The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
Early Action and Global Climate Change: An Analysis of Early Action Crediting Proposals
Robert R. Nordhaus and Stephen C. Fotis
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
The challenge of our generation will be addressing climate change while sustaining a growing economy. We need to take concrete actions to reduce emissions, both here and abroad. The sooner we begin, the more likely we are to succeed in stabilizing atmospheric concentrations at a level that will prevent dangerous anthropogenic interference with the climate.
This report, which analyzes proposals to credit early, voluntary actions to mitigate greenhouse gas emissions, is the first in a series to be published by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. Some U.S. companies have indicated support for early action programs in keeping with their desire to take immediate action to reduce greenhouse gases and their need for assurance that such actions will be rewarded and not punished.
This report addresses the issues that policy makers will face in designing a domestic early action program, analyzes current proposals, and suggests a set of principles to guide an effective program. It suggests that, regardless of any eventual international framework, the U.S. can take steps to credit reductions in gases now, and therefore encourage and reward companies that act to minimize their emissions. The longer we wait to address climate change, the more it is likely to cost—both environmentally and economically. The Pew Center concludes:
- The cost of delay is significant. Steps taken now represent an investment that will pay environmental and economic dividends into the future. Conversely, continued inaction will result in greater environmental challenges and increased costs down the line.
- U.S. Leadership is imperative. Since the U.S. has both the highest greenhouse gas emissions and per capita income, implementing a voluntary early action program demonstrates to the world our commitment to address the problem of climate change.
- Leadership must start with Congress. Congress must provide the legislative framework to encourage early action.
The Pew Center and its Business Environmental Leadership Council believe climate change is serious business. Our effort is founded on the belief that enough is known about the science and environmental impacts of climate change for us to take action now to address its consequences. Awarding credit for early action is an important first step.
The ultimate objective of the Rio Convention, which the United States ratified in 1992, is to stabilize atmospheric concentrations of greenhouse gases (ghg) at levels that will prevent dangerous anthropogenic interference with the climate system. Such stabilization will require significant reductions in ghg emissions by the United States and other countries. One mechanism proposed for encouraging U.S. companies to begin reducing ghg emissions now is an early action crediting program. Such a program would provide U.S. companies with credits for ghg reductions achieved prior to the year 2008 (i.e., before the first budget period under the proposed Kyoto Protocol) that would be usable by those companies for compliance with any future domestic ghg regulatory program.
This paper analyzes the legal, policy, and technical issues that policy makers may wish to consider in designing an early action crediting program. Although many of these issues are quite complex and cannot be fully addressed with simple and uniform crediting rules for all industry sectors, the paper attempts to formulate a set of general principles to guide policy makers in fashioning an administratively workable and effective program. The paper begins with a review of current U.S. efforts to mitigate ghg emissions through voluntary actions and programs and provides an analysis of five early action crediting proposals publicly available as of July 1998.
Voluntary GHG Mitigation Efforts in the United States. The Rio Convention's non-binding goal for developed countries was to return ghg emissions to 1990 levels by 2000. To meet this goal, the Clinton Administration developed the Climate Change Action Plan (CCAP), which outlined a portfolio of about 50 ghg mitigation actions. The plan applied to all sectors of the economy that emit ghg emissions and was intended to foster voluntary partnerships with the private sector and local governments. Generally speaking, the CCAP initiatives were designed to provide information and tools to encourage participants to voluntarily undertake physical or operational changes that will reduce ghg emissions. Although they demonstrate that industry and government can work together to achieve cost-effective ghg reductions, the CCAP initiatives have not achieved the level of reductions necessary to return U.S. emissions to 1990 levels, as contemplated by the Rio Convention.
Review of Design Issues and of Current Extant Early Action Crediting Proposals. The paper provides an analysis of the legal, policy, and technical issues raised in the early action crediting proposals developed by the Environmental Defense Fund, the Coalition to Advance Sustainable Technology, the Center for Clean Air Policy, Resources for the Future, and Niagara Mohawk Power Corporation. Key issues include the legal framework for the program, source of credits, flexibility, actions eligible for credit, and technical design of the program.
Principles for Designing An Early Action Program. Based on the review of these issues, the paper identifies the following general principles that may be useful as a guide to policy makers in fashioning a workable and effective program:
1. Provide a predictable credit mechanism and clear legal framework for the program. The principal purpose of an early action crediting program is to encourage voluntary ghg reductions in the near term. The program should provide a substantial and reliable incentive that will stimulate immediate efforts to slow down the increase of, and, ultimately, to decrease, ghg emissions levels in the United States. For such an incentive to be effective, participants must know in advance the credits they will earn for particular ghg reductions or sequestration activities and be given clear assurances that they possess a legally enforceable right to receive earned credits. Existing law does not provide the legal framework to give participants that right. For that reason, the crediting mechanism should be clearly delineated by statute or in agreements authorized by statute.
