Introduction
The UN Conference on Climate Change in Kyoto (Japan) is only a few weeks away and, most of the countries have announced what position they intend to bring into the negotiations. Even the U.S. has finally announced its proposal on the reduction of CO2 emissions, which was revealed in a speech by President Clinton on October 22, 1997 at the National Geographic Society in Washington.
The following discussion, Part I, will outline the positions of several countries on the issue and provide an outlook on the up-coming negotiations in Kyoto, while in Part II (“Tradable Emissions Permits – the Perfect Solution?”) emissions trading systems proposals shall be reviewed.
United States
President Clinton announced in his speech on October 23, 1997, at the National Geographic Society in Washington, that the U.S. will commit itself to reducing CO2 emissions to its 1990 emissions level by the years 2008-2012 and a further reduction in the following 5 years.
The Administration, in addition plans a $5 billion package of spending on R&D and tax incentives, energy-efficiency standards, Federal government energy initiatives and later on a national and an international emissions permit trading system.
The proposal also noted that the U.S. will insist that developing countries be involved in the reduction of greenhouse gases, otherwise, the U.S. threatened it would not sign-on to a treaty. In which form and what part developing countries would have to play in reducing greenhouse gases that would satisfy the Administration was left open.
The earlier prospect of a carbon tax brought so much criticism that the government has now distanced itself from the idea of an “open” carbon tax. The Administration now supports the politically more acceptable solution -a national and an international system of tradable emission permits. The advantages for the Administration are that in a trading system the economic burden is probably smaller and also less visible than in a tax regime. It can even earn some support from well-known economists,(1) and be portrayed as an innovative, progressive, and market-oriented approach.
The government’s planned increase in spending on R&D will be less controversial since some industries and business will profit from it, while the costs are buried in the national budget and will fall on the taxpayer. The impact of the increased spending on R&D is still disputed, since not everyone agrees with the findings and projections of the Department of Energy Study about the “Potential Impact of Energy Technologies by 2010 and Beyond,”(2) which predicts rather dramatic technological improvements, with the expenses of increased government spending in principal covered by cost savings from less energy use.
The approval of the Senate to a treaty containing legally binding emissions targets depends strongly on the participation of developing countries in the agreement. In its vote (95-0) for the resolution co-sponsored by Senators Robert Byrd (D-W.VA) and Charles Hagel (R-NE) the Senate showed its unwillingness to sign on to restrictions for U.S. industry while developing countries such as South Korea, India, China, and Mexico are not required to participate, especially because these countries, in the near future, will be the biggest emitters of greenhouse gases. The timetable of bringing developing countries into a treaty and the form of their involvement will probably be deciding factor on whether the Senate will approve the treaty.
During the latest meeting in Bonn, Germany which was intended to prepare a draft for a treaty to be signed in Kyoto, the U.S. Administration presented its proposal and tried to win support among other countries. So far, however, there seemed to be disagreement about most key points of such a potential treaty, such as which emissions target, what timetable, who would have to participate, and how countries would be allowed to achieve the emissions target.
European Union
The EU is the biggest advocate for a drastic cut in greenhouse gas emissions and suggests a cut of CO2 emissions by 15% from the 1990 emissions level by 2010. The EU has criticized the U.S. proposal as insufficient and as not going far enough and has questioned the U.S. commitment to prevent global warming. The EU has a number of reasons for taking that position:
First, the political clout of the environmental movements in Europe (especially in Germany, but also in the Netherlands, Scandinavia and increasingly in France) puts European governments under pressure to call for a stringent reduction of emissions. European industry, fearing that Europe would go ahead with such a policy on its own, is concerned about its competitiveness in the global market, and therefore strongly argues for a “leveling of the playing field.” It is especially concerned about giving American and Asian competitors an additional advantage. Some in the industry are even hoping that new demand for “environmental technology” would benefit their advanced technology sector.
The EU is in a unique position because it has signed the treaty as a body (as well as the single member states), which allows it to arrange different targets for its members as long it meets the target for the EU as a whole. EU’s internal goals range from a 40% increase for Portugal to 30% cuts for Luxembourg and 25% for Germany, Austria, and Denmark. The huge reductions in some of the countries are achievable without a dramatic impact on industrial production because of the individual circumstances.
For example, the 1990 level for Germany includes the whole former East German industry, famous for its dependency on coal burning and, consequently, big CO2 emissions. The decision to close many of these unprofitable and inefficient plants makes it easier to achieve big cuts in emissions. Great Britain cut the subsidies for coal mines, which led to a switch from coal to natural gas, and less CO2 emissions. But these decisions were based on economic circumstances, not on concern for possible climate change. This could be seen when Germany’s government backed-off from a decision to cut more coal subsidies after angry mine workers “visited” the German government in Bonn.
The EU-members agreed to introduce a EU-wide carbon tax to reduce CO2 emissions, but despite this decision, the tax has never been implemented. The fear of a negative impact on the European economies loomed too large, especially if Europe would go ahead with such a policy despite the fact that others are not introducing similar measures.
