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Transportation in Developing Countries: Greenhouse Gas Scenarios for Chile
Prepared for the Pew Center on Global Climate Change
Raúl O’Ryan, Universidad De Chile
Daniel Sperling, Mark Delucchi, and Tom Turrentine, University of California, Davis
Eileen Claussen, President, Pew Center on Global Climate Change
Worldwide, transportation sector greenhouse gas (GHG) emissions are the fastest growing and most difficult to control. In Chile, where the transportation sector is growing even faster than the rest of the economy and accounts for one-third of the nation's energy use, per capita GHG emissions are relatively high and car and truck ownership rates continue to increase.
Until recently, the environmental consequences of Chile's rapid development received little scrutiny. GHG emission levels continue to be a low priority for policymakers, but severe air pollution and traffic congestion are raising awareness of the need to address transportation-related environmental problems. As one of the world's most sophisticated countries at transferring transportation infrastructure and services provision to the private sector - most are now owned or managed by private companies, and market principles are being widely used in providing traditional public services - Chile could pioneer market-based approaches to transportation and environmental challenges.
This report creates two scenarios of GHG emissions from Chile's transportation sector in 2020. It finds:
- Greenhouse gas emissions increase 117 percent in the high, "business-as-usual" scenario but only 42 percent in the low scenario.
- Urban transportation strategies driven by concerns over air quality, traffic congestion, and the high cost of road infrastructure investments would also have climate change benefits. Examples of these strategies are:
- Introducing new and enhanced technology, such as converting urban buses from diesel to hydrogen fuel cell and using natural gas and small battery-powered electric cars.
- Improving public transportation, such as integrating bus routing and fare structures, establishing exclusive bus lanes and rights-of-way, offering more comfortable buses, and significantly expanding Metro and suburban rail services.
- Encouraging smaller cars and alternatives to car use, e.g., by implementing parking restrictions, charges, and road fees, and eliminating tax incentives for larger and inefficient cars and light trucks.
- For interurban transportation, the main problem is inadequate road, rail, port, and airport infrastructure. Supporting rail infrastructure will restrain GHG emissions.
Transportation in Developing Countries: Greenhouse Gas Scenarios for Chile is part of a five-report series on transportation sector GHG emissions in developing countries. The report's findings are based on a Lifecycle Energy Use and Emissions Model (LEM) developed by the Institute of Transportation Studies at the University of California at Davis. It estimates CO2-equivalent GHG emissions from the transportation sector. The Pew Center gratefully acknowledges Ralph Gakenheimer and Chris Zegras of MIT, Eduardo Sanhueza of Climate Change and Development (a Chilean consulting firm), and Michael Walsh, an independent transportation consultant, for their review of early drafts. The authors also express their gratitude to Barbara Cifuentes of the Universidad de Chile.
Chile is a lightly populated country of 15 million that has undergone major economic transformations. Over the past 25 years, the economy has evolved from a slow-growing, state-directed one into a fast-growing, market-oriented one. Chile's South American neighbors imitated this transformation during the nineties. In the transportation sector, as in other areas of the economy, the private sector took over many traditionally state-managed activities. Chile has undertaken more structural changes in this sector in the past two decades than perhaps any other developing country.
This report addresses changes in transportation, energy use, and greenhouse gas (GHG) emissions and other environmental impacts resulting from economic growth and transportation choices. It includes interurban transportation and the urban system in the capital city, Santiago. Chile is an especially interesting case study because of its enthusiastic embrace of market competition in all aspects of transportation. In particular, it has developed a franchising system by which the private sector has been encouraged to finance infrastructure development. However, during this period of economic transformation and growth, Chile has not addressed many environmental problems, including GHG emissions. The expected increase in emissions in the next twenty years is significant, and any reductions would result from indirect efforts intended to address other urban, environmental, and congestion problems.
Chile's transportation sector is growing even faster than the rest of the economy, especially in Santiago. Between 1985 and 1998, the Chilean economy increased by 2.5 times (7.4 percent per year on average) and the transportation sector by about 3.5 times (over 10 percent per year on average). Between 1977 and 1991, cars increased their share of passenger travel by more than 60 percent, while the bus share fell by 27 percent. These shifts are motivated by the strong urbanization process, with over 85 percent of the population now living in cities, and strong growth in car ownership, with one in ten persons now owning a car. Cars now account for 26 percent of travel within cities (measured as passenger-kilometers) and 41 percent between cities. Public transportation has been losing market share for decades.
The transportation sector is responsible for about 28 percent of GHG emissions in Chile. Of the total GHG emissions from transportation, 45 percent are from cars and taxis, 22 percent from trucks, 13 percent from ships, 9 percent from airplanes, 10 percent from buses, and less than 1 percent from trains. Passenger transportation accounts for about two-thirds of transportation sector GHG emissions, while about one-third is from freight. Interurban transportation accounts for over half of total emissions. Chile's policymakers at the national, sectoral, and local levels have largely ignored the environmental consequences of rapid development. A policy of "grow first, clean up later" was pursued until 1990, after which a few local environmental concerns did reach the policy agenda. Lack of interest in GHG emission reductions continues, stemming from growth-oriented thinking as well as the general understanding that Chile's impact on the global climate is small compared to major industrial nations. With only 15 million people, each using on average less than one-sixth as much energy as each U.S. resident, and with large carbon dioxide (CO2) sinks due to natural regeneration in abandoned lands and forest plantations, Chile's relative net contribution to global climate change is small. Concern for global climate change is not likely to motivate domestic policy action.
But other concerns, especially acute air pollution and worsening traffic congestion, are already motivating actions that will have a side effect of reducing growth in GHG emissions. Intensifying policy debates over motor vehicles will play a central role in determining Chile's impact on climate change. Prospective international incentives, for example from the sale of emission credits under the Kyoto Protocol's Clean Development Mechanism (CDM), would serve to support such domestic initiatives, with potentially large climate change benefits.
This report develops high ("business-as-usual") and low emission scenarios for GHGs for the next two decades. The scenarios are based upon interviews with experts and policymakers, and extensive analysis of transportation and energy data gathered from a wide range of Chilean sources. Both scenarios are premised on strong continued economic growth (5.8 percent annual GDP growth). Under the business-as-usual scenario, it is assumed that no strong actions are taken to curb GHG emissions or restrain motorization. The result, over the next twenty years, is a doubling of energy consumption and GHG emissions by the transportation sector.
In an alternative low emission scenario, changes include policies to improve public transportation and introduce cleaner and more efficient vehicles. The net effect is a 42 percent increase in GHG emissions, significantly less than in the high scenario.
It is clear, given Chile's strong economic growth, that overall national GHG emissions will increase. It is also clear that the potential exists to substantially restrain the growth in transportation emissions. This study illustrates the opportunities and benefits of laying a foundation now for a more fundamental strategy shift toward the low GHG emissions scenario. The national experience using market-based approaches to finance transportation sector infrastructure development could prove to be a useful model for implementing additional market-based initiatives that reduce GHG emissions, including international mechanisms. Indeed, policymakers and private sector partners in Chile may have the capacity to develop cost-sharing projects in which domestic goals - e.g., better transportation and local air quality - and international GHG goals can be attained.
Setting the Stage: Beyond Kyoto
Remarks of Elliot Diringer
Pew Center on Global Climate Change
The Fifth Mansfield Pacific Retreat, Melting Mountains: Climate Change in the Asia Pacific Region
June 27, 2002
Good morning. I'd like to thank our hosts at the Mansfield Center for the opportunity to be here today. I'm delighted, of course, to be able to spend a few days in such splendid surroundings. But even more, I appreciate the opportunity to meet and exchange ideas with such an esteemed group, people who bring with them not only extraordinary expertise, but also a willingness to grapple with what I believe is one of the most profound challenges of our time - the challenge of global climate change. I am very hopeful that over the next few days we can all arrive at a fuller understanding of this challenge and of the many perspectives that must be considered as we work toward meeting it.
One of the reasons I feel especially fortunate to be here is that I was able arrive a few days early. An old friend of mine met me here and we spent several days backpacking in Glacier Park. Before you go into the backcountry - really, before you go anywhere in the park - the rangers warn you in very serious tones to watch out for the grizzly bears. They tell you how to avoid the grizzlies, which is the preferred strategy. They tell you what to do if you do happen to see a grizzly, and they tell you what to do if it then happens to attack you. My friend and I fortunately did not need to avail ourselves of that last bit of advice. One thing the rangers don't warn you about, though, is the mosquitoes - and we saw lots and lots of those. Unlike the grizzlies, the mosquitoes are guaranteed to attack, and when they got really bad we found that the only real defense was to crawl inside our tent and hide. So allow me to be the first to warn you: When we head up into the park tomorrow, watch out for the mosquitoes.
One of the things I enjoy most about spending time in the backcountry is the way it reduces your realities to the very basics: feeding yourself, staying warm, staying dry, being prepared for whatever you might encounter. By stepping outside all the clutter and complications of everyday life, you can see much more starkly what it takes to meet your fundamental needs, and ultimately how dependent you are on the blessings and the whims of nature. I find it a very clarifying experience, and I think perhaps the same could be true of this retreat. By stepping outside our everyday routines, and coming to a place where our utter interdependence with our environment is so much easier to observe, perhaps we will be able see a little more clearly some of the challenges ahead. I hope so.
Gathering at this time in this place, I can't help but recall another meeting on climate change 10 years ago in another place of extraordinary natural beauty. The place was Rio de Janeiro. As I'm sure you all know, this month marks the 10th anniversary of the Earth Summit and the launch of the international effort against climate change. I was a reporter at the time, and when I look back now at some of the stories I filed from Rio, I detect a certain headiness - a sense that something truly profound was unfolding. That may simply have been a reflection of my own naiveté. Or history may show that Rio was indeed a turning point - a watershed moment when nations came together in the recognition that only by acting together can they ensure the well-being of this planet and its people. I think many more years must pass before such judgments can be made. But a decade after Rio seems a fitting time both to reflect back and to look ahead. So to help set the stage for our discussions, I'd like to pose some questions: Ten years after nations first committed themselves to the fight against climate change, how far have we come? And more importantly, how do we go the next step?
These questions of course lead to other, more complicated questions - sensitive questions, ones we might rather not confront because we know they have no easy answers. But I believe this is a group uniquely qualified to take these questions on. I say this because the four countries represented here - China, Japan, Korea and the United States - are a remarkable microcosm of the national interests and the global forces that will continue to shape, or might continue to undermine, the international effort against climate change. In fact, it is hard for me to imagine four other countries that could better reflect the challenges and opportunities before us. We have represented here the world's two largest economies, and its two largest emitters of greenhouse gases. We have key countries from both the developed world and the developing world, and one that straddles the two. Together, our countries account for nearly half of carbon dioxide emissions worldwide. But in their circumstances, their needs, their preoccupations - and in their preparedness to act - they are all quite different. In bringing us together here, the Mansfield Center has provided a very unusual opportunity to explore the ways in which these unique interests intersect, the ways in which they collide, and hopefully, the ways in which they might one day converge.
So, as I asked a moment ago, how far have we come? I think it's fair to say that we have spent the decade since Rio struggling to take the first step - struggling to create a common framework to start industrialized countries on the path to emissions reduction. In just the past 18 months, that effort has met both its greatest success - and its greatest setback. The success was the completion of negotiations over the rules for implementing the Kyoto Protocol, which has allowed countries to proceed with ratification and will soon, hopefully, lead to Kyoto's entry into force. The setback, of course, was President Bush's rejection of the Protocol. So we are now on the verge of making the framework real - of bringing into force a treaty establishing the first binding international limits on greenhouse gas emissions - but the largest emitter has made clear it will not join.
