How do we Make Kyoto Work?

Raymond J. Kopp

When the Kyoto treaty goes into effect, on Feb. 16, 2005, it will forcefully push countries throughout the world to work harder to reduce emissions of greenhouse gases. That will include the United States, even though it has refused to join the treaty.

The immediate impact will be on countries that have ratified the treaty but are not on track to comply with their commitments under it. Canada, Japan, and several European countries fall into that category, and painful political decisions lie ahead of them.

For the United States it's an opportunity to take the leadership in making the next phase of climate policy -- a role toward which political developments are increasingly pressing this country.

The Kyoto treaty raises profound questions about the way that society generates and uses energy. The treaty's purpose is to restrain the global warming trend that has been under way for a century and now appears to be accelerating. The chief cause is apparently the emission into the atmosphere of a number of gases that cause it to retain heat. Of those gases, the most important is carbon dioxide, generated by burning the fossil fuels that power industries, generate electricity, and keep cars running.

All over the world, a scramble is under way to find strategies that can cut fuel use and emissions without interfering with economic growth.

Arguing that Kyoto would damage the American economy, President Bush declared in early 2001 that the United States would not ratify it. But the President, like it or not, will come under increasing pressure to adopt a serious policy to cut greenhouse emissions. That pressure is likely to come from three directions:

Foreign governments, particularly in Europe, have long since made Kyoto a major point of diplomatic contention. Tony Blair, prime minister of the United Kingdom and the President's staunchest ally, is deeply interested in controlling emissions. The Europeans have pointed out that when George Bush pulled out of the treaty, he acknowledged that he took the issue of climate change seriously and promised to look for other ways to work constructively with the rest of the world. Instead, he has done very little. If the United States doesn't like Kyoto, other governments ask, what does it propose instead?

In the United States, state governments are beginning to proceed aggressively to control carbon dioxide emissions. California adopted regulations last September to limit, for the first time, greenhouse gas emissions by cars and trucks. Several northeastern states have suggested they intend to follow California's lead. The northeastern states are also working on a plan to reduce carbon dioxide from power plants in the region. In addition, last July eight states and New York City sued the federal government in an attempt to force it to regulate carbon dioxide emissions.

Perhaps an even greater influence, a number of large American companies are now preparing for limits on industrial emissions. Most of them have operations abroad that will come under Kyoto. Assuming that regulation in this country is only a matter of time, some would prefer to have the question settled and the rules clearly established. This is particularly true for the nation's coal-fired electric utilities.

When it goes into force, the Kyoto treaty will set limits for emissions of carbon dioxide and five other greenhouse gases for each of the industrialized countries except the United States and Australia, which have chosen to drop out. But the limits run only for one five-year period, 2008 through 2012. The treaty assumes that by 2012 new and tighter limits will have been negotiated for the next five years. That mandatory renegotiation opens an opportunity to reconsider the basic structure of the agreement and find ways to address some of the questions that the present version leaves unanswered.

The most important of those questions is how to bring into the regime not only the United States but also the big developing countries, starting with China and India. The authors of the Kyoto treaty felt that it was right to begin with restrictions on the rich and technically advanced economies, leaving the others to later stages. But China and India already emit more carbon dioxide than most industrialized countries, and their emissions are rising much faster.

If the big Asian developing economies are going to be brought into a worldwide agreement to control emissions, it will be necessary to make basic changes in the structure of the Kyoto treaty. Kyoto's authors got off on the wrong track when they chose as their model the 1987 Montreal protocol to control the emission of gases that deplete the ozone layer. The basic mechanism of the Montreal Protocol was to impose a limit for each of the industrialized countries on the production of the gases that eat into the ozone layer. Those limits could be and have been tightened to the vanishing point in successive agreements, making Montreal a major success.

But there are important differences between the threat that Montreal addressed -- stratospheric ozone depletion -- and the much broader issue of global climate change. The gases that were eroding the ozone layer were manufactured chiefly by a small number of large corporations in the industrialized countries. More important, the chemical industry was able to develop substitutes for most of these gases and raced to put them on the market. Because depletion of the ozone layer would mean an increase in skin cancers, the politics of Montreal was driven rapidly forward by concerns for public health.

The circumstances confronting the Kyoto treaty are quite the opposite. Carbon dioxide emissions have no direct implications for human health. The emissions are ubiquitous, not confined to a few big companies in a few rich countries. And there is no immediately available substitute for fossil fuels to power the world's economies. Substitutes may emerge later in this century, but the process will be neither certain nor rapid. Reducing emissions of carbon dioxide means changing the way the world produces and uses energy. Concessions to the developing countries could be built into the Montreal Protocol without significantly changing its effect, but not Kyoto.

The most immediate impediment to expanding Kyoto is the concept of a national limit on emissions. It works well in the fully industrialized economies. But in the developing countries, this kind of national limit is widely seen as a device to retard their ability to compete with the rich countries.

One promising solution is to discard the idea of a national limit on emissions in the developing countries and move to a control system based instead on emissions intensity -- the ratio of emissions to total economic output. For example, if the Indian economy were growing at a rate of seven percent a year, achieving an improvement of emissions intensity of seven percent a year would hold emissions stable. What's in it for the Indians? To the extent that they do so by raising fuel efficiency, it means steadily rising economic output without steadily rising fuel bills.

The primary advantage of this idea is that emissions intensity helps mitigate developing country uncertainty that unexpected rapid economic growth would be curtailed due to strict national emission limits. Another advantage is that President Bush committed himself to the concept in 2002, calling for an improvement in the United States emissions intensity of 18 percent over the decade. The weakness in the Bush program was reliance on strictly voluntary compliance.

What's needed is not a different concept, but rather to give this one some teeth by making compliance mandatory and backed up with a set of specific incentive-based regulatory policies. An intensity standard may be the bridge -- for China, India, Brazil and perhaps the United States as well -- to the worldwide emissions limits that may be needed later this century. An intensity standard would be consistent with the national caps being used by the countries already participating in the Kyoto process. As a means to bring in the others, the intensity standard deserves the most careful consideration by the conference that will design the next phase of Kyoto that begins in 2016.

Political leaders are increasingly aware that sudden developments could transform climate change from a long-term concern to an immediate crisis. The Kyoto structure needs to be highly flexible, able to respond to new discoveries and unexpected circumstances. Significantly reducing greenhouse emissions will require very broad support throughout society, and that support will be powerfully influenced by events as climatic change either does or does not accelerate. One requirement for the evolving Kyoto structure is to put in place mechanisms that can be relaxed or tightened as the world's governments are, in the future, confronted with the unexpected.

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