2. Keep the program simple and flexible. Any early action crediting program will be voluntary. The extent of participation in the program will depend, among other things, on whether potential participants perceive benefits of participation to exceed the costs of complying with the requirements of the program. Simplicity and flexibility are key components of minimizing transaction and compliance costs. Because of the range of potential participants, the agency administering the program will need flexibility to tailor the program to the needs and circumstances of particular industries and companies. The program will also need the flexibility to encourage innovation and reward efficiency. The best mechanism for doing this is through agreements between the participants and the government that spell out the specifics of the crediting mechanism for that participant, or industry. Model agreements for particular industries may be useful tools in this regard.
3. Reward real reductions, not gaming. An early action crediting program takes ghg credits otherwise available to U.S. companies during the initial period of domestic ghg regulation and gives them to participants in the early action program as a spur to reducing ghg emissions before that initial period. It is important that credits be used to reward real net reductions in ghg emissions, rather than paper reductions. The program needs to incorporate safeguards that give the public and other emitters confidence that the system will not be gamed.
4. Provide some form of recognition of past voluntary ghg reductions. Voluntary ghg reductions achieved between 1990 and 1998 and reported to the federal government should be recognized either in the form of a baseline adjustment or as a direct credit. It is important to maintain the principle that companies will not be disadvantaged because of prior voluntary reductions. However, the reward for past mitigation efforts should be provided only to the extent that the ghg reductions are real, quantifiable, verified, and not double-counted.
5. Don't predetermine the eventual domestic regulatory program. An early action crediting program should be designed to operate within the framework of any likely domestic regulatory or tax program that might be fashioned to control domestic ghg emissions. This includes a range of regulatory options such as carbon taxes, direct regulatory programs, and marketable permit schemes (implemented through, for example, an auction or administrative allocation of allowances).
6. Don't make the early action crediting program contingent upon ratification of the kyoto protocol. The early action program should not depend upon Senate ratification of the Kyoto Protocol in its present form. Rather, it should be designed to operate in the context of whatever international control regime may eventually be adopted and ratified by the U.S.
7. Focus principally on domestic early action. The allocation of credits to the U.S. under Kyoto or any other international agreement is an asset that should be carefully husbanded for use by the U.S. economy. For that reason, the principal but not exclusive focus of the program should be on rewarding early domestic actions to mitigate ghg emissions. There are, however, a number of circumstances where credit for actions outside the U.S. should be considered.
8. Don't over-mortgage the U.S. ghg allocation. The Kyoto Protocol, if ratified, will not provide international credit for reductions attained prior to 2008 in developed countries. Early action credits for ghg reductions within the United States thus would have to come out of the U.S. first budget allocation under the Protocol. Careful consideration needs to be given to the impact of an early action credit program on the availability of credits to non-participants once domestic regulation commences, and the extent to which credit should be given for action outside the U.S.
Market Mechanisms & Global Climate Change
Annie Petsonk, Daniel J. Dudek and Joseph Goffman, Environmental Defense Fund,
in cooperation with the Pew Center on Global Climate Change.
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
There is growing evidence that providing businesses and consumers with market-based mechanisms for addressing environmental problems can achieve equal or better compliance while reducing costs and spurring technological innovation. In the context of climate change, countries have agreed to use several market-based mechanisms in implementing greenhouse gas emissions reductions-from emissions trading similar to that used in the United States to reduce sulfur dioxide emissions to more experimental measures such as joint implementation and the Clean Development Mechanism.
This report, which analyzes market-based environmental policy instruments, is the third in a series by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Center brings a new cooperative approach and critical scientific, economic and technological expertise to the global climate change debate. The report was prepared as an input for the participants of two international conferences designed to promote a trans-Atlantic dialogue on market-based instruments and their use in mitigating global climate change. Recognizing the critical role of business in both shaping and applying market-based mechanisms, the Pew Center is working to bring businesses from both the United States and Europe together to discuss ways to do so.
The report reviews U.S. and European experience with market-based mechanisms and the ways the Kyoto Protocol on Climate Change utilizes these mechanisms. The report finds that properly designed rules for the operation of these mechanisms can provide economic and environmental integrity and signal to business and governments that any trades undertaken in accordance with the system will be valid and of value. Key elements to the success of such a system will be measurement, transparency, accountability, fungibility and consistency.
The Pew Center and its Business Environmental Leadership Council believe that climate change is serious business. Implementing emissions trading and other market-based mechanisms will be part of a serious response to the climate change problem.
This paper has been developed with a view toward promoting trans-Atlantic dialogues on market mechanisms for environmental protection. While the overarching topic for dialogue is the full panoply of environmental problems for which market mechanisms may be considered, this paper is prepared in the context of increasing global attention to the problem of climate change. The November 1998 Buenos Aires Conference of the Parties to the United Nations Framework Convention on Climate Change provides an example of the international focus on market mechanisms among governments, the private sector, and non-governmental organizations around the world.
This paper reviews market mechanisms for environmental protection, with special focus on emissions trading. Emissions trading programs place an overall limit on the amount of emissions that sources may emit, and then allow sources a degree of flexibility to determine where, when, and how to meet their total limits. Emissions trading programs provide this flexibility by allocating to sources a fixed amount of emissions allowances; any source that reduces emissions below allowable levels may save the resulting allowance increment to offset future emissions, or sell the increment to another source who may add the increment to its allowances. Compliance is determined solely by comparing actual emissions to allowable amounts.