With or without the United States, Kyoto is a profound accomplishment. It forges both a vision, and a formula, for transcending national interests for the sake of a common, global, long-term good. It sets ambitious goals. And rather than fight the market, it tries to tap the market, and motivate the market, so those goals can be reached as affordably as possible. But I think it is important that we be honest about Kyoto - about what it is and what it is not, what it achieves and what it does not. In part by design and in part by default, Kyoto can at best capture less than 40 percent of global emissions. And for that subset of emissions, it is difficult to say just how much of a reduction Kyoto will actually deliver - perhaps not much at all. Whatever the real number, it is certain to be just a fraction of the long-term reduction needed to meet the objective set 10 years ago in Rio: stabilizing greenhouse gas concentrations at levels that are safe.
This is not a criticism of Kyoto. Rather, it is meant to underscore that Kyoto is only a first stage in a very long-term effort. Anyone struggling with this issue understands that, of course. But in the drive to bring Kyoto to life, that at times has come to appear an end in itself. Now that it is within reach, it might help to view Kyoto a little more critically. Kyoto is a tool - a critical tool to get us through a critical stage - but it may be a tool that can take us only so far. Other nations have now come to terms with the fact that President Bush is not returning to the Kyoto Protocol. I think there is the very real possibility that the United States is never returning to Kyoto. To get to the next stage, I believe - to reengage the United States in the international effort, and to draw in the other major emitters whose participation will be critical to its success - we must build on Kyoto. But we also must look beyond it. The Protocol requires that negotiations for a second round of commitments begin by 2005. It may be a mistake to limit those negotiations to the Kyoto framework. To actually secure a new set of commitments, and to create a durable international approach to climate change, we may need a new framework.
So 10 years after Rio, we stand at another critical juncture, one that requires that we be nimble. We must at the same time embrace Kyoto and look beyond it. We must start to think post-Kyoto.
In a moment, I'd like to share some thoughts on the challenges we face in moving beyond Kyoto to build an even stronger framework for international action. First, though, I'd like to focus a little more closely on the situation here in the United States - because until the United States is prepared to act, no international effort can succeed. And I'd like to suggest that while the United States clearly has a very long way to go, it may in fact be further along than many of you realize.
Even if most have accepted that President Bush is not returning to Kyoto, many, I am sure, still have trouble comprehending why he rejected it in the first place. Let me offer two explanations. In a narrow sense, it was a simple case of interest group politics. The new administration - without closely analyzing Kyoto and the history behind it, without putting any real thought to alternatives, and without anticipating the international furor it would invite - renounced Kyoto in part to reward certain of its favored constituencies. In a broader sense, though, the rejection of Kyoto might also be seen as a necessary readjustment. There had evolved a fundamental disconnect in U.S. climate policy. Internationally, the Clinton administration supported a binding treaty, and in Kyoto it agreed to an ambitious target. But at home, the Senate had laid down terms that made Kyoto's ratification a remote possibility at best, and the administration was barely contemplating let alone promoting the kinds of measures needed to meet the Kyoto target. In other words, the United States was in no way prepared to deliver at home what it had promised abroad. Some kind of readjustment was due. Working with other countries to address U.S. concerns within the Kyoto framework might have been an option. But it was not the one the new President chose.
The domestic climate strategy outlined by President Bush in February is not a credible answer to Kyoto. It may help spur some voluntary efforts by industry to reduce emissions, particularly if it can ensure that those taking action now will be credited in a future climate regime. But the President's strategy relies exclusively on voluntary actions. And its goal - an 18 percent reduction in greenhouse gas intensity by 2012 - translates into a 12 percent increase in actual emissions. It is more or less business as usual.
But when you look past this administration and its policies - to what is happening in the states, in the business community, and in Congress - the picture begins to look somewhat brighter. Recently, for instance, New Hampshire became the third state to enact some form of mandatory carbon controls on power plants. Other states, like Texas, are requiring electric utilities to generate a share of their power from renewable sources. Others are investing in energy efficiency, carbon sequestration, and transportation improvements. In many cases, these efforts are not driven exclusively nor even primarily by climate concerns. But they are delivering real emission reductions, along with other benefits, like cleaner air and lower tax bills.
A growing number of companies are also taking steps to address climate change. At last count, we'd identified more than 40 major companies, most with significant operations in the United States, that have taken on some kind of greenhouse gas reduction target. BP has cut its emissions 10 percent below 1990 levels - eight years ahead of target - and now has pledged to keep them there for at least the next 10 years. Alcoa is aiming to reduce its emissions 25 percent below 1990 levels by 2010. DuPont is aiming for a 65 percent reduction. We recently completed a report looking at several companies with voluntary greenhouse gas targets. The companies cited several motivations for taking on a target. They believe the science of climate change is compelling. They know in time the public will demand strong climate protections, and they can get ahead of the curve by reducing their emissions now. They want to encourage government policies that will work well for business. The companies cited one other important motivation: To improve their competitive position in the marketplace. And that, in fact, has been the result. The companies are finding that reducing emissions also helps to improve operational efficiencies, reduce energy and production costs, and increase market share - all things that contribute to a healthier bottom line.
Important political shifts are also beginning. Just as President Bush's rejection of Kyoto helped galvanize international support for the Protocol, it helped elevate the issue of climate change in the U.S. media and in Congress. The heightened media sensitivity was very clear three weeks ago when the United States submitted its latest national communication under the Rio treaty to the United Nations. The report contained no new information, it outlined no new policy initiative, and there was no announcement. Nevertheless it was page-one news. In Congress, meanwhile, members of both parties suddenly seem eager to demonstrate their interest in climate protection. Nearly twice as many climate change bills were introduced in Congress over the past year as in the previous four years combined. The energy bill passed in April by the Senate includes two bipartisan climate provisions - one establishing a new office in the White House charged with developing a long-term climate strategy, the other establishing a system for tracking and reporting greenhouse gas emissions that is voluntary at first but after five years could become mandatory.
These are only modest first steps, and they have not yet passed the House of Representatives or been signed into law. But some lawmakers are already looking much further down the road. Senators John McCain and Joe Lieberman, a Republican and a Democrat, plan to introduce legislation later this year to cap greenhouse gas emissions in the United States and establish an economy-wide emissions trading system. It is, frankly, hard to imagine such legislation being enacted for some time, probably years. But the fact that it is even being drafted suggests that in Congress at least the climate issue is taking on a new potency.
So let us assume for the moment that Kyoto enters into force, countries do their best to implement it, and on a parallel track, the United States begins building a credible climate strategy. That may be too hopeful or not hopeful enough, depending on one's point of view. But let's assume it. What, then, is the next step? Against a backdrop of increased globalization, soaring demand for energy, and the ever-present need for economic security, what are the core challenges nations must confront if they are to craft a truly effective international regime? And given the disparate interests of nations like those represented in this room, how likely is it that we can muster the collective will that it will require?
The core challenges, I would suggest, are not new ones. They are the same ones that have loomed before us from the start. First there is the question of a goal. The only way to meet the objective set in Rio - stabilizing greenhouse gas concentrations at levels that are safe - is to reduce emissions. So wouldn't it make sense to define this objective more concretely - in other words, to set a specific concentration target - so we know just how much emissions must be cut? Perhaps. But we also have to ask: Is it practical? The process of translating broad objective into concrete target would be one fraught with uncertainties, laden with value judgments, and subject to extraordinary political pressures. Even if our understanding of the climate system were far more precise, the level of risk we are willing to accept is in the end more a question of values than science. And precisely because such a determination would frame the entire climate effort, the political and economic stakes would be profound. It is critical that we understand the various emission pathways that could achieve stabilization at given concentrations, and the climate impacts that could result from each. But how much expertise and scarce political capital can we afford to invest in establishing a specific concentration target? Might we do better by aiming for consensus on the overall direction and pace of our effort, and periodically readjusting as we learn more?
A second challenge is fairness. Climate change confronts us with deep inequities of many different kinds. These are captured, at least in part, with the observation that those bearing the least historical responsibility for climate change - the developing countries - are also those facing the worst consequences, and those least able to do something about it.
Given these inequities, the understanding since Rio has been that developed countries should act first. There has been no clear understanding about what would happen next. Nor as yet have there been any real hints that developing countries are closer to contemplating commitments of their own. That is not to say that developing countries are not acting. Many, in fact, are making impressive gains in reducing or avoiding greenhouse gas emissions. As with the very substantial reductions achieved in China in recent years, climate protection usually is not the objective but rather an added benefit of efforts to reform markets or improve local environments. Still, these successes demonstrate the strong synergies between climate protection and the overriding development priorities of developing countries. They should be recognized, not least by those who have achieved them, and they should be nurtured.
But it may be time to start moving the equity debate beyond the developed-developing country divide. And interestingly enough, the U.S. withdrawal may present an opportunity to do that. On one hand, by undermining the basic bargain struck in Rio, the U.S. withdrawal could make it harder to deepen the engagement of developing countries. On the other hand, it might recast the terms of debate. The question is no longer: What kind of commitments will developing countries take on, and when? Rather, the question is: How do we ensure that all major emitters do their fair share? Because I believe one thing is certain: Nations will not commit to a serious, long-term global plan against climate change, let alone abide by it, unless each perceives it to be fair.
A third challenge is ensuring that our efforts are as cost-effective as possible. Quite obviously cost has been a central concern, particularly for the United States, from the very start. It is reflected in the very architecture of Kyoto, with its various forms of emissions trading. And the major sticking points in negotiating Kyoto's implementation rules - whether to allow unfettered access to trading, for instance, or how much sinks credit countries could claim - revolved largely around questions of cost.
As we look beyond Kyoto, it is even more critical that we achieve the maximum environmental gain for every won, yen, yuan or dollar invested. Better mechanisms may be part of the answer. Experience with the trading systems now emerging will lend insight into how market forces can be better harnessed for the cause of climate protection. But affordability may depend just as much or more on questions like timing. Can we minimize cost by aiming for steeper reductions later rather than sooner? If so, how do we send a strong, early signal to the marketplace so companies begin investing now in the technologies that will be needed to deliver deep reductions decades down the road?
A fourth challenge is, perhaps, a way of restating the first three. It has to do with the nature of commitments under a future climate regime. Kyoto takes one approach: targets and timetables. But there are many types of targets - greenhouse gas intensity, for instance. Beyond the type of commitment is the question of who must take it on. The precedent for differentiated commitments is well established. But what is the most effective grouping? Must it simply be developed or developing? If instead, for instance, we were to focus on the 20 largest emitters - a list that includes 12 developed and 8 developing countries - we would capture nearly 80 percent of global emissions. The top ten gets you nearly two-thirds.
I have described these challenges in very abstract terms. Whether we meet them, of course, will depend on very concrete calculations by individual nations of their own self-interests. And each nation's calculation will depend, in turn, on what others are willing to do. We can see that kind of interdependence among the countries represented here. Japan is moving ahead with Kyoto despite the U.S. withdrawal, but with its economy still struggling could it commit to steeper cuts in the future if the United States, its chief trading partner and competitor, is still out? How much further would Japan and the United States need to move, and how much assistance would they have to offer, before China would contemplate constraints on its own emissions? Might China's reluctance make it easier for Korea to capitalize on the emerging greenhouse gas market? In the long run, we all share a common interest in ensuring a safe and stable climate. The question is whether we can arrive at a set of reciprocal arrangements that aligns this common interest with the self-interests of nations that are so very different - and whether we can do it before it is too late.
I believe this is a fragile moment. It is clearer now than ever that we have put our climate at risk, and with it the well-being of future generations. I believe it is also clearer than ever that by addressing climate change we can help ensure a more sustainable future for all countries. Ten years after Rio, we can claim at least some measure of progress. We can justly celebrate Kyoto as a critical first step. But our efforts have begun to diverge, and we must find a way to draw them together, and to strengthen them. As we move forward, we should borrow all we can from Kyoto, because there is much of value there. But if we are to build a framework that is truly global in reach, and durable enough to guide our efforts in the decades to come, we must also look beyond Kyoto. It is best if we start now.
Again, I'd like to thank our hosts for the opportunity to contribute to this critical dialogue. And I'd like to thank you for listening.
