cap makes credits valuable by creating an artificial scarcity in the right to produce or use carbon-based energy. Both the market value of the credits and the programs environmental integrity absolutely depend on enforcement of the cap.

 And theres the rub. If the cap is not to be broken, then the quantity of credits allocated to companies in the mandatory period must be reduced by the exact number awarded for early reductions in the voluntary period. Thus, for every company that earns a credit for early action, there must be another that loses a credit under the cap. Companies that do not volunteer will be penalizedforced in the mandatory period to make deeper emission cuts than the cap itself would require, or pay higher credit prices than would otherwise prevail.

 The coercive, zero-sum nature of an early credit program is easily illustrated. Assume for simplicitys sake that there are only four companies in the United States (A, B, C, and D), each emitting 25 metric tons (MT) of CO2, for a national total of 100 MT. Also assume that Congress enacts a mandatory emissions reduction target of 80 MT, and authorizes the Environmental Protection Agency to issue 80 tradable allowances or credits (1 credit being an authorization to emit 1 MT). Absent an early credit program, each company would receive 20 allowances during the compliance period, and have to reduce its emissions by 5 MT.

 Now assume there is an early action program that sets aside 20 allowances for reductions achieved before the compliance period. That reduces each companys compliance period allocation from 20 credits to 15 (4 companies X 15 credits each = 60 + 20 early action credits = 80, the total U.S. emissions budget). Finally, assume that Companies A and B each earns 10 credits for early reductions. In the compliance period, A and B will have 25 credits apiece (10 + 15), which is 5 more (25 instead of 20) than an equal share under the cap would give them. In contrast, C and D will each have 5 fewer credits (15 instead of 20). C and D must make deeper reductions than the cap would otherwise requireor they must purchase additional credits from A and B. Either way, the early reducers gain at the expense of non-participants.

 Programs that penalize non-participants are coercive, not voluntary. Programs that enrich participants at the expense of non-participants are zero-sum, not win-win.

 (3) Credits Will Corrupt the Politics of Energy Policy.

 Once companies figure out that the program will transfer wealthin the form of tradable emission allowancesfrom those who do not act early to those who do, many will volunteer just to avoid getting stuck in the shallow end of the credit pool later on. The predictable outcome is a surge in the number of companies holding conditional energy rationing couponsassets worth little or nothing under current law but worth millions or billions of dollars under Kyoto, McCain-Lieberman, or the Clean Power Act. Credits will swell the ranks of companies lobbying for anti-consumer, anti-energy policies.

 (4) Credits Will Limit Fuel Diversity.

 Coal is the most carbon-intensive fuel (CO2 emissions per unit of energy obtained from coal are nearly 80 percent higher than those from natural gas and about 35 percent higher than those from gasoline).[4] Consequently, Kyoto-type policies can easily decimate coal as a fuel source for electric power generation. For example, according to EIAs analysis, the McCain-Lieberman bill would reduce U.S. coal-fired electric generation in 2025 by 80 percentfrom 2,803 billion kilowatt hours to 560 billion kilowatt hours.[5]

 A transferable credit program will send a political signal that mandatory reductions are in the offing and, hence, that coals days are numbered. As environmental lawyer William Pedersen observes, the Administrations plan to develop company-by-company greenhouse emissions accounts makes little sense except as a step towards legally binding controls. Indeed, why would firms go to the trouble and expense of earning offsets applicable to a future regulatory program unless they believed such a program was coming?[6] DOE cannot issue or certify early credits without ratifying the opinion, tirelessly asserted by green groups, that some form of carbon regulation is inevitable. Anticipating such constraints, many companies will make plans to switch from coal to natural gas. That, in turn, will put additional pressure on already tight natural gas supplies.

 According to a recent study by the Industrial Energy Consumers of America, the 46-month natural gas supply crunch has increased average natural gas prices by 86 percent, costing residential and industrial consumers $130 billion. High gas prices have also contributed to job and export losses, because many manufacturing firms use natural gas both as a feedstock and as fuel to power their plants.[7]

 However unfairly, Democratic candidates blame Bush and the GOP for the loss of 2.8 million manufacturing jobs since January 2001. Politically speaking, the last thing the Administration can afford to do is imperil additional manufacturing jobs by driving up further the demand for and cost of natural gas. An early credit program would have exactly those effects.

 (5) Credits Have No Redeeming Environmental Value.

 A study in the November 1, 2002 issue of the journal Science examined possible technology options that might be used in coming decades to stabilize atmospheric CO2 concentrations.[8] Such options include wind and solar energy, nuclear fission and fusion, biomass fuels, efficiency improvements, carbon sequestration, and hydrogen fuel cells. The report found that, All these approaches currently have severe deficiencies that limit their ability to stabilize global climate. It specifically disagreed with the U.N. Intergovernmental Panel on Climate Changes claim that, known technological options could achieve a broad range of atmospheric CO2 stabilization levels, such as 550 ppm, 450 ppm or below over the next 100 years.

 As the study noted, world energy demand could triple by 2050. Yet, Energy sources that can produce 100 to 300 percent of present world power consumption without greenhouse emissions do not exist operationally or as pilot plants. The bottom line: CO2 is a combustion product vital to how civilization is powered; it cannot be regulated away.

 Given current and foreseeable technological capabilities, any serious attempt to stabilize CO2 levels via regulation would be economically devastating and, thus, politically unsustainable.

 Why is this relevant to the debate on early credits? No good purpose is served by creating the pre-regulatory ramp-up to unsustainable regulation. An early start on a journey one cannot complete and should not take is not progress; it is wasted effort.