The paper notes that five elements are essential for providing environmental and economic integrity in such programs: measurement, transparency, accountability, fungibility, and consistency. In reviewing the experiences of the U.S., New Zealand, and Europe, the paper finds that harnessing the competitive forces of the market-place in favor of pollution reduction can enable governments, industries, and non-governmental organizations (NGOs) to reach political consensus about pollution limits. Experience also indicates that when these elements are firmly in place, emissions trading programs can deliver powerful incentives to sources to innovate to develop more environmentally effective and more cost-effective ways of reducing emissions. Trading programs premised on these elements can achieve faster, deeper cuts in pollution, at far less cost than other regulatory instruments.
The 1997 Kyoto Protocol on Climate Change seeks to use market mechanisms to limit the emissions of greenhouse gases (GHGs) that are contributing to changes in the global climate. The paper examines the Kyoto Protocol framework for an innovative international market in GHG emissions reductions. The Protocol places a legally binding limit on the allowable amount of GHG emissions from most industrialized countries for the period 2008-2012. It then affords these nations the opportunity to trade allowable amounts of emissions, either directly or in conjunction with joint emissions reduction projects. It further allows these nations to implement their obligations collectively, through shared arrangements known as "bubbles" or "umbrellas."And the Protocol invites the participation of nations that have not adopted a legally binding GHG limit: it allows a limited form of trading between nations with limits and those without, where the trading involves emissions reductions obtained through cooperative projects in the latter group of nations.
The paper notes that the Kyoto Protocol respects the sovereignty of each participating nation to determine how best to implement its international obligations at the domestic level, and whether, in so doing, it should allow its private sector to participate in the international emissions trading market. The Protocol leaves open the development of internationally agreed rules to provide the transparency, the accountability, and-particularly in the case of trading with nations lacking limits on GHG emissions-the measurability that may be key to the Protocol's success. Further, the Protocol allows each nation that adopts emissions limits to decide whether to initiate programs prior to 2008 that will provide recognition and incentives for early actions to reduce emissions. The Protocol does not address the question of whether nations will, individually or collectively, place quantitative or qualitative restrictions on emissions trading.
After exploring the theory of market mechanisms, examining their implementation in selected cases, and analyzing the market elements of the Kyoto Protocol, the paper draws on lessons learned from practical experience in order to identify and evaluate options on the questions left open by the Protocol. The paper indicates that for environmental and economic effectiveness, experience weighs in favor of a limited set of rules-carefully drawn to foster measurement, transparency, accountability, fungibility, and consistency-and weighs against imposing further restrictions on the market mechanisms.
This paper includes a compilation and synthesis drawn from the sources and materials listed in Appendix I. The authors, Annie Petsonk, Daniel J. Dudek, and Joseph Goffman, are, respectively, International Counsel, Senior Economist, and Senior Attorney with the Environmental Defense Fund. The authors wish to acknowledge the insights gleaned from conversations with Christoph Bals, Marianne Ginsburg, Anke Herold, Jos Cozijnsen, Jennifer Morgan, Sascha Müller-Kraenner, Hermann Ott, John Schmitz, and Jonathan Wiener. Any errors or omissions are solely the responsibility of the authors.
This report was one input into two conferences on market-based mechanisms, which were held on 23 and 27 October, 1998, in Bonn and Paris. The conferences provided an important forum in which participants, including representatives of businesses, non-governmental organizations, and governments, shared practical experience about the use of market mechanisms, and provided valuable insights about the trans-Atlantic context for consideration of the report's findings.
Press Release: New Study Demonstrates Consequences of Delay and the Need for a Congressional Response
For Immediate Release:
October 1, 1998
Contact: Kelly Sullivan or Shannon Hunt
Pew Center on Global Climate Change and Major Corporations Highlight Urgency of Early Action : New Study Demonstrates Consequences of Delay and the Need for a Congressional Response
WASHINGTON, D.C. - The Pew Center on Global Climate Change, with its Business Environmental Leadership Council, today released a new study on climate change and the need for Congressional legislation to ensure credit for companies acting in response to the problem of climate change.
"The cost of delay is significant - both in terms of the economic and environmental consequences," said Eileen Claussen, executive director of the Pew Center on Global Climate Change. "The problem is getting worse and the longer we wait, the more difficult and expensive our response will be."
The report, "Early Action and Global Climate Change," addresses the issues that policymakers will face in designing a domestic early action program, analyzes current proposals, and suggests a set of principles to guide an effective program.
"From this study, we can conclude that, regardless of any eventual international framework, the U.S. can take steps to credit reductions in gases now, and therefore encourage and reward companies that act to minimize their emissions," said Claussen. Robert R. Nordhaus and Stephen C. Fotis prepared the report for the Pew Center on Global Climate Change.