By Eileen Claussen
The New York Times
June 7, 2002
In its business-as-usual approach to climate change, the Bush administration is increasingly out of step not only with other industrialized powers, but also with the growing support in this country for action to prevent global warming. The administration's oddly two-sided report last week to the United Nations brings the White House into the scientific mainstream on the subject - acknowledging that human activity is probably the cause of global warming and that America itself faces serious consequences - but at the same time lays out a strategy ensuring that American emissions of greenhouse gases will continue rising sharply for at least a decade.
Last week the European Union and its 15 member states completed en masse their ratification of the emissions-limiting treaty that President Bush has rejected, the Kyoto Protocol. This week Japan followed suit. Russia expects to ratify by the end of the year, meaning only one or two smaller countries would be needed to put the treaty into effect. (Ratifying countries must account for at least 55 percent of developed country emissions in 1990.)
The administration is also ignoring a growing domestic recognition of the need to act. Persuaded that the risks of climate change are real and that restraints on emissions are inevitable, many American companies are working on carbon reduction. To be sure, many others, especially in the energy and oil businesses, are strongly resistant. But dozens of major corporations like Alcoa, DuPont and Intel are among those setting their own targets for lower emissions. For many, there are financial payoffs, too - improved efficiencies, lower costs and increased sales of energy-saving products.
State governments are also moving ahead. New Hampshire recently became the third state to adopt mandatory controls on carbon emissions from power plants. New Jersey is aiming to reduce statewide emissions by 3.5 percent from 1990 levels in the years before 2005. All six New England states, in a compact with five Eastern Canadian provinces, have pledged to reduce their emissions to 10 percent below 1990 levels by 2020.
Even in Congress, the tide is beginning to turn. Twice as many climate change measures were introduced in the past year as in the previous four years combined, many with strong support from both Democrats and Republicans.
Scientists project that a century's worth of greenhouse gas releases, mostly from burning fossil fuels, have already bought us a few degrees of warming in the decades ahead. The challenge is heading off further warming by gradually weaning ourselves from fossil fuels. This transition to a low-carbon economy will require a new industrial revolution.
We must look to the marketplace to carry it out. Only the market can mobilize the ingenuity, investment and productive capacity needed to develop and disperse new technologies on such a large scale. But the marketplace will deliver only if it perceives a demand, and providing that demand is a role for government.
A modest but logical first step in the U.S. is a measure passed unanimously by the Senate in April encouraging companies to disclose their greenhouse gas emissions voluntarily. If after five years less than 60 percent of emissions are being reported to the public, the measure would change this voluntary reporting system to a mandatory one. A similar approach helped dramatically reduce toxic air and water pollution nationwide. This legislation should be accepted by the House and signed by the president.
Ultimately, though, the market must be driven by policies that set realistic, binding targets for reducing emissions and give companies the flexibility to achieve them as affordably as possible. The Bush administration's own report shows the danger in its remaining stubbornly out of step. The longer the United States waits, the graver the risks - and the cost of averting them.
Eileen Claussen is president of the Pew Center on Global Climate Change.
© 2002 The New York Times Company
Remarks of Elliot Diringer
Pew Center on Global Climate Change
"Climate Change: What Can Be Done?"
I would like to thank our hosts the opportunity to speak here today. This is my first trip to Wilton Park, and it's truly an honor to partake of your traditions. I will do my best to uphold them.
Next month marks an important anniversary: It will be 10 years since the Rio Earth Summit and the launch of the international effort against climate change. I attended Rio as a reporter. I recall long, exhausting days criss-crossing the conference center to dutifully witness official proceedings and pronouncements, all the while trolling for hallway chit-chat that often proved be the better story, then frantically typing up dispatches for my readers in San Francisco. Those of you who were also there will recall much talk of the spirit of Rio. Le me tell you the source of my Rio spirit. The Brazilian coffee industry had set up a booth, very strategically located, where all day long they handed out tiny cups of the strongest coffee I'd ever had. Every time I passed the booth, I'd grab another shot. To this day, I remain indebted to the coffee growers of Brazil.
Now back in my days in journalism, we had a real fondness for anniversaries. On the anniversary of a particularly notable event - an earthquake, let's say - we'd like to look back and assess. How had it changed people's lives? Were the authorities doing all they should to rebuild and help victims recover? Were we better prepared for the next big one? We'd call it the "one-year-later" story. Sometimes, for a really big event, we might do a "five-years-later" story. Today I'd like to offer you a "ten-years-later" story. Ten years after the nations of the world committed themselves to the fight against climate change, how far have we come? And more importantly, how do we go the next step? Of course, when I was a reporter, I got to think up the tough questions, then stick them to somebody else to answer. I can no longer get away with that. Having posed the questions, I must venture at least some semblance of a response. And worse yet, when I'm done, you get to ask questions. I just hope you're prepared to accept a "no comment."
So how far have we come? We have spent the decade since Rio struggling to take the first step - struggling to create a common framework that would start industrialized countries on the path to emissions reduction. In just the past 18 months, that effort has met both its greatest success - and its greatest setback. The success was the completion of negotiations over the rules for implementing the Kyoto Protocol. The setback, of course, was President Bush's flat-out rejection of the Protocol. So now that we are on the verge of making the framework real - of bringing into force a treaty establishing the first binding international limits on greenhouse gas emissions - the largest emitter refuses to go along. We begin the second decade of this effort with the United States and the rest of the industrialized world on two separate paths.
With or without the United States, Kyoto is a profound accomplishment. It forges both a vision, and a formula, for transcending national interests for the sake of a common, global, long-term good. It sets ambitious goals. And rather than fight the market, it tries to tap the market, and motivate the market, so those goals can be reached as affordably as possible. Much credit is due the European community for now embracing market approaches that just a few years ago were viewed with such deep suspicion. It is critical now that Kyoto enter into force, and I would say that at the moment the prospects appear good. It is critical as well that parties actually implement it - that they demonstrate it can be done.
At the same time I think it is important that we be honest about Kyoto - about what it is and what it is not, what it gets us and what it does not. And to do that, we must remind ourselves of the goal established in Rio: stabilizing greenhouse gas concentrations at a level that prevents dangerous anthropogenic interference with the climate system. No one can tell us with any certainty just what that level might be - a question I'll come back to later. But what is clear is that the emission reductions we need to achieve over the long term exceed by many magnitudes the reductions that might be achieved under Kyoto.
I say "might" because we really don't know how much of a reduction Kyoto will deliver. Without the United States, Kyoto addresses less than 40 percent of global emissions, and that assumes all other industrialized countries do ratify. And for that subset of emissions, it only begins to move countries down the path of emissions reduction. This is not meant as a criticism of Kyoto. Rather, it is meant to underscore that Kyoto is only a stage - a first stage - in a very long-term effort.
Of course, anyone struggling with this issue understands that. But in the drive to bring Kyoto to life, that at times has come to appear an end in itself. By necessity, Kyoto has become something of a holy grail. Now that it is within reach, I'd like to suggest it is time we start viewing it less as an icon and more as a tool - a critical tool to get us through a critical stage - but in the end, just a tool. Many in Europe have now come to terms with the fact that President Bush is not returning to the Kyoto Protocol. I think we all should contemplate the possibility - the very real possibility - that the United States is never returning to Kyoto. Clearly, the international effort against climate change can not succeed unless the United States in time becomes a full partner. But I suspect that when that time comes, the U.S. will be signing on to something that looks very different than the Kyoto Protocol.
So as we approach the tenth anniversary of Rio, we stand at another critical juncture, one that requires that we be nimble. We must at the same time embrace Kyoto and look beyond it. We must start to think post-Kyoto.
One way to begin is to ask: What will it take to get the United States back in? Certainly, that concern will and must play heavily in any effort to move the climate regime beyond Kyoto. And I'd like to offer some perspective on the prospects for stronger action in the United States. But in truth, I don't believe the best way to begin charting a path beyond Kyoto is by asking what will entice the U.S. back in. And that is because the challenges we face in constructing an effective global regime are really no different whether the U.S. is in Kyoto or it is not. They are the core challenges that have loomed before us from the start: How we define a safe level of greenhouse gas concentrations. How we launch the technological revolution it will take to achieve the reductions we need. How we ensure that all the major emitters shoulder their fair share of this effort. When we arrive at reasonable answers to those questions, I believe we will at the same time have answered the needs of the United States. So after focusing a bit on the situation in the U.S., I'd like to come back to those core questions, and at least sketch out some thoughts on how we might begin to approach them.
I know that to many on this side of the Atlantic, the U.S. attitude on climate change is not merely aggravating; it is inexplicable. I said earlier that Europeans had come to accept that President Bush is not returning to Kyoto. But many still have trouble comprehending, I am sure, why he rejected it in the first place. Let me offer two explanations. In a narrow sense, the U.S. rejection of Kyoto was a function of pure interest group politics. The new administration - without closely analyzing Kyoto and the history behind it, without putting any real thought to alternatives, and without anticipating the international furor it would invite - renounced Kyoto in part to reward certain of its favored constituencies.
In a broader sense, though, the rejection of Kyoto might also be seen as a necessary readjustment. There had evolved a fundamental disconnect in U.S. climate policy. Internationally, the Clinton administration supported a binding treaty, and in Kyoto it agreed to an ambitious target. But at home, the Senate had laid down terms that made Kyoto's ratification a remote possibility at best, and the administration was barely contemplating let alone promoting the kinds of measures needed to meet the Kyoto target. In other words, the United States was in no way prepared to deliver at home what it had promised abroad. Some kind of readjustment was due. A mid-course correction in U.S. policy might have sufficed. Instead, the new president chose an abrupt about-face.
It may not be readily apparent, but interestingly enough, the United States may well be further along now in addressing climate than ever before. To be sure, the new climate strategy outlined by the president earlier this year will not take us far. One encouraging element is a pledge that companies voluntarily reducing their emissions will receive some assurance that their efforts will be recognized in a future climate regime. But the President's strategy relies exclusively on voluntary approaches, and its goal - an 18 percent reduction in greenhouse gas intensity by 2012 - translates into a 12 percent increase in actual emissions. It is more or less business as usual.
But when you look past this administration and its policies - to what is happening in the states, in the business community, and in Congress - the picture looks somewhat brighter. Last month, for instance, New Hampshire became the third state to enact some form of mandatory carbon controls on power plants. Other states, like Texas, are requiring electric utilities to generate a share of their power from renewable sources. Others are investing in energy efficiency, carbon sequestration, and transportation improvements. In many cases, these efforts are not driven exclusively nor even primarily by climate concerns. But they are delivering real emission reductions, along with a host of other benefits, like cleaner air and lower tax bills.
A growing number of companies are also taking steps to address climate change. At last count, we'd identified more than 40 major companies, most with significant operations in the United States, that have taken on some kind of greenhouse gas reduction target. Many of you, I am sure, are aware that BP has already cut its emissions 10 percent below 1990 levels, eight years ahead of target, and now has pledged to keep them there for at least the next 10 years. Some other examples: Alcoa is aiming to reduce its emissions 25 percent below 1990 levels by 2010. DuPont is aiming for a 65 percent reduction. IBM has set targets for both emissions and energy efficiency, and has pledged that virtually every one of its new products will earn the government's highest energy efficiency rating.
We recently completed a report taking a closer look at several companies with voluntary greenhouse gas targets. The companies cited a variety of motivations for taking on a target. They believe the science of climate change is compelling, and in time the public will demand strong climate protections. They want to get ahead of the curve by reducing their emissions. They want to encourage government policies that will work well for business. And they all cited one other important motivation: to improve their competitive position in the marketplace. That, in fact, has been the result. The companies are finding that their efforts to reduce emissions are helping to improve operational efficiencies, reduce energy and production costs, and increase market share - all things that contribute to a healthier bottom line.