The EU has always been pushing for higher standards but seems more reluctant than the U.S. to embrace market-oriented solutions. The idea of an international tradable permits system is more difficult to sell in Europe, where people are more willing to accept that their governments set standards and industry has to find a way to meet the standards. One has to keep in mind that industries are often closely consulted on the issues to find achievable goals. The cooperation and relations between companies and government are perhaps closer than in the U.S.
Some countries have reservations about emissions trading schemes, but few would go so far as the Dutch environmental minister, Magaretha de Boer: “That’s not something that belongs to our [European] culture.”(3)
Many find it easier to deal with a “simpler solution” – such as government regulations, than with setting up a world-wide trading scheme which needs more organizational preparation (and innovative thinking).The feeling in Europe is that the U.S. first has to do more to cut its emissions of greenhouse gases, since the U.S. is the biggest CO2 emitter in the world in absolute terms. The U.S. is still perceived as an economy which wastes energy in production and especially in its consumption patterns.
During the latest negotiations in Bonn, the EU-countries stuck to their proposal of a 15 percent reduction of greenhouse gases from the 1990 level by the year 2010, they also insist that industrial countries reduce their emissions immediately and under regulatory conditions.
Canada
Canada used to be one of the leading advocates for a treaty on the reduction of greenhouse gases. During the Rio summit in 1992, Canada was one of the mediators that brought the different positions together in a voluntary agreement; but now Canada’s position is not so forthright. The Canadian government is expected to propose an extension of the deadline from the year 2000 to the year 2012 to reduce greenhouse gas emissions to their 1990 levels, to the year 2012, but it will probably ask for a sharper reduction after the year 2012. The reluctance of the Canadian government to commit itself to sharp emissions reductions was heavily criticized by environmental groups as inadequate, while industries and opponents of an agreement think that drastic action could seriously damage the slowly recovering economy. The government has also not yet announced how it expects to achieve the emission targets; it is estimated that Canada’s emissions of CO2 have increased around 11 per cent between 1990 and 1996.(4)
Australia
Other countries argue that the model for differentiated targets should also apply to other countries, not just EU members. For example, Australia argues that there should be individual levels for every country considering its specific situation. The level should be determined by numbers like the projected population growth, GDP per capita, emission intensity of GDP, energy intensity of exports, etc.
Australia is resisting a big reduction in the emissions level, which would have a devastating effect on a country that is a big coal exporter and also relies on coal for domestic energy use. Australia supports the idea of a tradable permit system with some reservations, especially about the initial distribution of permits and the huge transfers of wealth.
Japan
Special focus is directed at Japan. As the host nation it is under pressure to do more than others to insure that there will be some agreement in Kyoto. The Japanese government announced its position a few weeks ago, proposing a 5 percent reduction of carbon dioxide, methane and nitrous oxide emissions below the 1990 emissions level in industrial countries on average in the years 2008-2012. The proposal also allows exemptions and different measurements including GDP, projected development of population number and emissions per capita, which could mean an actual reduction of only 2.5 percent for the US and Japan.
Japan was criticized by the EU and environmentalists for its position, but the government defends its proposal saying the EU’s goal is unrealistic and the government’s proposals would already mean Japan would need 20 new nuclear power plants added to the already existing 52, (increasingly in the news in recent month for scandals involving the non-disclosure of accidents to the public). Internally Japan is divided between the position of the powerful Ministry of Trade and Industry (MITI) which is lobbying for lower emissions cut backs, while the Environmental Agency supports higher reductions of emissions.
Japan depends heavily on oil imports, and to increase the share of other energy sources is extremely difficult, especially for nuclear power after the recent scandals involving serious accidents. And Japan has already achieved a high degree of energy efficiency; therefore, the amount of energy that could be saved through new measures is limited. Japan like most of the other industrial countries, will not be able to stabilize its emissions to its 1990 level until the year 2000; its emissions of CO2 will probably have increased by about 6 percent from the 1990 level by the year 2000.(5)
Developing Countries
Developing countries are a diverse group of countries, from countries like China and India, which might soon became the biggest CO2 emitters, to small African countries with little industrial basis. They therefore hold different opinions on the issue, but they all seem to reject the notion that developed countries dictate them to cut emissions. They rightly argue that most of the emissions in the past came from industrial countries during their industrial development, and developing countries just want to have the same right for economic development for their people. They also insist that the emissions per capita is only a fraction of the emissions by industrial countries.
On the other hand, some industrial countries, in particular the U.S., want developing countries to be included in any agreement they reach, because these countries will increase their emissions drastically in the next decades. Also, industrial countries fear that stricter environmental regulations and increasing costs at home will drive more industries to relocate production to developing countries. This is already happening, but additional costs for CO2 emissions could accelerate this process.