Beginning October 3rd, print advertising will run in targeted national publications, highlighting three key conclusions the Pew Center found from the report:
- The cost of delay is significant. Steps taken now represent an investment that will pay environmental and economic dividends into the future. Conversely, continued inaction will result in greater environmental impacts and increased costs down the line.
- U.S. leadership is imperative. Since the U.S. has both the highest greenhouse gas emissions and per capita income, implementing a voluntary early action program demonstrates to the world our commitment to address the problem of climate change.
- Leadership must start with Congress. Congress must provide the legislative framework to encourage early action.
The advertising also includes a list of the companies which comprise the Pew Center on Global Climate Change's Business Environmental Leadership Council. With the addition of Weyerhaeuser, which was announced today, the Business Environmental Leadership Council totals eighteen companies, including:
Air Products and Chemicals, Inc.; American Electric Power Company; Baxter International Inc.; Boeing; BP America; Enron Corp.; Holnam Inc.; Intercontinental Energy Corporation; International Paper; Lockheed Martin; Maytag Corporation; The Sun Company; 3M; Toyota; United Technologies; U.S. Generating Company; Weyerhaeuser and Whirlpool.
Several of the company representatives joined Claussen at the news conference in Washington, D.C. to release and review the study.
"Many U.S. companies - including the members of the Business Environmental Leadership Council - have indicated support for early action programs in keeping with their desire to take immediate action to reduce greenhouse gases and their need for assurance that such actions will be rewarded and not punished," said Claussen.
In providing an objective assessment of the current proposals on early action, the report identified eight key principles necessary for a workable, effective early action policy. The report found that an early action policy should:
- Provide a predictable credit mechanism and a clear legal framework for the program;
- Keep the program simple and flexible;
- Reward real reductions, not gaming;
- Provide some form of recognition of past voluntary greenhouse gas reductions;
- Not over-mortgage the U.S. greenhouse gas allocation;
- Not predetermine the eventual domestic regulatory program;
- Not make the early action crediting program contingent on ratification of the Kyoto Protocol; and
- Focus principally on domestic early action.
"From this report and extensive consultation with our member companies, it is clear that we should no longer put off until tomorrow what we should begin today," said Claussen. "Climate change is serious business and early action is smart business."
Click here to read a copy of the report, "Early Action and Global Climate Change."
Beyond Kyoto: An Agenda for the Next Decade
Speech given by Eileen Claussen, Executive Director
The Pew Center on Global Climate Change
American Enterprise Institute
September 14, 1998
I am sometimes reminded, when I talk about global climate change, of a painting by Pieter Brueghel titled "The Fall of Icarus". In Greek mythology, Icarus is the son of Daedulus, an architect and inventor who developed the concept of, and actually designed the labyrinth. When Daedulus and Icarus were later imprisoned in the labyrinth, Daedulus creates wings of wax for both himself and his son so they can escape. They manage to flee the labyrinth and fly away, but Icarus flies too close to the sun, his wings melt, and he falls into the sea and drowns. In the Brueghel painting, as Icarus falls into the sea, no one pays any attention. The ploughman continues ploughing his field, the ship does not come to the rescue. If there is a disaster, it is clearly someone elses disaster, and does not warrant a change in course.
There are two ways to apply this myth and painting to global climate change. First, we could view ourselves as Icarus approaching the sun with wings of wax. Clearly, then, we would want to change course, and fly at a different altitude. But we could also view ourselves as the ship or the ploughman, knowing, but not responding to what is about to happen. In this case, we should want to pay attention, and put in place a system so that when Icarus falls from the sky, we could move quickly to rescue him.
I would like to argue today, that we should look at the climate change issue in both ways. We, in the United States, should begin changing course, and taking steps to reduce our emissions of greenhouse gasses. We are, after all, the largest emitter of greenhouse gasses, with the largest gross domestic product (GDP), and the largest GDP per capita (expressed as purchasing power parity). At the same time, we know that this is a long term, global issue that demands a global response. So we should also be building the national and international systems to deal with this issue over time and with the active participation of all nations.
As we begin to discuss an agenda for the next decade we should take stock of where we are on the climate change issue, both domestically and internationally. Beginning with the science, or the basis for dealing with this issue, I believe we can simply say that sufficient scientific knowledge exists that supports taking steps to address mans emissions of greenhouse gasses. If we then look domestically, it is fair to say that:
- First, we are still on a course of increasing emissions of greenhouse gasses. The Energy Information Agency suggests that without policy interventions, we are likely to increase our emissions annually over the next decade.
- And second, the domestic climate change debate is highly polarized and politicized. It is centered on the Kyoto Protocol, and whether or not it should be ratified now or in some amended form at a later time. There is little focus on what should be done constructively to address the problem.
Internationally, the picture is quite different.
- First, in Kyoto, all of the countries in the world agreed that binding reduction targets should be established for developed countries. But the developing countries were and are unwilling to accept emission targets at the present time. Still, more than 50 countries have already signed the Kyoto Protocol.
- Second, there is some understanding globally that all major emitting countries must participate if we are to achieve long term success in avoiding growth in emissions of greenhouse gasses. This is particularly true given that developing country emission growth rates are expected to increase by 2.9 percent annually over the next decade.