Important political shifts are underway as well. Just as President Bush's rejection of Kyoto helped galvanize international support for the Protocol, it helped elevate the issue of climate change in the U.S. media and in Congress. All of a sudden, it seems, members of both parties are eager to demonstrate their commitment to protecting the climate. Nearly twice as many climate change bills were introduced in Congress over the past year as in the previous four years combined. The energy bill passed last month by the Senate includes two bipartisan climate provisions. One would establish a new office in the White House charged with developing a strategy to achieve safe levels of greenhouse gas concentrations in the atmosphere. The other would establish a voluntary system for tracking and reporting greenhouse gas emissions. If after five years less than 60 percent of the nation's emissions are registered in this new inventory, reporting by major emitters would then become mandatory.
These are only first steps, and they have not yet passed the House or been signed into law. But some lawmakers are already looking much further down the road. Senators John McCain and Joe Lieberman, a Republican and a Democrat, plan to introduce a bill later this year to cap greenhouse gas emissions in the United States and establish an economy-wide emissions trading system. It is, frankly, hard to imagine such legislation being enacted for some time, probably years. But the fact that it is even being drafted is a sign that Congress at least is awakening to the need for the United States to meet its responsibilities on climate change.
So let's assume for the moment that Kyoto enters into force, countries do their best to implement it, and on a parallel track, the United States begins building a credible climate strategy. That may be too hopeful, or not hopeful enough, depending on your point of view. But let's assume it. What, then, are the challenges we face in going the next step? What are the core challenges nations must confront if they are to craft a truly effective international response to climate change?
I'd like to suggest four. There are many more, of course, and even with the four I'd like to suggest, it's sometimes hard to know where one stops and the next one begins. But I believe each represents a unique and important dimension, and each must be resolved if we are to move forward.
The first is the question of a goal. As I said earlier, the ultimate objective set in Rio is to stabilize of greenhouse gas concentrations at a level that prevents dangerous anthropogenic interference with the climate system. The only way to meet that objective is to reduce emissions. So, wouldn't it make sense to define it more concretely - in other words, to set a specific concentration target - so we will know just how much emissions must be cut? I for one think it does make sense. But we also have to ask: is it practical? The process of translating broad objective into concrete target would be one fraught with uncertainties, laden with value judgments, and subject to extraordinary political pressures. Even if our understanding of the climate system were far more precise, the level of risk we as a society are willing to accept is in the end more a question of values than of science. And precisely because such a determination would frame the entire climate effort, the political and economic stakes would be profound.
It is absolutely critical that we better understand the various emission pathways that could achieve stabilization at given concentrations, and the climate impacts that could result from each. But how much expertise and scarce political capital should we invest in establishing a specific concentration target? Might it not be better to aim for consensus on the overall direction and pace of our effort, and periodically readjust as we learn more?
A second challenge is fairness. Climate change confronts us with deep inequities of many different kinds. These are captured, at least in part, with the observation that those bearing the least historical responsibility for climate change - the developing countries - are also those facing the worst consequences, and those least able to do something about it.
Given these inequities, the understanding since Rio has been that developed countries should act first. There has been no clear understanding about what would happen next. Nor as yet have there been any real hints that developing countries are any closer to contemplating commitments of their own. That is not to say that developing countries are not acting. Many, in fact, are making impressive gains in reducing or avoiding greenhouse gas emissions. In most cases, climate protection is not the objective but rather an added benefit of efforts to reform markets or improve local environments. Still, these successes help demonstrate the strong synergies between climate protection and the overriding development priorities of developing countries. These efforts should be recognized and they should be nurtured.
But it may also be time to move the equity debate beyond the developed-developing country divide. And the U.S. withdrawal, curiously enough, may present an opportunity to do that. On the one hand, by undermining the basic [bargain] struck in Rio, the U.S. withdrawal could make it harder to deepen the engagement of developing countries. On the other hand, it recasts the terms of debate. The question is no longer: How do we get developing countries to take on commitments? Rather, it is: How do we ensure that all major emitters do their fair share? Because I believe one thing is certain: Nations will not commit to a serious, long-term global plan against climate change, let alone abide by it, unless each perceives it to be fair.
A third challenge is ensuring that we do whatever we do as cost-effectively as we can. Quite obviously cost has been a central concern, particularly for the United States, from the very start. It is reflected in the very architecture of Kyoto, with its various forms of emissions trading. And the major sticking points in negotiating Kyoto's implementation rules - whether to allow unfettered access to trading, for instance, or how much sinks credit countries could claim - revolved largely around questions of cost.
As we look beyond Kyoto, getting the maximum environmental gain for every dollar, pound, or euro invested becomes even more critical. To build political support for steeper cuts in emissions, it will be necessary to demonstrate that they can be achieved without wreaking economic havoc. Better mechanisms may be part of the answer. Experience with the trading systems now emerging will no doubt lend insight into how market forces can be better harnessed for the cause of climate protection. But affordability will depend just as much or more on questions like timing. For instance, how do you send a strong, early signal to the marketplace - so companies begin investing now in the technologies that will deliver deep reductions decades down the road - without setting overly ambitious targets that force the costly turnover of capital stock before it is really necessary? Is the answer to set an upper limit on cost, compromising on environmental integrity for the sake of economic certainty? Or is there a way we can ensure both?
The fourth challenge is, perhaps, a way of restating the first three. It has to do with the nature of commitments under a future climate regime. Kyoto takes one approach: targets and timetables. But there are many types of targets. President Bush chose a greenhouse gas intensity target, measuring emissions against GDP, an approach he suggested might work well for developing countries. How might other indicators work? Alternatively, must the commitment take the form of a constraint on emissions? Or might countries more readily agree to a positive set of requirements - not a fully harmonized list of specific measures that all countries must implement, but a broader set of policy mandates, for instance phasing out fossil fuel subsidies?
Beyond the type of commitment is the question of who must take it on. The precedent for differentiated commitments is well established. But what is the proper grouping? Must it simply be developed, developing, or both? If we instead start with the 20 largest emitters - a list that includes 12 developed and 8 developing countries - we would capture nearly 80 percent of global emissions. The top ten gets you nearly two-thirds.
As I hope you can tell, my intent is not to advocate any one approach, but rather to suggest that we must think openly and creatively about the possibilities. What set of reciprocal arrangements can create incentives strong enough to induce countries first to join an effective climate regime, and second to comply with it?
Under Kyoto, negotiations for a second round of commitments must begin by 2005. But it may be a mistake to limit those negotiations to the Kyoto framework. To actually secure a new set of commitments, and to create a durable international approach to climate change, we may need to construct a new framework. Certainly, we should borrow all we can from Kyoto, because there is much of value there. But we must also look beyond Kyoto, and it's best if we start now.
I've asked many questions. Now, I believe, it is your turn. Thank you for listening.
Transportation in Developing Countries: An Overview of Greenhouse Gas Reduction Strategies
Prepared for the Pew Center on Global Climate Change
Daniel Sperling and Deborah Salon, University of California, Davis
Eileen Claussen, President, Pew Center on Global Climate Change
This report focuses on transportation in developing countries, where economic and social development not climate change mitigation are the top priorities. Yet decisions on infrastructure, vehicle and fuel technologies, and transportation mode mix are being made now that will significantly affect greenhouse gas (GHG) emissions for decades. The key is to identify strategies that address high-priority local issues while also reducing GHGs. There are many such options but no one-size-fits-all approach. Thus building the capacity of local institutions is especially critical.
Vehicle ownership rates in developing nations are low compared to wealthy ones, but lead to far worse traffic congestion and air pollution. Motorization is skyrocketing and populations increasing, stretching limited infrastructure and institutional capacity. Despite these challenges, there are many opportunities for improvement. Some have worked in the past; others could leapfrog over some of the costly and environmentally damaging paths taken by developed countries.
This overview is part of a five-report series on transportation in developing countries and draws on the four other reports on specific cities and countries. The case studies were researched and co-authored with experts from Chile, China, India, and South Africa, and estimated high and low projections of transportation emissions in 2020 compared to 2000. The case studies key findings include:
- Rapid growth in transportation GHG emissions is unavoidable in most developing countries. The 2020 low emission scenarios in the four case studies showed only one decrease 12 percent in South Africa and up to a quadrupling in Shanghai, China. The high scenarios ranged from an 82 percent increase in South Africa to a sevenfold increase in Shanghai.
- Delhi, India. Delhi demonstrates that personal mobility can be achieved at relatively low incomes but at a high economic, environmental, and social cost. With an average income of $800 per capita, Delhi has 200 motor vehicles (mostly motorbikes) per thousand people while Chile has an average income of $5,000 and only 100 motor vehicles per thousand (mostly cars). Delhis promotion of more efficient vehicle engines will go a long way in restraining emissions.
- Shanghai, China. After years of deferred investment, Shanghai invested billions in its transportation infrastructure in the 1990s, balancing investments in roads and transit, integrating transportation and land use planning, and restraining vehicle ownership. But rapid economic growth, planned decentralization of this very dense city, and auto industry promotion will accelerate increases in motorization, energy use, and GHGs. Intelligent transportation systems and leapfrog technologies such as roads built for minicars are among Shanghai's options to restrain its emissions.
- Chile. Chile is one of the world's most sophisticated at transferring transportation infrastructure and services provision to the private sector and could pioneer market-based approaches to transportation and environmental challenges. Examples include the sale of operating concessions, implementing vehicle fees during rush hour travel, and adjusting parking fees according to trip purpose and length of stay.
- South Africa. South Africa has very high per capita vehicle ownership and GHG emissions for its income due to reliance on carbon-intensive synthetic fuels, protected vehicle manufacturing, subsidies for company cars, and land use patterns that are a legacy of the country's past apartheid policies.
The Clean Development Mechanism could be used to finance climate-friendly improvements such as switching to less carbon-intensive feedstock in synthetic fuel production. The Pew Center gratefully acknowledges Ralph Gakenheimer of MIT and Michael Walsh, an independent transportation expert, for their reviews of earlier drafts.
Worldwide, greenhouse gas emissions are rising faster in transportation than in any other sector. Rapid motorization - more cars and trucks - is the principal cause. This report focuses on the challenges faced by developing countries in accommodating and managing motorization and the demand for improved transportation.
Enhanced mobility has many positive effects on economic development and social welfare, including more efficient movement of goods and improved access to jobs, health services, and education. However, if enhanced mobility is achieved primarily through increased reliance on conventional private cars, it can mean diverting substantial financial resources to roads and suffering worse air pollution and traffic congestion. The benefits are enormous, but the costs can also be substantial. These positives and negatives are accentuated in the developing nations of Africa, Asia, and Latin America. Most are experiencing rapid population growth and urbanization, and many have fast-growing economies. The number of private vehicles is increasing in almost all developing countries.
The challenges posed by motorization are unprecedented for these countries. When the more developed countries were building their transportation infrastructure, their populations were small compared to those in much of today's developing world, and the cost of motorized vehicles was relatively high. Today's megacities of the developing world are already huge and still expanding. There is little time or money to build public transportation systems or to expand roads to handle the new traffic. They are already experiencing serious congestion, economic and environmental damage, and major safety problems. Yet the problems are not uniform; each city and country faces different circumstances.
This report provides a broad characterization of transportation in developing countries, identifying common challenges and opportunities for policymakers, and suggesting policy options that aim to slow the growth of greenhouse gas emissions from the transportation sector. The most important observations of this report are the following:
- Rapid motorization - and rapid growth in transportation-related greenhouse gas emissions - are unavoidable in most developing nations. Most developing countries today have low per capita transportation emissions, largely because few people have access to personal transportation. Rapid motorization is transforming transportation and accelerating increases in greenhouse gas emissions.
- The relationship between car ownership and income is not fixed. While it is true that income is the primary force of motorization - explaining perhaps half the growth in vehicle ownership - there is much variation in vehicle ownership among cities and countries at similar income levels.
- Once people have personal vehicles, they use them even if alternative transportation modes are available. This is because the variable cost of operating a vehicle is relatively low compared to the fixed cost of purchasing one.