 Insuring Disaster

 The rejoinder to the foregoing criticisms is that companies participating in the Administrations voluntary climate programs need credits as an insurance policy, hedging strategy, or baseline protection mechanism so that they will not have to do double duty (reduce emissions from already lowered baselines) under a future climate policy.

 However, an insurance policy that makes the insured-against event much likelier to happen is a prescription for disaster. Kyoto insurance in the form of early credits would do exactly that. To repeat, credits worth little or nothing under current law would be worth big bucks under a carbon cap-and-trade program. Early credit holders stand to gain windfall profits if they successfully lobby for mandatory reductions. A Kyoto hedge fund dramatically increases the odds that Congress will enact Kyoto-like policies.

 Not all hedging strategies deserve approbation and support. A prizefighter caught placing bets on his opponent might sayand possibly even believethat he was just hedging. However, most people would conclude the fix was in. That early credits are part and parcel of a Kyoto fix for U.S. energy markets may be inferred not only from the cap-and-trade clientele such a program would build, but also from the fact that Kyoto insurance salesmen work both sides of the street.

 Many leading proponents of early creditsSen. Lieberman, Environmental Defense, the Pew Center on Global Climate Change, Resources for the Future, Dupont Co., British Petroleum, and the Clean Energy Groupare also among the leading proponents of emissions cap-and-trade programs. They are in the odd position of advocating a hedge against, or demanding baseline protection from, the very policies they promote!

 The U.S. Senate would never ratify Kyoto, nor would Congress ever enact McCain-Lieberman or the Clean Power Act, unless pushed to do so by many of the same policymakers, companies, and activist groups advocating credit for early reductions. If they really wanted to, Sen. Lieberman, Pew, Dupont, et al. could easily ensure that good corporate citizens are not penalized in the future for voluntary reductions today. All they would need to do is disavow their support for cap-and-trade!

 Instead, those worthies try to sell protection from a threat they have in large measure created. Moreover, they do so knowing full well that Kyoto insurance would (a) make the threat of carbon suppression more imminent and certain, and (b) penalize firms whose only offense is not complying in advance with emission control requirements that Congress has not yet enacted.

Economy in the balance

 The carbon in coal, oil, and natural gas is not an impurity or contaminant but an intrinsic component of their chemistry as fuels. That is why carbon dioxide is an unavoidable combustion byproduct of those fuels, why capping CO2 emissions is a form of energy rationing, and why there is no logical stopping point short of total suppression once government starts to regulate energy production based on the carbon content of emissions or fuels. 

 The core issue underlying all climate policy debates is whether politicians and bureaucrats should have the power to regulate America into a condition of energy poverty. The Edison Electric Institute surely believes government should not have such power, which is why it opposes Kyoto and other carbon cap-and-trade schemes. Yet EEI, beguiled by the prospect of turning voluntary reductions into easy cash, is leading the charge for transferable creditsa political force multiplier for the Kyoto agenda of climate alarmism and energy suppression. This is about as sensible as selling the rope by which one will be hanged. The nations premier electric industry lobby can and should do better.

 


[1] For a list of EEI members, see http://www.eei.org/about_EEI/membership/US_Shareholder-Owned_Electric_Companies/index.htm.  For information on their 2004 election cycle campaign contributions, see http://www.opensecrets.org/industries/contrib.asp?Ind=E08.

[2] Lauren Miura, Voluntary emissions trading draws mild interest, criticism, Greenwire, October 3, 2003.

[3] Energy Information Administration, Analysis of Strategies for Reducing Multiple Emissions from Electric Power Plants with Advanced Technology Scenarios, October 2001, Table 4, p. 22; Analysis of S. 139, The Climate Stewardship Act of 2003, June 2003, p. 65; Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, October 1998, p. xiv.

[4] EIA, Analysis of S. 139, p. 173.

[5] EIA, Analysis of S. 139, p. 176.

[6] William Pedersen, Inside the Bush Greenhouse, The Weekly Standard, October 27, 2003.

[7] Industrial Energy Consumers of America, 46 Month Natural Gas Crisis Has Cost Consumers Over $130 Billion, March 23, 2004, http://www.ieca-us.com/downloads/natgas/$130billion.doc.

[8] Martin I. Hoffert et al., Advanced Technology Paths to Global Climate Stability: Energy for a Greenhouse Planet, Science, Vol. 298, 1 November 2002, 981-987.

Aviation demanded and received a separate, special deal in the Kyoto Protocol, but several governments and the European Union are now actively exploring ways to reduce greenhouse gas emissions from airplanes.  The goal is to reduce airline passenger demand, and the methods being considered are additional taxes on air travel or including airlines in a cap-and-trade system. 

Emissions from aviation are substantial.  For example, in the United Kingdom aviation accounts for 15 per cent of carbon dioxide emissions, and this is estimated to grow by two thirds by 2050.  Cheaper flights and more passengers account for most of the projected increase.

The German Environment Ministry is arguing that government regulation is a necessity and has suggested that aviation be included in the EUs proposed carbon cap-and-trade system. On the other hand, the British Airports Authority has reacted to speculation by insisting that it would only enter an emissions trading system if it were on a global scale.  Caroline Corfield, head of media relations for BAA, has stated, If you put prices up, it will have an impact on demand.

 Trucost, a group which advises investors on corporate environmental and social risk, estimates the average price increase for airline tickets will be 2 per cent and will continue to increase as the cost of reducing emissions rises.  This will most affect low-income passengers, who tend to be more price sensitive.  (The Observer, Mar. 24, Edie, Mar. 24.)