- And third, there is broad support for flexible mechanisms to deal with established emission targets, although this support is greatest in the United States.
Finally, I would like to make one point that brings us back to where we began. And that is that irrespective of what happens to the Kyoto Protocol, the issue of climate change will not disappear and global pressure to reduce emissions of greenhouse gasses will not abate. Icarus, we shouldnt be; the ploughman we cannot be.
So what agenda would be most practical and effective in moving actions to deal with the climate change issue forward? Perhaps a modest beginning would be most appropriate.
A National Agenda
The first item on the United States agenda should be to depoliticize and depolarize this issue in Washington. If we can move beyond political agendas and focus on economically sound, stable, and serious actions to reduce greenhouse gas emissions, we will provide a platform for business planners to look to the future. And looking to the future will allow them to develop cost effective investment strategies that will permit the needed replacement of capital equipment with greenhouse friendly technologies. If we fail to do this, we risk losing the opportunity to gain competitive advantage in clean technologies. And, additionally, if we wish to be efficient, we must begin now to plan for the longer term.
Our view that we need to put politics aside and begin to develop environmentally sound and economically justified programs to reduce greenhouse gas emissions is rooted in the current state of the science. This is not to say that major areas of scientific uncertainty do not exist. They obviously do, and part of our agenda must be to continue the necessary research to address those uncertainties and to increase our knowledge of the likely effects resulting from emissions of greenhouse gasses. However, the scientific basis is too deep-rooted to disappear, and it is the combination of scientific knowledge, the international agreement among 170 countries that developed nations need to act within the next decade, and the need for developing and implementing environmentally and economically justified programs, that led us to the conclusion that we need to depolarize this issue domestically now so that we can move forward.
To facilitate moving forward to address the climate change issue, our second agenda item should be to design a straight forward system that will recognize and give credit to those corporations that want to take early action to reduce greenhouse gas emissions. We as a nation should not force progressive companies to make a choice, on the one hand, of investing in emission reducing technology now and risk being punished for it later, or, on the other hand, to forego investment to develop or install climate friendly technology for a decade or more. Failure to adopt a program to give credit for early action will essentially compel industry to defer action for the next decade to avoid the uncertainty of how their actions will be treated by the government when more comprehensive programs are put in place. We believe that the Congress should step up to this issue and provide a legislative framework that will allow industry to undertake the emission reductions that will change our current course of emissions growth and result in a downward emissions trend. If we fail to take this step, we risk falling behind other countries in the contest for the development and marketing of clean technologies. We should take a lesson from history, and compare the U.S. auto industry of two decades ago with the information technology industry of today. In the climate change case, we can anticipate that both domestic consumers and international trading partners will pay ever more attention to climate friendly technologies, and we will need policies that will more strongly encourage our domestic industry to be there first Moreover, if we fail to encourage early action we will shorten the time horizon during which those who emit greenhouse gasses will need to take action to fulfill our national commitment should the international obligations agreed in Kyoto become binding on the United States. Such a compression of the time horizon for taking action will certainly lead to higher costs than would a more orderly program initiated earlier.
Our agenda for the next decade should also include exploring the type of system that we should install over the longer term. The domestic system should be market based and should allow the economy to grow as it protects the environment. Development of such a system will require participation by all levels of government, Federal, state and local as well as the private and nongovernmental sectors. This is a problem of enormous scope that will affect every individual and business in this country and around the world. We need to work together in partnership, to achieve our objectives - protection of the environment and continued economic growth.
And as we develop our national programs, we must also assure that our system will be not only efficient, but also fair. Should every sector be treated equally? We know that the opportunities for reducing emissions are not uniform across all sectors, since some have already taken steps to reduce their energy intensity and others have not, and some have significant further possible advances and others have not. Should we consider not only responsibility for the problem, but also opportunity for dealing with it? And how should we deal with the obvious labor issues, where some sectors will clearly be impacted, and where whole regions may suffer significant consequences? Surely, equity and transition issues must become a part of our national agenda, and a key component of our deliberations as we move to design a national system for dealing with this issue over the longer term.
Thus our third agenda item must be to begin the dialogue on how to move forward over the long term and then begin taking action in accordance with the results of that dialogue. We know there are policies and programs that can lower the costs, and we should analyze and discuss all alternatives. We know there are likely to be sectors of the economy that will be more impacted than others, and we should have discussions about how to achieve our environmental and economic goals in ways that minimize the costs and impacts, and treat those who will be adversely affected in ways that are fair and equitable.
Some will say that this is a pipe dream. However, we should also learn from history here. When we were faced with the oil embargo, we became more energy efficient and economic growth was, of necessity, decoupled from energy consumption in the decade following the embargo. Today, we are more energy productive than we were 25 years ago. Thus, when we have a national will and appropriate policy support, we can achieve goals that seemed beforehand to be unachievable. Dealing with climate change provides us with a similar challenge. We should take it, and use it to strengthen our national economy.
