By Margo Thorning, Ph.D. - 02/28/07 07:58 AM EST
The recent report released by the Intergovernmental Panel on Climate Change on the consequences of increasing greenhouse gases (GHG) is a valuable contribution to the ongoing debate in understanding climate science. However, policymakers need to have a clear understanding of the likely economic impacts of alternative approaches to slowing the growth or reducing the level of greenhouse gas emissions.
While President Bush outlined bold steps in his State of the Union address to slow the growth of U.S. greenhouse gas emissions, Democratic leaders on Capitol Hill appear aggressively set on their own track to tackle the issue. Speaker Nancy Pelosi (D-Calif.) has appointed a controversial special committee to study climate change. And, at the helm of the Committee on Environment and Public Works, Sen. Barbara Boxer (D-Calif.) is poised to push for emissions caps on greenhouse gases.
Al Gore’s Oscar win for “An Inconvenient Truth” will no doubt become a centerpiece of the debate and generate even more demand for immediate action.
But before the nation is led down the path of the Kyoto protocol or the dramatic carbon dioxide emission reductions adopted in California, the home state of Pelosi and Boxer, a close look should be given to the high price tag of such “solutions.”
The European Union’s attempt to meet its Kyoto Protocol target is failing. The European Environmental Agency projects that the EU 15 will be 4 percent over its Kyoto target by 2010 without strong new measures to curb energy use. The EU’s emission trading system is not working because only 40 percent of emissions are covered, and raising all energy prices enough to meet Kyoto targets would be political suicide.
Research with a variety of economic models show that the Kyoto Protocol targets would reduce U.S. GDP by 1 to 4 percent by 2010 and cost almost 2 million jobs. Less-stringent targets such as those in the McCain-Lieberman bill could reduce GDP by 1 percent by 2010 and cost almost 1 million jobs.
The real economic costs to the U.S. of mandatory carbon emission targets must be weighed against the environmental benefits. U.S. emissions are a falling share of global emissions; in fact, China’s are now expected to exceed those of the U.S. by about 2009.
Unless the new majority in Congress looks at GHG reductions on a global scale, mandatory emission reductions in the U.S. would be all pain and little or no gain for the environment.
A good first step for Congress would be to approve the $52 million in seed money for the Asia Pacific Partnership on Clean Development and Climate (AP6) as prescribed by the 2005 energy bill. The goals of the AP6 agreement are to promote both global economic development and the use of cleaner, less-emitting energy technologies. The AP6 countries — China, India, Japan, Korea, the U.S. and Australia — have half of the world’s population, use about half of the world’s energy and emit about half of all global greenhouse gas emissions.
Unlike the Kyoto Protocol’s mandatory GHG reduction, the AP6 partnership focuses on practical steps to promote cleaner, less-emitting technology for electricity generation from coal-fired plants, capturing and storing carbon dioxide as well as reducing emissions from steel, aluminum production, and coal mining in both developing as well as developed countries. Increasing energy efficiency for buildings and renewable energy supplies are also part of the AP6 agenda to promote economic growth and reductions in all types of emissions, including GHGs.
The partnership relies on sharing technology with developing countries, which is exactly what Sens. Mark Pryor (D-Ark.) and Chuck Hagel (R-Neb.) advocated in the Hagel-Pryor amendment. This piece of bi-partisan legislation promoted the adoption of technologies that reduce GHG intensity (amount of GHGs emitted per dollar of output) in the United States and in developing countries. It was a critical piece of the 2005 energy bill, which President Bush signed. The partnership also owes a great debt to Sen. Robert Byrd (D-W.Va.) for his leadership in the 2000 Clean Energy Technology Export Initiative, which focused on the commercial development and deployment of clean energy.
In practical terms, transferring the cleanest, most energy-efficient technologies to countries like China, India and other emerging economies whose emissions are growing rapidly will yield significant benefits. According to analysis conducted for ICCF, lowering the emissions intensity of developing countries to that currently associated with new investment in the U.S. would be roughly equal to what would be accomplished under the Kyoto Protocol by 2012 (assuming all 39 counties with targets met their goals).
Facilitating the adoption of the newest technologies will require initiative and vision from government officials. Promoting a favorable investment climate is a key requirement. The Chinese and Indian governments have already taken farsighted steps to do that, but more could be done to minimize corruption and regulatory burdens, establish effective rule of law, recognize intellectual property rights and permit capital to flow freely in to and out of countries. Progress in these areas will bolster the climate for critical foreign direct investment.
But AP6 and other efforts like it cannot succeed without sustained cooperation between business and government. Only when governments are confident that foreign direct investment is likely to take place in the wake of politically risky reforms are they likely to act. As such, businesses and firms from the U.S., Europe, Japan, Korea and Australia that are already present in China and India and are familiar with the legal, political, cultural and economic terrain have a significant role to play.
Remembering the success of the Marshall Plan is helpful here. After World War II, European governments pledged various actions with the money provided by the U.S. government, working in concert with business interests. When Europeans made good on those pledges the plan was extended and broadened. AP6 could operate similarly. Future actions by Australia, Japan, Korea and the United States desired by China and India would be contingent on success in implementing near term reforms agreed to in the process.
Dr. Margo Thorning is managing director of the International Center for Capital Formation (www.ICCFglobal.org), a European think tank focused on public policies to promote savings and investment in the private sector. ICCF advocates the reductions of tax, regulatory, anti-trust, and trade barriers to promote business investment, strong job growth and competitiveness.