- There are many sensible policies and strategies that would slow the growth of transportation sector greenhouse gas emissions. Key strategies include increasing the relative cost of using conventional private cars and enhancing the quality and choices of alternative transportation modes.
- Many of the strategies for slowing and eventually reducing greenhouse gas emissions from transportation have local as well as global benefits. Local benefits include reduced air pollution, less traffic congestion, and lower expenditures for road infrastructure.
This report explores strategic paths and alternative futures that could break the link between economic and greenhouse gas emission growth in developing countries. Successful efforts underway in some developing countries - examples of which are highlighted in some of the case study reports that contributed to this overview - demonstrate that developing countries can forge a more sustainable transportation future. Is there a single city that can be looked to as a model for others? This report suggests that the answer is no. There are cities and countries that have embraced innovative and effective strategies, but none represents a universally applicable model or pathway.
Energy use and carbon emissions around the globe are increasing faster in transportation than in any other sector, and transportation emissions are increasing fastest of all in developing countries. This report does not suggest that developing nations should adopt entirely different transportation systems than currently operate in more developed countries. There is no perfect solution or leapfrog technology at hand. The reality is that most transportation modes and technologies are already being used internationally. The fundamental desire for personal transportation, and for greater mobility at lower cost, is universal. It is neither realistic nor fair to ask those in the developing world to deprive themselves of the things they need and want, from meeting their basic transportation needs to having access to cars.
Instead, this report suggests that developing countries can choose a more sustainable growth path. They can learn from the experiences of industrialized countries in crafting integrated land use and transportation plans, encouraging more efficient forms of vehicle ownership and use, and accelerating the introduction of environmentally sensible vehicle technologies and fuels. Indeed, as a 1996 U.S. National Academy of Sciences report concluded, greater reliance on nonpolluting modes of transportation in developing-country cities, coupled with the strong integration of residential and economic activities, suggests those cities may be in a position to avoid some of the most costly mistakes of transportation investment in the industrialized countries.1
However, the economies and populations of many of these cities are growing at unprecedented rates and personal vehicles are often available to people with very low incomes. Policy and investment decisions with far-reaching implications must be made quickly, or the consequences could be catastrophic economically, environmentally, and socially. But even with the greatest sophistication and best managers, the choices are not obvious. Simply replicating the choices of other cities in most cases would be ineffective. The elements of a successful transportation strategy are likely to vary greatly depending on local circumstances and institutional strengths and weaknesses.
Without new measures, greenhouse gas emissions from transportation in the developing world will exceed those in the industrialized world sometime after 2010. While the need to limit greenhouse gas emissions may not be a driving force for developing countries in the foreseeable future, many of the strategies that could reduce greenhouse gas emissions would also address the more immediate problems of local air pollution, access to basic transportation, and infrastructure financing pressures. This report focuses on strategies and policies that not only slow the growth of greenhouse gas emissions, but also help achieve local priorities.
About the Author
Dr. Daniel Sperling
Daniel Sperling is Professor of Civil Engineering and Environmental Science and Policy, founding Director of the Institute of Transportation Studies (ITS-Davis) at the University of California, Davis, and co-director of UC Davis's Fuel Cell Vehicle Center and New Mobility Center.
Dr. Sperling is Associate Editor of Transportation Research D (Environment), founding chair of the Alternative Transportation Fuels Committee (1989-96) of the U.S. Transportation Research Board, a recent member of the U.S. National Academy of Sciences committees on Personal Transport in China (2000-02), and serves on other advisory committees and Boards of Directors for similar organizations. Recognized as a leading international expert on transportation technology assessment, energy and environmental aspects of transportation, and transportation policy, he consults for international automotive and energy companies, major environmental groups, and several national governments. He has testified numerous times to the U.S. Congress and various government agencies.
Dr. Sperling earned his Ph.D. in Transportation Engineering from the University of California, Berkeley (with minors in Economics and Energy Resources). During 1999-2000, he was a visiting scholar at the OECD (European Conference of Ministers of Transport). He has won numerous awards, and worked as an urban planner in the Peace Corps in Honduras.
This working paper identifies potential scenarios for the linkage of U.S. and international climate strategies; describes how emerging national and international emissions trading regimes will shape the context within which such linkages could take place; and examines issues that must be considered in the design of a U.S. climate strategy to ensure its compatibility with an international regime.
Among the key findings:
The United States could, as a legal matter, decide to recognize Kyoto permits for purposes of compliance with U.S. emission reduction targets without needing the permission of the Kyoto Protocol parties (for example, via an amendment) and even if the two systems were not fully compatible.
Sales of non-Kyoto emissions permits to the Kyoto system would require an amendment to the Protocol, which parties would be unlikely to consider unless they believed that the U.S. and Kyoto trading systems were generally compatible.
In the long term, the more compatible U.S. and international climate policies are, the easier it will be to achieve convergence both politically and legally. Conversely, given the significant inertia in political and economic systems, the further U.S. and international climate policies travel down divergent roads, the more difficult it will be to bring them back together again in the future.
by: Daniel Bodansky, University of Washington
Keynote Address By Eileen Claussen, President
Pew Center On Global Climate Change
Environmental Horizons 2002 Conference
University of Illinois at Urbana-Champaign
April 1, 2002
Thank you very much. It is a pleasure to be here for Environmental Horizons 2002. I'd like to commend everyone involved with the University's Environmental Council for putting together such an inspiring and informative program.
There's just one thing missing from the program - an awards ceremony. So I thought I'd begin my remarks today by handing out a few honors. Actually, I was inspired by last week's Academy Awards. I got to thinking about some of the recent developments in Washington on the issue of climate change, and wondered what kind of Oscars I would award to some of the key players. And here's what I decided.
First, I would have to say that the award for best performance in a non-supporting role goes to the U.S. Senate for refusing once again to deal head-on with the question of fuel efficiency standards for American cars and trucks. There's always a lot of tough competition in this category, but this year, the Senate won it hands down.
Next, the award for the best misdirection, and the clear winner this year is the Bush White House for its new climate policy. The Administration did its best to make the policy look meaningful and serious, but anyone who's seen the uncut version knows, unfortunately, that it is not.
Finally, I'd like to offer a special posthumous award to the Clinton administration. For talking big about climate change on the international stage but doing next to nothing about it at home, I present the Clinton White House with the award for best costumes.
In all seriousness, I'm here today to talk about the challenge of global climate change. I believe this is one of the most profound challenges of our time, and I believe it is a challenge that can be met. But it will not be met easily. Because the causes and consequences of global warming cut across every nation, every sector, and every community around the world. And an effective response to global warming requires action in every nation, every sector, and every community around the world. What is needed, in short, is a fundamental transformation in the way we power our global economy. We must, over the next several decades, make the leap from a fossil fuel-based economy to one that runs on clean energy. I'd like to talk today about how to make that happen. And I'd like to talk about the powerful forces that must be brought to bear - the force of technology, the force of the marketplace, the force of government, and finally, the force of individuals and communities around the globe.
Let me begin, though, with the force of science. With this issue, science is always the best place to start because our efforts must rely on the best science possible. So what does the science tell us? First, it tells us that the earth is indeed getting warmer. The 1990s were the hottest decade of the entire millennium, and 1997, '98, and '99 were three of the hottest years on record. Second, this warming trend is almost certain to accelerate. Scientists project an average global increase of two to ten degrees Fahrenheit over the next century - the largest swing in global temperature since the end of the last ice age 12,000 years ago. Third, and perhaps most importantly, the evidence strongly suggests that human activities, in particular the burning of fossil fuels, are largely to blame.
You can find scientists who will dispute these findings. But these three broad conclusions - the earth is warming, this warming trend will worsen, and human activity is largely responsible - represent the overwhelming consensus of the scientific community. They are among the key findings of the Intergovernmental Panel on Climate Change, a U.N. body that draws on the expertise of hundreds of climate scientists around the world. And they were confirmed by a special panel of the National Academy of Sciences asked by President Bush to review the state of climate science.
What, then, does the science tell us about the potential impact of this warming? Put another way, what kind of future are we creating for our children and grandchildren? Some people like to see the bright side of global warming. Lower heating bills in winter, for instance, and longer growing seasons here in the Midwest. But there's good reason to believe that any potential benefits will be far outweighed by the costs.
Rising sea levels will flood coastal areas - a very real worry along portions of the U.S. coastline but a much greater worry for low-lying countries like the Netherlands and Bangladesh. In summer, higher temperatures will mean a greater risk of deadly heat waves. By 2100, for instance, the people of Chicago may be 25 times more likely to endure three straight days of 100-degree heat. Higher temperatures will also mean an increase in extreme weather-more flooding, more drought, and more severe storms. Rain and snowfall patterns will be disrupted, putting water supplies at risk. The Great Lakes are projected to drop 4 to 5 feet over the next 100 years, threatening irrigation supplies for farmers. And the lakes could be 5 degrees warmer, threatening the survival of native species like rainbow trout. Indeed, in the long run, the greatest risk may be the steady unraveling of ecosystems, the support systems for all life on earth.
There are, of course, uncertainties in the science, particularly when it comes to projecting the magnitude and timing of the kinds of impacts I've just described. But these uncertainties cut both ways. Yes, it's possible that the impacts of global warming won't be as bad as we now project. But it's just as likely they will be worse. For instance, most of our computer modeling assumes a linear relationship between rising temperatures and impacts: as the planet warms, the impacts grow worse, proportionately. But many scientists worry about the potential for a non-linear, or catastrophic, event. Last week, scientists reported the sudden breakup of an Antarctic ice shelf the size of Rhode Island. That same kind of event on a much larger scale - for instance, the collapse of the West Antarctic ice sheet - could trigger a catastrophic rise in sea level well beyond what is ordinarily predicted. So, for me, uncertainty in the science is hardly a reason to delay action. Quite the contrary - it's a reason to act now.
What kind of action must we take? For the moment, let's stick with the science. The earth is warming because we are adding carbon dioxide and other greenhouse gases to the atmosphere. Right now, there is about 40 percent more carbon dioxide in the atmosphere than there was at the dawn of the Industrial Revolution. If we continue with business as usual, CO2 levels will be twice the pre-industrial level by the middle of this century. This doubling of CO2 concentrations is the scenario most scientists have relied on in projecting the likely impacts of global warming. But what is now becoming clear is that it will be extraordinarily difficult, if not impossible, to stabilize concentrations at this level anytime within this century. Indeed, it now seems likely that by 2100 greenhouse gas concentrations will be approaching three times the pre-industrial levels. And that suggests that we may well face consequences more severe than those already projected.
Our goal, ultimately, must be to stabilize greenhouse gas concentrations in the atmosphere at levels that are reasonably safe. There is no consensus at the moment on what those levels might be. And this is not a question science can answer for us. The level of risk we as a society are willing to accept is, in the end, more a matter of values. But scientists generally agree that to stabilize concentrations at any reasonably safe level we must over time reduce our emissions of greenhouse gases 50 to 80 percent from current levels. Let me repeat that: we must reduce emissions of greenhouse gases 50 to 80 percent from current levels. Since emissions worldwide are now rising, and are certain to continue rising for some time to come, we clearly have a very long way to go.
How do we get there? What it is going to take, I believe, is nothing short of a new industrial revolution. As I said earlier, meeting the challenge of climate change requires a fundamental transformation in the way we power our economy. We must steadily reduce our reliance on coal and oil - the principal sources of the greenhouse gases we are putting into the atmosphere. And we must make the transition to clean sources of energy that can keep the global economy healthy, and keep it growing, without endangering the global environment. Industrial societies have been through major energy transitions before - we've gone from wood to coal, and from coal to oil. But unlike past transitions, we can't afford to wait for this one to happen on its own. We must make it happen. We must bring to bear the forces necessary to mount this new industrial revolution.