An International Agenda
As we move to implement a national agenda, we also need to address this issue internationally. We need to consult thoughtfully with other nations so that our expectations for international programs are grounded in reality, a consultation that will be facilitated and made more effective if we are taking steps at home to address this issue. Whatever view you hold of the Kyoto Protocol, it does provide for transboundary market based programs to encourage climate friendly development. Our first international agenda item should therefore be to carefully study and understand the potential of these mechanisms and develop programs to maximize their effectiveness. Emissions trading, joint implementation, and the Clean Development Mechanism are still in their formative stages. Working out international systems that are effective, efficient and equitable, and then developing the international institutions to deal with them are not simple tasks. It will require many years of effort from governments around the world, with their private sectors actively involved. Those who would argue that the next meeting of the Parties in Buenos Aires is a failure if it does not come to conclusion on rules to implement any of these mechanisms should have their motivations examined. Decades, with many high points and low points, were spent building the World Trade Organization. Our expectations for what can be achieved and over what time frame must be realistic; we will be lucky indeed if any of the market-based mechanisms are operational by the turn of the century.
A final agenda item, and one where both the domestic and international dialogue is emotional, rather than analytical, and where the polarization is strongest, involves how best to move all nations on to a change of course. It is clear from both an environmental and an economic point of view that all nations must take steps to reduce their emissions. But fashioning a system -- and a timetable -- that deals with this issue has, despite the rhetoric, hardly begun.
The views of the developing world on the subject of what has come in this country to be called meaningful participation have barely changed since the Kyoto Conference, where any effort to define participation was met with total and complete opposition. Yes, there are several countries, particularly in Latin America, that continue to be positive about both their future role and also the need for global solutions to the climate change issue. And South Korea has indicated that it is willing to voluntarily reduce its emissions beginning in 2018. But the vast majority of developing nations have not indicated any interest in going beyond their current commitments to take policies and measures to reduce their emissions consistent with their goals of poverty alleviation and economic development.
Why not? Two answers immediately come to mind. First, the developing countries are clearly waiting to see whether the developed countries take the lead in combating climate change and the adverse effects thereof (Article 3.1 of the Framework Convention on Climate Change). The record of the developed countries, particularly the United States, in achieving the aims of the Convention has not been a strong one. And it is clear that the developing countries are waiting to see whether the Kyoto Protocol elicits a more effective response from the developed world.
And second, and equally important, we have yet to address the issue of what a framework for equitable obligations might be. The United States, which argued the most strongly for developing country action prior to Kyoto did not, in fact, put down more than a marker that would indicate future commitments from developing countries. And the only proposals that have been put forward suggest that a fair and equitable regime would require the convergence of per capita emissions among all nations. But there has been a complete absence of debate on this very important issue, a debate that will be necessary before an agreement on what should be required (and what is fair) can be reached. Clearly, this is a very important agenda item for the next decade.
It is a hefty agenda. At home, it includes depoliticizing the issue, providing a legislative framework for early, voluntary action, and designing an emissions reduction system for the long term. Abroad, it includes building the systems and institutions to deal with the market based mechanisms that are in the Kyoto Protocol, and developing an effective and equitable framework to guide the participation of all nations. But if we are thoughtful, and work both domestically and internationally to achieve consensus rather than division, we can move forward economically and begin the long process of curtailing and reducing emission of greenhouse gasses. If we set an agenda for the next decade that addresses the five issues I have discussed, we should be able to avoid the mistake of Icarus and not fly too close to the sun.
The Global and the Local: Blending Actions to Address Climate Change
Speech by Eileen Claussen, Executive Director
The Pew Center on Global Climate Change
August 20, 1998
Responding to the challenge of climate change is, as we say at the Pew Center on Global Climate Change, serious business. Even talking about it in the current political environment raises sensitive and difficult issues. On the one hand, it is a global problem that demands a global solution. Emissions from Beijing can affect the climate in Boston, just as emissions from Chicago can affect the climate in Calcutta. On the other hand, global solutions cannot be found unless individual nations begin the search for their own solutions. These include working with the business community to make investments in more efficient products, practices and technologies, and taking steps to limit and reduce greenhouse gas emissions. Some argue that no single nation should embark on a directed course of action until there is a global framework with worldwide commitment. Others argue that a global response is, in effect, just a series of national responses, and that it is incumbent upon individual nations to begin taking steps to reduce their emissions now. The reality is that we will have to go down both paths simultaneously. We must take steps to control emissions at home at the same time as we design the systems that will be required for all nations to participate effectively in responding to this issue. If we fail to move forward on both paths -- the global and the local -- our response to climate change will almost certainly be a failure.
The International Situation
Let us look first at the international situation. Much has been said and written about what was accomplished, or not accomplished, at Kyoto. The treaty binds developed countries to emissions reductions that would have to be achieved between 2008 and 2012. The targets range from 8 percent below 1990 emission levels (the European Union) to 10 percent above 1990 levels (Iceland). The obligation agreed to by the United States was a reduction of 7 percent below 1990 levels. The parties also agreed to (1) a framework for emissions trading and joint implementation among developed countries; (2) language creating a Clean Development Mechanism, that would allow for joint sustainable development projects between industrialized and developing countries; and (3) a sprinkling of contradictory and incomplete language dealing with carbon sequestration. Binding commitments for developing countries; agreement on a compliance and enforcement regime; and specific definitions or guidelines for the operation of either the trading system or the Clean Development Mechanism were left for future meetings.