The developing countries strongly oppose the pressure from the industrial countries to accept any restrictions. They fear for their potential for future development, and the words “Ecological Imperialism” are often heard. To expect that countries such as China would be participating in an international permit trading system in the near future seems unrealistic. These countries might be willing to accept foreign investment for cleaner technology for their utility plants and other industry but they probably will not accept any cap on their energy use.
Participation in an international emissions trading system would pose more technical and organizational problems for developing countries than it would for developed countries, such as lack of modern communication, technology to monitor companies, the setting up of markets, and many more.
Another danger may be that if energy prices in these countries would rise, more and more people would be driven away from market products, for example, people who can no longer afford kerosene for cooking will turn to non-market sources such as collecting fire wood. This sometimes leads to even more damage to already fragile ecosystems.
In the latest negotiations the developing countries, represented by the G-77, suggested a reduction of emissions from the industrial countries to 35 percent below 1990 levels by the year 2020; in addition, the developing countries would receive financial compensation from industrial countries if exports from developing countries would be hurt by the climate change policy of the industrial world. In case the industrial countries would not meet the targets they would have to pay penalties to the less-developed countries. In contrast, the developing countries would be under no obligation to reduce their emissions.
Alliance of Small Island States
This association of smaller island states pushes for drastic reductions in CO2 emissions of 20 percent from the 1990 level by the year 2005. The governments of these islands fear that they would be particular hard hit in case global warming would occur, since their low luying countries would be especially vulnerable to possible rising sea-levels.
OPEC
The OPEC countries are not particularly keen on an agreement that would reduce the demand for their main export product -oil- if industrial countries use less oil for their production and consumption prices and thereby revenues for OPEC countries would fall. They therefore demand that in case an agreement is reached on the reduction of CO2 emissions, their countries should be financially compensated for the possible loss in revenues; otherwise they would not sign any agreement. The idea that countries like the U.S. or Western Europe would compensate countries like Saudi Arabia or Kuwait for their loss is politically unthinkable.
Outlook on the Negotiations
The success of the UN Conference on Climate Change in Kyoto will depend on the ability to find an agreement on an emission target for CO2 and for the other so-called greenhouse gases, since most of the countries now accept legally binding emissions caps.
There are still big gaps between some of the proposals especially between the EU proposal of 15% reduction by 2010 and the US proposal of reaching the 1990 level between 2008 and 2012. In the last preparation meeting in Bonn (Germany) before the conference, the delegates tried to find as much common ground as possible before going into the Kyoto conference, but it turned out that most of the difficult issues are still unresolved. The EU and the U.S. are still far apart in their positions and it is not clear if one of them will show any willingness to give on its position. The question of participation of developing countries is also still unresolved, since most of the industrial countries seem willing to exempt developing countries from the emissions reduction process -at least for a while. On the other side, the U.S. delegation wants some reassurance that developing countries will join the agreement at some point in the future. The U.S. delegation would probably like to see some sort of timetable that it could then present to the Senate, which sees the participation of developing countries as a precondition for approval of a treaty.
The developing countries do not seem willing to participate in the reduction process as long as their standards of living are much lower than in the industrial countries. Some countries which were exempt at the Rio summit, but are not developing countries, such as Argentina, seem prepared to join a treaty in some form. Less-developed countries might be persuaded to reduce future emissions if industrial countries would compensate them for the economic loss they would endure. The question is, are industrial countries prepared to commit themselves to transfer large sums of money when that aid budgets are already cut back, and if they already fear economic losses due to the reduction of their own emissions?
Developing countries might be given long time-lags before they have to join in, and perhaps the most dangerous development could be that especially smaller developing countries as well as small developed countries could be pressured into an agreement. There is the potential that the threat of trade sanctions would become a “means of persuasion” for countries to join such an agreement, perhaps supported by boycotts organized by influential environmental groups from big industrial countries. For example, Paul H. Nitze, former American chief negotiator at the Geneva arms negotiations and now a member of the Environmental Defense Fund, suggested in a recent newspaper article that in case of a tradable budget system, participating countries could be deterred from violating the agreement through inspections by an international agency (just as it is done by the International Atomic Energy Agency) and possible sanctions or embargoes could be imposed on these countries by the UN security council, such as is done under nuclear weapons treaties. This might be technically possible, but CO2 emissions are not weapons and to punish a country for producing too much CO2 (because companies want to provide products for their customers) as if it had produced atomic weapons seems unwise.
Such actions would be a threat to free trade with enormous damage to the world economy, and once started, the erosion of world trade could increase very quickly.
1. Many economists like the idea of a permits trading system because of its cost-saving advantage, especially in comparison to a command-and-control policy.
2. Department of Energy (1997), “Scenarios of U.S. Carbon Reductions -Potential Impacts of Energy Technologies by 2010,” released September 25, 1997.
3. Cited by The Economist, June 14, 1997, p. 89.
4. Scott Morrison, (1997), “Canada buckles on greenhouse targets,” in Financial Times November 5, 1997, p.4.
5. Source: International Energy Agency cited by The Economist, June 28th 1997, p. 41.
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