First is the force of technology - or, more accurately, the force of many new technologies. There is no silver bullet. Our ultimate success against climate change hinges on the development and deployment of a vast array of technologies that dramatically reduce the carbon intensity of our economy. Technologies that change how we produce electricity, how we move from place to place, how we farm and manage our forests, how we manufacture products - even how we build and manage our buildings. And the technologies that will enable industrialized countries to make the transition to clean energy must also be adapted and shared with developing countries, so they can leapfrog past carbon dependence and choose a more sustainable path from the start.
Looking at the major energy-using sectors of our economy, you can see on a broad scale the kinds of changes that are needed here in the United States. In the electricity sector, for instance, we need to gradually shift the supply mix away from coal, the dirtiest of the fossil fuels, toward natural gas, which is much lower in carbon, and towards solar, wind and other renewables. In transportation, we have to reverse the decline in the fuel efficiency of our cars and SUVs, because the internal combustion engine will be with us for a while longer and we do have the technology to make it more efficient. But we must also hasten the arrival of its successor, whether it be the hydrogen fuel cell or another technology. In buildings, where we use a third of our energy, smart technologies and smart design can deliver enormous energy savings without sacrificing comfort or quality of life. And finally, in manufacturing, we need to find ways to reduce emissions at every step - from changing inputs to redesigning production processes to reworking the entire product mix.
It's one thing to envision the kinds of technologies we need. It's another thing to make them real. For that, I believe, we must bring to bear a second force - the force of the marketplace. This is true not only because the necessary changes - whether they be new products, new processes, or new sources of energy - must take place within the marketplace. It is also true because only the marketplace can mobilize the investment, the productive capacity, and the ingenuity that is needed. The inspiration behind a new technology may spring from the mind of a scientist, an engineer - or maybe an overachieving undergraduate. But only the marketplace can quickly adapt this new technology to society's needs and desires, can produce and deliver it on a mass scale, and can figure out how to do it at the least possible cost. Just think how efficiently the market has put a cell phone into the hands of so many men, women and children over the last a few years.
So the marketplace, while quite obviously a driving force behind the continued rise in greenhouse gas emissions, must also be a driving force behind the solution. We must put the market to work to protect the climate. And if we do it right, not only the environment will benefit - the market will benefit as well. Many people still think that environmental protection and economic growth are inherently antagonistic goals. I believe they are wrong, and I believe the experiences of the companies we work with at the Pew Center show they are wrong.
One of the things we did when we launched the Pew Center four years ago was to bring together a group of major corporations that support action to address climate change. We call it the Business Environmental Leadership Council. The Council now includes 37 companies - primarily Fortune 500 firms - including Weyerhaeuser, Intel, Boeing, Dupont, Shell and Alcoa. Together these companies employ more than 2 million people and generate revenues of nearly $900 billion a year.
In their efforts against climate change, many of these companies have adopted targets for reducing their greenhouse gas emissions. Dupont, for instance, is working to reduce its emissions 65 percent below 1990 levels by 2010. Alcoa is aiming for a 25 percent reduction. Last month, Lord John Browne, the chairman and CEO of BP, announced that his company had already met its goal of a 10 percent reduction - eight years ahead of schedule - and is now committed to capping emissions at that level through 2012 even though BP's revenues are projected to grow 5.5 percent a year.
We published a study recently that analyzed a number of companies that have taken on voluntary greenhouse gas targets. These targets take many different forms. Some companies are ramping up their use of clean energy or improving their energy efficiency. For instance, Baxter International, a healthcare firm based outside Chicago is boosting its energy efficiency by 30 percent. Other companies are going beyond the production process and pledging to reduce emissions from the products themselves. In Europe, for instance, the major automakers - including, I would note, the American automakers - have pledged to reduce greenhouse gas emissions from their fleets 25 percent by 2008.
Our report took a close look at six of these companies - why they chose to adopt targets, and what their experiences have been. The companies cited several motivations: They believe the science of climate change is compelling, and in time the public will demand strong climate protections. They want to get ahead of the curve by reducing their own emissions, and by encouraging government policies that work well for business. But the companies all cited one other important motivation for taking on a target: to improve their competitive position in the marketplace. And that, in fact, has been the result. Each of these six companies is on track to meeting or exceeding its greenhouse gas goal. Together, they've delivered reductions equal to the annual emissions of 3 million cars. And at the same time, the companies are finding that these efforts are helping to improve operational efficiencies, reduce energy and production costs, and increase market share - all things that contribute to a healthier bottom line.
These voluntary efforts demonstrate that companies can internalize the costs of climate protection. They show how the very act of setting a goal spurs innovation and puts competitive instincts to work in a new direction. They demonstrate the ability of the marketplace to mobilize technology to address climate change. They are commendable, and they are instructive. But they are not enough. For the market will deliver only if it perceives a demand. And for that, we must bring to bear a third force - the force of government.
Government has several critical roles to play in sparking this new industrial revolution. We must look to government, first, to set the goal - to send a clear signal to the marketplace that this is the direction we must go. We must look to government, second, to prime the pump - to provide strategic assistance that will help spawn new technologies and then move them from the laboratory to the marketplace. And we must look to government, third, to keep everyone on track - to make sure we not only stay focused on the goal, but meet it - or face clear consequences. The marketplace can drive the technology; but only if government drives the marketplace.
Let me be clear: I am not advocating a draconian command-and-control system that says do it, and do it this way, or else. We've had enough experience with such approaches to know they won't work here. Rather, I am suggesting a thoughtful strategy that understands, respects and mobilizes the marketplace. I am suggesting a comprehensive but careful mix of measures that provides the marketplace with the necessary incentives - and the necessary flexibility - to get us to our goal, and do it cost-effectively.
So, what kind of signal is government sending the marketplace now? Let's look first on the international side. Over the last year, we saw both the greatest success and the greatest setback since the international effort to address climate change was launched a decade ago. The success was that after years of wrangling, nations finally agreed on a set of rules for implementing the Kyoto Protocol. The Protocol, which was negotiated in 1997, establishes the first binding international limits on greenhouse gas emissions. It points industrialized countries, at least, in the direction of emissions reduction. And it establishes a set of mechanisms to help countries meet their targets by tapping the power of the marketplace. Through a system of greenhouse gas trading, for instance, countries can buy emissions credits from other countries that are able to cut their emissions more cheaply. By harnessing the law of supply and demand, you achieve the greatest environmental return for every unit of investment. This approach, I would note, was written into Kyoto largely at the insistence of the United States, which pioneered the practice of emissions trading.
With the rules for implementing Kyoto now settled, the next step is ratification. The European nations are well on track, while vigorous debates are underway in Japan, Canada and other industrialized countries that face some serious challenges in meeting their Kyoto targets. It's by no means a sure bet, but I would say the prognosis is good for the Protocol to enter into force either this year or next. And that would be a major achievement.
The setback, of course, was President Bush's outright rejection of Kyoto early last year. I don't intend to spend any time here debating the merits of Kyoto, but let me say this: I agree with the President that the Protocol is flawed, but do not believe, as he does, that it is fatally flawed. The reality, though, is that he is the president. And given that, there is virtually no prospect of the United States returning to Kyoto, at least in the short term. The emphasis now must be on building a credible climate program here in the United States - one that, hopefully, can in time converge with the international effort to form a truly global strategy.
The national climate plan announced by President Bush in February is, unfortunately, not an auspicious start. It was encouraging in one respect: The Administration says it will develop rules to ensure that companies voluntarily reducing their emissions receive appropriate credit toward any mandatory measures that might later be put in place. Insofar as this tacitly acknowledges that mandatory measures may in fact be necessary, it represents a measure of progress. But beyond that, the President's plan offers only a promise - a promise that over the next decade the United States will do really no better than it's doing right now.
The President set a goal - a voluntary goal - of reducing the greenhouse gas intensity of the U.S. economy 18 percent by 2012. That means 18 percent fewer greenhouse gas emissions for every dollar of GDP. That sounds good. But when you do the math, you see that an 18-percent reduction in greenhouse gas intensity amounts to a 12-percent increase in actual emissions. The Administration says emissions are projected to grow even more, so the President's goal represents a real improvement. But if you look at data on what's actually happening, you see that greenhouse gas intensity is already improving in the United States, and the President's goal essentially continues the trends of the last two decades. In other words, it's more or less business as usual.
There are, however, signs that this issue is being taken more seriously at the other end of Pennsylvania Avenue. Despite the Administration's lackluster efforts - or, perhaps, inspired by them - there is growing bipartisan interest in Congress in doing something about climate change. In fact, there were nearly twice as many climate change bills introduced over the past year as in the previous four years combined.
These bills cover everything from regulating carbon dioxide emissions from power plants to boosting research and development on alternative fuels. Several would establish a national system for tracking and reporting greenhouse gas emissions - an important first step. The farm bill passed recently by the Senate would provide strong incentives to farmers to adopt practices that suck carbon out of the atmosphere. And Senators Lieberman and McCain plan to introduce a bill later this year to establish a nationwide cap-and-trade system - in other words, to cap greenhouse gas emissions nationwide and let companies buy and sell emissions credits. It's a bold idea - one that frankly I can't see being enacted for some time, probably years. Still, for the first time, Congress is engaged in serious debate about how the United States should meet its responsibilities on climate change.
And beyond the Beltway, we see not just debate, but action. States and local communities, instead of waiting for leadership from Washington, are taking up this challenge on their own. Over the past year, the Pew Center worked with the National Association of State Energy Officials to gather information on state programs that reduce greenhouse gas emissions. In February, we posted the initial results on our web site: a searchable database describing 21 state programs that have delivered real emissions reductions.
Oregon, for example, requires all new power plants to limit or offset their carbon dioxide emissions, making it the first state in the nation to enact mandatory carbon controls. Texas requires that all its electricity providers generate about 3 percent of their power using renewable sources. New Hampshire plans to cut emissions and save $4 million a year through energy-saving retrofits on state-owned buildings. Here in Illinois, a new Clean Energy Community Foundation is helping local governments and community groups improve energy efficiency and promote renewable power. And last fall, Chicago became the first city in America to join a voluntary emissions trading system called the Chicago Climate Exchange. Finally, here's one of my favorite examples: In Pattonville, Missouri, high school students have teamed up with state officials to run their school's boilers using methane captured from a neighboring landfill. Perhaps if we could channel the energies of high school students everywhere we'd have this thing licked.
But most high school students, I'm afraid, are channeling their energies elsewhere. And, unfortunately, so are many governments. Ten years after the Earth Summit in Rio, where nations pledged themselves to the fight against global warming, they are just barely getting started. Governments have yet to deliver a clear, unequivocal message to the marketplace that climate change can no longer be ignored.
What kinds of policies would get the message across? Here in the United States, we need a firm mandate that puts us on the path to long-term emissions reduction. And we need flexible policies that give companies room to find the most cost-effective ways to fulfill that mandate. Internationally, assuming Kyoto does get off the ground, we must start looking well beyond its short-term goals. As with a domestic program, firm mandates that move us toward our goal of stabilizing concentrations of greenhouse gas concentrations in the atmosphere are key. This will take more than keeping those countries committed to Kyoto on a downward emissions path. It will take putting the United States firmly on that path. And it will take moving major emitting countries in the developing world on cleaner energy paths as well. In short, we will need to forge an effective global strategy that combines the force of governments with the force of the marketplace.
So why haven't we made more progress? Because, I believe, we have not yet brought to bear the fourth, and perhaps most critical, force. That is the force of people--the sheer force of public pressure. Like the marketplace, government will deliver only if it perceives a demand. The polling shows that most Americans believe that global warming is real and that more should be done to address it. But those sentiments have yet to translate into an effective call for action. People are concerned, but they're also confused. And many feel powerless in the face of such a monumental challenge.