But to understand fully the global challenges that we face, we need to focus on the international politics leading up to the Kyoto agreement and how they manifested themselves during Kyoto, and again at the most recent international meeting in Bonn. Politics are also likely to be the drivers of the Conference of the Parties to the Framework Convention on Climate Change scheduled in Buenos Aires in November. If history is a guide, it will continue to play a significant role in subsequent negotiating sessions as well.
We should begin with the position of the United States. Beginning in 1996, the United States began designing a broad global framework for addressing the climate change issue. That framework, forwarded internationally in January of 1997, included a binding target for developed countries, emissions trading among developed countries, joint implementation possibilities between developed and developing countries, and three separate provisions related to the increased participation of developing countries. But the United States did not publicly propose a specific binding target until October 1997 (two months before Kyoto), when the President announced the U.S. position in a speech at the National Geographic Society. Because of the delay in defining a target, the U.S. proposal was coolly received, a reception that was exacerbated by both the European focus on ONLY the binding target, and the developing country view that the United States was not taking the issue seriously but was simply interested in limiting the energy use and development of other countries.
These views were reinforced by the Kyoto Conference itself. Most of the time in Kyoto was spent in prolonged and intense debate between the European Union, the United States and Japan. The subject? The magnitude of the binding reduction. Of course, it was obvious to all participants that the magnitude of the reduction would be directly related to agreement on trading and joint implementation. And that was, in fact, how the agreement was reached. The United States agreed to reductions that were greater than originally proposed by the President, and, in return, the language on what have been called the "flexibility mechanisms" was also included. Make no mistake as you think about how this bargain was struck: negotiations were held not only between Heads of Delegation in Kyoto, but also between Heads of State from their capitols. In fact, the discussions were so intense, that further development of language on the flexibility mechanisms could not be concluded by the time the Conference ended.
What about the role of the developing countries? A key part of the U.S. position was that developing countries be more active partners in reducing emissions. The provisions of the U.S. text related to developing countries were central to U.S. diplomatic efforts leading up to Kyoto. But, with the exception of Brazil, which turned the joint implementation concept into the Clean Development Mechanism, there was almost no exploration of ideas and language with key developing country greenhouse gas emitters like China and India. The result was that those countries, who were skeptical of U.S. intentions at the beginning of the Conference, and who had no interest in accepting obligations until it was clear that industrialized countries, particularly the United States, both show commitment to a reduction scheme and actually make significant emission reductions, became more adamantly opposed to increased involvement in the Kyoto Protocol. The public debates at Kyoto on the subject of developing country participation were therefore largely symbolic. And spokespersons for a number of developing countries even attempted to scuttle the emissions trading language at the end of the Conference, calling it immoral and unfair.
The reality is that the views of the developing world do not appear to have shifted since the Kyoto Conference. Yes, there are several countries, particularly in Latin America, that continue to be positive about both their future role and also about the need for global solutions to the climate change issue. And South Korea has indicated to Japan that is willing to voluntarily reduce its emissions beginning in 2018. But the vast majority have adopted a wait and see attitude with respect to their own obligations -- or perhaps we should phrase it "a wait and see if the developed countries begin taking steps to meet the obligations they agreed to in Kyoto." This posture is likely to dominate any discussions on particular commitments from the developing world, and is also likely to influence the negotiations on the Clean Development Mechanism, where key developing countries are interested in some degree of control over the projects that are accepted so that they can be assured that they are truly development projects, not just projects that can be used for credit by the developed world. Emissions trading and carbon sequestration, of course, still remain suspect, and it will take substantial discussion and negotiation to reach agreement on how to operationalize the Kyoto language.
At the core of the developing country view is the notion of fairness. Is it fair, many of them ask, for the developing countries to be asked to take on serious obligations while their total and per capita emissions are low compared to the developed world? Is it fair, some ask, for the developing countries with far lower GDP and per capita GDP to be asked to take on obligations to deal with a global problem caused thus far by the emissions from the developed world? Is it fair, others ask, for the United States, with the highest levels of both GDP AND emissions, to insist on developing country participation when the United States itself seems unwilling to make substantial emission reductions? Until these fundamental issues of fairness are addressed internationally, it is unlikely that we will see significant movement on the part of the developing countries.
The Domestic Situation
Unfortuantely, the complications here at home are equally daunting. While there is concern, interest and a willingness to act on the part of the general public, some in the business community, and some in government at the Federal, State and local levels, the issue is now enmeshed in difficult partisan politics. And while climate change itself remains controversial, it is Kyoto that has raised the tension levels dramatically. In fact, looking back at the last two years, it is clear that those in industry most opposed to dealing with the climate change issue (in other words, those who view themselves as losers under a climate change response regime) have thoroughly worked the political system to (1) cast doubt on the science; and (2) emphasize the possible negative economic impacts of the Kyoto Protocol, basing their analysis on unrealistic assumptions and unworkable policies. At the same time, many in the environmental community have unrealistically (1) advocated large reductions in more immediate time frames; and (2) concentrated on the availability of technologies that, they believe, could effect compliance with the Kyoto regime at virtually no cost. This clash of the polar positions between some of the industry and some of the environmental community has dominated the debate, catalyzing political grandstanding, and essentially removing the issue from the reasonable and pragmatic consensus-building center that we need if we are to move forward and successfully respond to climate change.
What has this meant for real emission reductions on the part of the United States? We need to begin with a look at our historic climate change obligations and how we have responded to them. First, the United States is a party to the Framework Convention on Climate Change, and, therefore, is obligated to take policies and measures to reduce emissions of greenhouse gases. It is also obligated to aim toward reducing emissions to 1990 levels by the year 2000. To meet these commitments, the United States has partnered with industry on a series of voluntary programs. Many of these programs were initiated during the Bush Administration, and were expanded upon by the Clinton Administration. These efforts, while significant, are not likely to result in the United States meeting 1990 levels by 2000. Indeed, the United States acknowledged in the 1998 Annual Energy Outlook that we would likely be 17 percent above 1990 levels by the year 2000.
Since Kyoto, most of the voluntary programs have continued, but they have neither been expanded nor intensified. Before the Kyoto Conference, the President outlined a program that the Administration would seek to implement post-Kyoto. This program included a $6.3 billion tax and budget package proposed in January of this year, that now appears dead on Capitol Hill; a modest effort that has as yet yielded no results to insure that electricity restructuring does not increase carbon dioxide emissions; and a somewhat more significant effort to consult with industry to develop voluntary early reduction objectives. This latter effort now also appears unlikely to come to fruition, in part because of the difficult political atmosphere, and in part because no one has come to grips with the complex but essential issue of how companies that make serious reductions will have those reductions credited toward future obligations.
If we start with the premise that climate change is a serious issue that we must take seriously (and that is certainly the starting point for the Pew Center and the businesses that form its Environmental Leadership Council), we have an enormous task before us. Not only do we have to sort through the domestic and international politics that surround climate change, but we must also move forward to develop the technologies that will be necessary in the 21st century, see that those new technologies make their way through the global economy, and develop the governmental and non governmental systems that will provide the right combination of incentives to make these changes a reality. Obviously, this is no easy task.
Perhaps what we need is a modest beginning. First, we must do our best to de-politicize this issue in Washington, and work to agree on the basic agenda that will be necessary to achieve real results. There is no reason why we cannot work through a program to credit the voluntary early emission reductions of companies that want to get started now. Such an effort would be climate friendly and friendly to those forward looking companies that are committed to dealing positively with the climate change issue. It would be a way to energize U.S. industry, achieve and show progress, and reward those who make real contributions.
Second, there is no reason why we cannot sit down and design an incentive package so that individuals and individual companies begin to make investments that will result in reduced greenhouse gas emissions now and in the future. This is an issue that will be with us for a long time; the Kyoto targets alone will not allow us to stabilize greenhouse gas concentrations at less than dangerous levels. And what will count for the future is the technology that we develop over the coming decades. Quite simply, the earlier and faster we move, the greater our chances of being globally competitive with new, climate friendly technologies.
Third, there is no reason why we cannot sit down with the Federal government, State governments and local governments to begin assessing the roles for each in moving the United States to a lower emissions future. This is a problem of enormous scope, and it will take a concerted effort on the part of everyone to design a framework that is environmentally and economically responsive. We need to work together, in partnership, to achieve our objectives.
Fourth, there is no reason why we cannot begin to analyze and discuss how to design a domestic program that will achieve emission reductions over the longer term. We know there are policies and programs that can lower the costs; we know there are likely to be sectors of the economy that will be more impacted than others; and we know that there will be effects on American workers. Surely we can begin to have discussions about how to achieve our environmental goals in ways that minimize the costs and impacts, and treat those who will be affected in ways that are fair and equitable.
And fifth, there is no reason why we cannot agree on how to address this issue internationally, so that our expectations are grounded in reality, and our strategies are based not only on what is cost-effective, but also on what is fair. If we take steps at home, our ability to ask other nations to take steps will be more credible. If we are sensitive to the legitimate concerns of others, we are more likely to be able to lead in the design of an acceptable international system.
It may be hard, in August of 1998, to imagine a day when all sectors of society -- the public, the private and the nongovernmental -- are engaged in working on meaningful responses to the climate change issue. But I am not sure I could have imagined 6 months ago that the 17 corporate leaders represented in the Pew Center's Business Environment Leadership Council would step forward on this issue and agree to voluntarily begin responding to the challenges presented by global climate change. And I certainly didn't know 6 months ago of the efforts of so many of the States to inventory their emissions and develop action plans to reduce emissions. Maybe we can move beyond the rhetoric, take this issue seriously, and work together to develop solutions. Maybe we can face and address global climate change while sustaining a growing economy.