Let me suggest a few ways in which we do have power if we choose to exercise it. First - and I'm speaking now, of course, to those of you who are so inclined - don't underestimate your power as a citizen to sway your elected leaders. Next time one of your Senators is touring the state, show up at a town hall meeting and ask what he's doing to make our cars and tucks more fuel efficient, or our electricity supply less carbon-intensive. Believe me, it makes a difference. Second, you have power as a consumer. Once you understand the fundamental link between climate change and our use of energy, you can send your own signals to the marketplace. Every time you replace a regular light bulb with a compact fluorescent, or choose a more efficient appliance or car, you express a demand for climate protection. Third, you have power as an investor - at least those among you with something to invest. The more companies are asked by investors about their greenhouse gas emissions, the quicker they will reduce them.
These may seem like small steps, but they can add up. We all bear responsibility here. And only when we accept our responsibility and act on it - as citizens, as consumers, as investors - will government and the marketplace respond. The science, I believe, paints a compelling picture: Future generations face grave risks. The technology to avert those risks is, I believe, within reach. The marketplace has the power to deliver it. But government will demand it only when we do - only when we bring our force to bear.
Thank you very much.
For Immediate Release:
March 19, 2002
Contact: Katie Mandes
Report Shows Emerging Greenhouse Gas Market
Washington, DC - Emissions trading has become the "policy of choice" for addressing climate change, according to a new report from the Pew Center on Global Climate Change that documents the emergence of a market for greenhouse gas emissions.
While the market remains fragmented, the report concludes that trading activity has increased around the world over the last five years. Among the forces bringing trading to the fore are progress in the international climate talks, new carbon trading systems in Europe, and private sector trading initiatives in the United States and elsewhere.
The Pew Center report, The Emerging International Greenhouse Gas Market, describes the characteristics of the market to date and key features of early trades. In the absence of a ratified international agreement, the report's authors conclude that the new market is evolving in a fragmented way. Regional, national, and subnational trading programs are operating under different rules, which could inhibit "market convergence" and increase the costs of trading.
"Despite the United States' inaction, it is abundantly clear that we are beginning to see the outlines of a genuine greenhouse gas market," said Eileen Claussen, President of the Pew Center on Global Climate Change. "Governments and businesses around the world understand that emissions trading is essential if we're going to address this issue in the most cost-effective way possible".
"The challenge now is to forge links between these emerging regimes in order to ensure that trading systems are compatible, " Claussen said. "We are already beginning to see interest in the U.S. Congress, and private sector efforts to build a trading system are even farther along. The need for certainty, consistency, and a level playing field will encourage a merging of trading regimes.
The report also evaluates the potential evolution of the greenhouse gas market, particularly in light of recent developments in climate change policy in the United States and internationally.
The report's conclusions are based on a review of greenhouse gas transactions to date, including case studies of two transactions between four utilities: TransAlta and HEW, and PG&E and Ontario Power Generation. According to the authors of the report, the experiences of these companies illustrate the benefits of trading, as well as the challenges of conducting trades in a nascent market that is lacking in clear rules.
Part of "Solutions" Series
The Emerging International Greenhouse Gas Market was authored by Richard Rosenzweig and Matthew Varilek of Natsource, LLC, and Josef Janssen of the University of St. Gallen in Switzerland. It is the latest report in the Pew Center's Solutions series, which is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. Other Pew Center series focus on domestic and international policy issues, environmental impacts, and the economics of climate change.
A complete copy of this report -- and previous Pew Center reports -- is available on the Pew Center's web site, www.c2es.org/projects.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is conducting studies, launching public education efforts and working with businesses to develop market-oriented solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs. The Pew Center includes the Business Environmental Leadership Council, which is composed of 36 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.
The Emerging International Greenhouse Gas Market
Prepared for the Pew Center on Global Climate Change
Richard Rosenzweig, Matthew Varilek, Ben Feldman, and Radha Kuppalli of Natsource, LLC
Josef Janssen, University of St. Gallen
Eileen Claussen, President, Pew Center on Global Climate Change
As businesses, policy-makers, and other stakeholders around the world have become familiar with greenhouse gas emissions trading, it has emerged as the policy of choice to address climate change. Now—with the recent agreements in Bonn and Marrakech, with new carbon trading systems in Europe, and with private sector interest and activity across many economic sectors both here and abroad—we are beginning to see the outlines of a genuine greenhouse gas market.
In this Pew Center report, authors Richard Rosenzweig, Matthew Varilek, Josef Janssen et al. describe the various public and private programs under which many early trades have occurred, the characteristics of the emerging market including the key features of early transactions, and the potential evolution of the market given the concurrent development of domestic and international climate change policy. Case studies of actual trades between four power companies—TransAlta and HEW, and PG&E and Ontario Power Generation—help illustrate leading companies’ motivations for engaging in trading, as well as the challenges they have faced in the absence of clear guidelines in the nascent market.
Despite the impressive interest in greenhouse gas trading, the market that has developed thus far remains fragmented. For example, as originally proposed, the trading regimes put forth by the United Kingdom and the European Union differ in important respects: the former is voluntary and the latter is not; the former covers the full basket of six greenhouse gases while the latter is restricted to carbon dioxide. This results in higher transaction costs just as the market is getting off the ground. The challenge ahead, for business, policy-makers, and others, is to work together to help forge linkages between the emerging regimes, and ultimately to achieve convergence.
I am optimistic that we can meet this challenge. We are beginning to see the first glimmers of interest in the U.S. Congress, although the debate is expected to be long and difficult. Perhaps more encouraging are private sector efforts to build a greenhouse gas trading system, such as the Chicago Climate Exchange. Also, many companies have set up their own internal trading systems to “learn by doing,” and have been eager to participate in early trades. The need for certainty, for consistency, and for a level playing field all will work to encourage a merging of regimes. Policy-makers must do their best to ensure that all systems are compatible.
The authors and the Pew Center would like to thank the companies featured in this report for sharing their experiences and perspectives, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Aldyen Donnelly of GEMCo; Erik Haites of Margaree Consultants; Richard Sandor of Environmental Financial Products, L.L.C.; and Tom Wilson of EPRI for their review and advice on a previous draft of this report.
A market for greenhouse gas (GHG) emissions has begun to emerge over the past five years. This market is driven in large part by ongoing negotiations of an international global climate change treaty, which will likely impose limitations on GHG emissions. The market has been shaped by successful emissions trading programs established over the past decade, such as the sulfur dioxide (SO2) trading program incorporated in the U.S. Clean Air Act Amendments (CAAA) of 1990.
This paper describes: (1) programs and initiatives that have provided a framework for early trades and policy development; (2) characteristics of the emerging GHG market and key features of early transactions; (3) potential evolution of the market due to ongoing concurrent domestic and international climate change policy development; and (4) potential scenarios regarding the U.S. response to climate change.
Greenhouse gas trading has its origins in the United Nations Framework Convention on Climate Change (UNFCCC). Adopted in Rio de Janeiro, Brazil, in 1992, the UNFCCC established the goal for industrialized countries to return to their 1990 GHG emissions levels by the year 2000 and a long-term objective of stabilizing atmospheric concentrations of greenhouse gases “at a level that would prevent dangerous anthropogenic interference with the climate system.” In 1995, the Parties reviewed their progress and concluded that the non-binding goal would not lead to the achievement of the Convention’s objective of atmospheric stabilization. In response, Parties agreed to pursue a complementary agreement that would establish quantified emissions limitations and reduction obligations for developed countries. This culminated in the negotiation of the Kyoto Protocol in December of 1997.
The process to develop rules, mechanisms, and institutions necessary to bring the Protocol into force is ongoing, including the seventh Conference of Parties (COP-7), held in Marrakech, Morocco, during November of 2001. Though significant progress was achieved there and in previous negotiations, the Protocol has not yet entered into force, and few national governments have imposed limitations on domestic GHG emissions or established trading rules. Thus, the GHG market is evolving under a loosely constructed, ad hoc framework. To date, it has evolved from a variety of mostly project-based emissions trading programs, which have been voluntary in nature and which collectively serve as precursors to formal GHG regulation. More recently, the United Kingdom and Denmark have developed national regulatory programs.
The UNFCCC allows industrialized countries to meet their emissions reduction commitments “jointly with other Parties” through a form of project-based emissions trading. This program became known as Joint Implementation (JI). Subsequent programs have provided practical experience with key aspects of project-based emissions trading. These programs and initiatives include the U.S. government’s Initiative on Joint Implementation (USIJI); the pilot phase of international project-based emissions trading known as Activities Implemented Jointly (AIJ); Ontario, Canada’s multi-stakeholder Pilot Emissions Reduction Trading program (PERT); Oregon’s Climate Trust; the Dutch government’s Emission Reduction Unit Procurement Tender (ERUPT); and the World Bank’s Prototype Carbon Fund (PCF), among others.
Each of these programs is governed by a unique set of rules. However, they exhibit some common elements that constitute a de facto (though non-binding) set of minimum quality criteria that govern the creation of credible emissions reductions. These common elements include: (1) establishment of a credible counterfactual emissions baseline; (2) proof of environmental additionality; (3) evidence that the reductions are surplus to existing regulatory requirements; (4) proof of permanence or durability of the reductions; (5) demonstration that the emissions-reducing project will not cause emissions to increase beyond the project’s boundaries (referred to as “leakage”); (6) establishment of credible monitoring and verification procedures; and (7) proof of ownership of the reductions.
Even though few sources of GHG emissions presently confront binding emissions limitations, a growing number of companies and governments have begun to purchase reductions generated in most part by the programs described above. Few trades of GHG emissions to date have involved an exchange of emissions permits such as “allowances” or “credits,” since these terms refer to government-issued commodities that only exist within the context of formal trading systems. Most GHG trades have taken place under a voluntary ad hoc framework involving a commodity defined by the trade’s participants and known commonly as verified emissions reductions (VERs). These carry only the possibility, but not a guarantee, that governments will allow them to be applied against future emissions reduction requirements.
The authors estimate that approximately 65 GHG trades for quantities above 1,000 metric tons of carbon dioxide equivalent (CO2e)1 have occurred worldwide since 1996. This figure includes trades of reductions as well as financial derivatives based on reductions. However, the figure probably understates actual market activity because not all trades are made public, and internal corporate trades and small trades are excluded. It is important to note also that this figure refers to purchases of emissions-related commodities and excludes countless investments in projects that either purposely or incidentally reduce GHG emissions. Prices for VERs have ranged between $.60 and $3.50 per metric ton of CO2e. Some of the price differentials between trades can be explained by differences in the features of the reductions such as their type and vintage, geographical location, and the rigor of the monitoring and verification procedures. Other factors that affect reductions’ commercial value include contractual liability provisions, seller creditworthiness, and demonstration of host country approval of the emissions-reducing project.
Two case studies provide a detailed look at actual GHG trades in this market, illustrating some of the challenges and benefits of early GHG trading as described by market participants. The first case study reviews a purchase of VERs by TransAlta, a Canadian electric utility, from HEW, a German utility. HEW generated reductions by displacing some of its fossil fuel-based generation with electricity generated by wind. The second case study examines a purchase of VERs by Ontario Power Generation, a Canadian utility, from US Gen, a subsidiary of the U.S.-based PG&E National Energy Group. US Gen created reductions by capturing and destroying methane produced at a landfill. Both case studies demonstrate that while participants benefited from these early GHG trades, the lack of clear trading rules has increased transaction costs and been a significant impediment to the development of a more robust GHG market.
National Trading Programs
Several governments have moved forward in designing domestic trading systems while international trading rules remain under development. At the national level, the United Kingdom and Denmark have each established domestic emissions trading programs. Some trading in these programs has already begun. The European Union (EU) and other countries are in various stages of domestic policy development. At the sub-national level, the state of Massachusetts, for example, will require reductions of carbon dioxide (CO2) emissions from power plants and will allow sources to use trading as a means of compliance.
The development of these and other trading programs demonstrates that emissions trading has gained acceptance as a preferred policy instrument in the world’s efforts to reduce GHG emissions. These programs will boost GHG trading activity and motivate more rapid emissions abatement than if governments had waited for the international community to conclude negotiation of the Kyoto Protocol. Already, the initiation of these programs is producing a shift in the commodity that market participants prefer to trade. Some buyers’ interest is starting to shift away from VERs, whose eligibility for use as a hedge against binding emissions limitations is uncertain. Interest is beginning to shift towards government-issued permits created by the programs, which are by definition eligible for use against an emissions limitation in their jurisdiction of origin. Permits also stand a superior chance of being transferable into foreign jurisdictions for purposes of compliance.
Significant benefits have and will result from the current development of domestic trading systems. However, some adverse impacts have also resulted from the concurrent development of international and domestic climate change policy. Emissions trading systems currently in operation or under development exhibit unique features that may render them incompatible with each other. For example, the Danish and United Kingdom (UK) systems allow for trading of different gases, cover different economic sectors, and utilize different mixes of allowance and credit-based trading. To date, they have not developed rules governing interchange and mutual recognition of their tradable units with each other, which could impede or preclude beneficial cross-border transactions. There are also significant differences between each of these systems and the one being developed in the European Union. Already, the European Commission has warned that the differences in the UK and the EU systems “could create market distortions in the future.”2 Had the treaty been concluded more rapidly, the international framework would have made it easier for Parties to conform their systems leading to increased trading. Several private-sector and nongovernmental organizations (NGOs) also have developed initiatives to help build the market and to create and take advantage of trading opportunities. They include the Partnership for Climate Action (PCA), the Emissions Market Development Group (EMDG), and the Chicago Climate Exchange (CCX).
Recent international agreements negotiated at Bonn and Marrakech resolve many details concerning implementation of the Kyoto Protocol, providing greater clarity to Parties developing domestic trading programs. These agreements will increase the likelihood that future domestic climate change policy measures will be consistent with the rules of the Protocol. However, several issues still must be resolved, and, although likely, the treaty’s entry into force is not yet assured. Thus, in the near future, international and domestic GHG policy will continue to develop concurrently, with the risk that incompatibilities between regional, national, and sub-national climate change policies will lead to market fragmentation and sub-optimal economic and environmental outcomes. Such fragmentation does not mean that market participants will not trade across systems. Indeed, market participants will likely devise methods of trading across jurisdictions. However, devising such structures and mechanisms will increase costs.
Prospects for a well-functioning international GHG market have greatly improved as a result of the agreements reached in international climate change negotiations during 2001. However, significant barriers remain, including the unwillingness of the United States, the world’s largest emitter, to ratify the Kyoto Protocol. A qualitative analysis of several scenarios related to the United States’ future climate policy response reveals that, while in the near term the lack of an emissions constraint may provide an advantage to U.S. firms against foreign competitors confronting such constraints, continued policy uncertainty may be detrimental in the longer term.
In order for the market to achieve its intended environmental and economic results, much work remains to be done. The international community must make an ultimate decision on the legal nature of Parties’ compliance obligations with the Kyoto Protocol’s provisions and must resolve several other key issues. Institutions governing the treaty’s mechanisms must move forward expeditiously to implement the details of the Protocol. Such action will provide Parties with clear policy guidance allowing them to conform their domestic programs to international rules and to enjoy the full economic and environmental benefits of GHG emissions trading.
About the Authors
Richard Rosenzweig provides consulting services to private firms, governments, international financial institutions, and associations on all aspects of the climate change issue, including risk management, market entry strategies, international climate change negotiations, and domestic policy development. He joined Natsource from the Washington law firm of Van Ness Feldman, where he was Principal. Mr. Rosenzweig counseled clients on Clean Air Act matters and provided strategic government affairs counsel on global climate change and energy matters. Mr. Rosenzweig has extensive experience in all aspects of emissions trading and risk management. He represented several companies in the design of the U.S. Acid Rain Program and the Nox SIP Call. Mr. Rosenzweig was involved in the first transactions of UK and Danish greenhouse gas allowances. He also assists companies to determine their risk to the climate issue and develop appropriate risk management strategies. Mr. Rosenzweig served as Chief of Staff to the U.S. Secretary of Energy from 1993-96. His national policy responsibilities included key roles in the development of the first U.S. Climate Change Action Plan. He also helped to negotiate voluntary agreements between the Department of Energy and more than 600 electric utilities in the "Climate Challenge" program.
Matthew Varilek is an emissions markets analyst in Natsource's Strategic Services unit. Since joining Natsource in 1999, he has led projects for clients including the World Bank, the European Commission, the U.S. Agency for International Development, the Dutch Ministry of Economic Affairs, the Government of Uganda, and several multinational companies. Previously, Mr. Varilek lectured for Columbia University on international environmental agreements as an environmental policy teaching assistant at Biosphere 2 Center in southern Arizona. Mr. Varilek has a Masters degree with distinction in Economic Development from the University of Glasgow, Scotland, and a B.A. with distinction in Philosophy and Environmental Policy from Carleton College, Minnesota.
Dr Josef Janssen
University of St. Gallen
Josef Janssen is an expert in financial and economic aspects of greenhouse gas emissions trading and the Kyoto Mechanisms. He is head of Emissions Trading and Climate Policy at the Institute for Economy and the Environment (IWOe) at the University of St. Gallen (HSG) in Switzerland (www.iwoe.unisg.ch/kyoto). He is also scientific coordinator of the European R&D project entitled "Implementing the Kyoto Mechanisms - Contributions by Financial Institutions." In early 2001, he completed his PhD in economics at the University of St. Gallen. In his PhD thesis (Risk Management of Investments in Joint Implementation and Clean Development Mechanism Projects) he focuses on carbon portfolio risk diversification and insurance.
Dr. Janssen has advised several firms and organizations on the Kyoto Mechanisms, including UBS, Swiss Re, Sanpaolo IMI, Landesbank Baden-Württemberg, and the World Bank. In 1998 he was a member of the Italian delegation to the international climate policy negotiations at the EU and UN level. Dr. Janssen frequently speaks on greenhouse gas emissions trading at international commercial and academic conferences, and has published a number of articles on this subject.
Climate Change: Ten Years After Rio
Remarks of Elliot Diringer
Pew Center on Global Climate Change
Delhi Sustainable Development Summit
New Delhi, India
February 11, 2002
I'd like to thank TERI for providing me the opportunity to speak here today. The concerns we are addressing at this summit reach across the globe. But too often, I am afraid, we understand them only from a single vantage point. I am very grateful to be here in New Delhi to share my perspective and, more importantly, to learn from the perspectives of others.
I represent the Pew Center on Global Climate Change, a US-based NGO dedicated to achieving fair and effective action against climate change. The Pew Center brings together expert analysis and a progressive business perspective. We work with scientists, economists and other experts to examine and explain the many dimensions of climate change. And we work with major corporations to develop and promote practical, cost-effective strategies to reduce greenhouse gas emissions. Our goal is a smooth transition to a clean energy economy that ensures both a stable climate and strong, sustainable growth. We have two overriding policy objectives: the establishment of flexible, mandatory measures to significantly reduce greenhouse gas emissions in the United States; and the creation over time of a global framework that helps put all countries on the path to climate protection and sustainable development.
One of the signature achievements of the Earth Summit in 1992 was the UN Framework Convention on Climate Change, which commits nations to the long-term goal of a safe and stable climate. Ten years after Rio, we are at last in a position to report some measure of progress toward that goal. Despite the withdrawal of the United States, or perhaps in part because of it, other industrialized nations have resolved to push forward with the Kyoto Protocol. The recent agreements in Bonn and in Marrakech, while imperfect, establish a sound, workable framework for cost-effective emissions reduction. They represent a triumph not only for multilateralism, but also for the principle of harnessing the global market to protect our global environment. Having made the hard compromises, nations must now move forward with ratification, and implementation, so they can begin to deliver on Kyoto's promise.
Whether or not it is party to Kyoto, the United States must also commit itself to concrete action to reduce emissions. In time, the United States must again become a full partner in the international effort. But it does not appear that time will come soon. There is virtually no chance the present administration will reverse its opposition to Kyoto. Nor does it appear the administration is prepared to advance serious domestic measures to curb emissions. Yet there are signs that the United States is in fact moving closer to recognizing and beginning to meet its responsibilities as the world's largest greenhouse gas polluter. Just as President Bush's rejection of Kyoto helped galvanize international support for the Protocol, it has helped stir support for domestic measures as well. It has elevated the issue in the press, and in Washington. And it has spurred bipartisan interest in Congress, where leading lawmakers from both parties have introduced measures that could start the United States on the path to emissions reduction. It may be years still before the United States launches the kinds of efforts that ultimately are needed. But I believe public support, and the prospects for action, will continue to build.
Support is growing, as well, within the U.S. business community. Many in the private sector, it is true, are pleased with the present administration's approach. But a growing number of companies - including the 37 major corporations that are members of the Pew Center's Business Environmental Leadership Council - are taking concrete steps to reduce their emissions. What's more, these companies favor government action mandating broader efforts. Many, particularly the multinationals, may be disadvantaged by the U.S. withdrawal from Kyoto. They will not be able to manage their emissions reductions as cost-effectively and they may miss important market opportunities. We believe it is important that any domestic regime in the United States provide opportunities for international trading and emissions offsets, and that it be as compatible as possible with the international regime to help pave the way for their ultimate convergence.
We must of course recognize that Kyoto's entry into force, and any U.S. effort that may emerge in parallel, will represent only first steps. And while the road from Rio to Marrakech was difficult, the road ahead will be more difficult still. If we are to construct the full global framework needed to achieve the objective of the Framework Convention, we must begin focusing right now on the next set of critical challenges. One challenge is deciding whether the Convention's long-term objective must be translated into an agreed, quantifiable target - and if so, how. Others include devising medium-term emissions targets that can most effectively mobilize investment in climate-friendly technologies; and creating stronger mechanisms to ensure that these technologies are widely shared.
But the most critical - and most difficult - challenge ahead is reaching consensus on an equitable sharing of responsibility for addressing climate change. Ultimately, we can achieve the objective set in Rio only if all nations are assured that each is contributing its fair share to this collective effort. And this can happen, I believe, only if we understand climate change - both the challenges it presents, and the opportunities - in the broader context of sustainable development. In the efforts they are already undertaking, developing countries themselves are providing powerful evidence of the linkages between climate and sustainable development. Through actions to protect their local environments, reform their energy markets, strengthen their economies and create a more promising future for their people, many developing countries are at the same time achieving extraordinary progress in reducing or avoiding greenhouse gas emissions. The very impressive efforts underway here in India to improve energy efficiency and expand the use of renewable power are prime examples. These efforts by developing countries must be more broadly recognized. And they must be nurtured. Strengthening the incentives for investment and technology flows, and the capacity to fruitfully absorb them, will better enable developing countries to meet their critical development needs while contributing further to the effort against climate change. Developing countries are understandably reluctant to consider taking on binding commitments until developed countries demonstrate real progress in meeting their own. But we must begin now to open a new dialogue - a dialogue grounded in a deeper understanding of the links between climate and sustainable development - so we may in time arrive at an equitable sharing of our "common but differentiated" responsibilities.
In closing, I'd like to offer some brief thoughts on the opportunities presented by the World Summit on Sustainable Development. Translating the vision of sustainable development into tangible benefits for the millions around the world who have yet to share in the fruits of globalization requires action on many fronts - action to protect freshwater resources, improve basic health services, enhance agricultural productivity, and grow new industries. Each of these, in turn, depends at least in part on the availability of adequate energy resources. This new energy must be not only affordable and reliable - it must also be clean. A major aim for Johannesburg, one that would address both climate and sustainable development, should be the launch of substantial new efforts to deliver clean energy in developing countries. The need, the benefits, and the barriers are well understood. What is needed now is for governments and the private sector to commit additional resources.
Ten years after nations pledged themselves to the fight against climate change, we can at last report some progress. A real and sustained commitment to clean energy development would help build on this progress, and would help ensure future generations a fairer, safer, more prosperous world.
Thank you very much.
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