Vol. III, No. 15
Politics
Early Action Credits: Road to Kyoto
Early action crediting is being promoted as a way to protect industry in the event that the Kyoto Protocol or some other program to limit greenhouse gas emissions is implemented. But Jack Kemp, a distinguished fellow with the Competitive Enterprise Institute, told the House Government Reform Subcommittee on July 15 that early action crediting is an attempt to create a pro-Kyoto lobby within the business community. Credits acquired under early action would be worthless unless Kyoto is ratified.
David Ridenour, vice president of the National Center for Public Policy Research, and also representing the Cooler Heads Coalition, said that early action crediting would help big business at the expense of small business. “Since most small businesses and family farms lack the political contacts and clever lawyers necessary to negotiate credit deals with the Clinton administration and lack the financial wherewithal to make immediate reductions in their emissions, large businesses would likely garner the lion’s share of early credits.”
Kevin Fay, executive director of the International Climate Change Partnership, claimed that early action would not hurt small business. “A successful early action program will reduce the overall level of reductions required under any regulatory program. Companies that don’t make early reductions will thus have fewer reductions to make and will benefit from the lessons learned by the early actors and the innovations and new technologies that have resulted from these experiments.” But the Kyoto Protocol caps emissions at 7 percent below 1990 emissions for the U.S. Any credit that is awarded now will be one less credit available when the compliance period begins.
Fred Krupp, executive director of the Environmental Defense Fund, argued that early action would reduce carbon emissions while maintaining economic growth. Implementing Kyoto now, said Krupp, will reduce expected costs. Krupp argued that we must act now because “nine more years of unchecked greenhouse gas emissions increases represents an ever increasing environmental risk.”
EDF’s Sweet Deal
The congressional hearings also revealed that EDF might possibly profit from early action credits. David Ridenour told the congressmen at the hearing that EDF, which helped write the Chafee early action bill, may be trying to position itself as a third party verifier of emissions reductions. He cited a report by the NonProfit Accountability Project, Crony Environmentalism, in which EDF is accused of a conflict of interest in supporting the Chafee bill.
The report alleges that the Environmental Resource Trust, an arm of the EDF, is positioning itself to run a greenhouse reduction pool. An ERT memo acquired by NPAP states, “a proposal had been made both to EEI (Edison Electric Institute) and the White House to provide early reduction credits for those companies that participate in a greenhouse gas reduction pool. The GHG reduction pool would: provide the government with a legal entity responsible for monitoring, tracking and reporting upon member companies emissions performance; enforce members’ GHG commitments; operate a GHG reduction trading system.”
Moreover, in early June EDF participated in a conference promoting early action legislation, sponsored by the Progressive Policy Institute. EDF presented a plan to monitor and verify greenhouse gas emissions.
In return for running the pool, the “ERT would receive fees in the form of greenhouse gas reduction credits from the utilities.” It is unclear whether ERT would sell the credits or retire them. Fred Krupp testified that ERT would retire the credits. If so this would contradict other statements made at the hearing that early action crediting would cut costs through emission trading.
Under early action proposals, companies that do not participate in early reductions would be able to choose among different compliance strategies in the event that Kyoto is ratified. They could either reduce emissions at the site or they could buy emission credits. If ERT retires the credits it receives for its services, that would reduce the supply of credits. The range of compliance strategies would be lessened for latecomers.
Finally, Krupp argued that by retiring emission credits EDF would not be profiting from its role as a third party verifier. But, as Ridenour pointed out, “the incentives such a system would provide to corporations to give – and give generously – to the EDF or similar organization,” should be of grave concern.
“Corporations,” said Ridenour, “will be tempted to pay tribute to environmental groups knowing full well that they are the final arbiters of who does and does not deserve emissions credits.” Crony Capitalism can be downloaded from http://users.erols.com/npap/crony.html.
Restrictions on Tightening CAFE Under Attack
One of the favorite policies of green activists is the Corporate Average Fuel Economy (CAFE) standards that require U.S. auto makers to keep the average fuel economy of their fleet below 27 mpg. Recently, however, the greens have been frustrated because the CAFE standard has not been tightened for years. They are especially upset about the increasing popularity of big trucks and sports utility vehicles that they claim are significantly contributing to global warming.
Moreover, Congress has inserted language into the annual Department of Transportation (DOT) appropriations bill since 1995 prohibiting them from changing the current CAFE standards. Environmentalists want to prevent that from happening again this year. Their first move is to push for a “sense of the Senate” resolution that would force the Senate to negotiate with the House over the matter, and to convince the White House that a veto of the DOT appropriations bill would be sustained.
Auto makers are upset about this development because now they must mount a lobbying effort against higher CAFE standards when they are making efforts to appear green (Wall Street Journal, July 16, 1999).
Economics
An Early Start Will Cost a Little Less
In 1998, the Energy Information Administration released a report that estimated that complying with the Kyoto Protocol would cost the United States $64 billion per year. The study assumed that the U.S. would begin to comply with the protocol in 2005 and reach its target of reducing greenhouse gas emissions by 7 percent below 1990 levels by 2008 to 2012.
The EIA has just completed a new report at the request of House Committee on Science that would change the starting date from 2005 to 2000 to see if that would have any effect on the cost of reducing greenhouse gas emissions. EIA looks at a range of scenarios from an increase of emissions of 24 percent over 1990 levels (1990+24%) to the minus 7 percent (1990-7%) as required under Kyoto. The study finds that an “early start date reduces the carbon price in 2010 for each of the carbon reduction cases.” The 1990-7% case, for example, would see a reduction of the carbon price from $349 per metric ton to $310 per metric ton.
“With an earlier start date,” says the study, “the economy experiences a loss in gross domestic product beginning in 2000 as higher prices increase the prices of goods and services throughout the economy; however, the early start date smooths the transition of the economy to a longer run target.” The study finds that the “projected cumulative impacts” on actual GDP between the years 2000 and 2020 is over $2.6 trillion if reductions begin in 2005 and just under $2.5 trillion under an early start scenario.
The report also indicates that using a net present value calculation (discounting) the cumulative discounted impacts are larger in the early start cases. Using a 7 percent discount rate the EIA finds that impacts by 2020 will be nearly $1.3 trillion for the 2005 start and over $1.4 trillion for the early start. The report concludes, “although the cumulative impacts on GDP are similar, the early start cases involve a tradeoff. The peak impacts are less severe in the early cases, but they occur earlier.” There is little difference in the overall costs of the two scenarios. The report can be downloaded from www.eia.doe.gov.
Technology as a Long Term Solution
The Clinton Administration claims that the development of energy efficient technologies is the solution to the global warming problem. It also claims that the technologies necessary to meet the targets set under the Kyoto Protocol are already available and just need to be put into use.
A new report by the Business Roundtable (BRT) agrees that technology is the key, but only in the long run. The report reaffirms BRT’s opposition to the Kyoto Protocol. The protocol, says the report, “does not include developing countries, it would have a negative impact on the U.S. economy and it would bring no significant global environmental benefit.”
Although new technology “constitutes the most effective response to concerns about possible changes in our climate,” says the report, “in the short term, there are no technologies that make plausible the goals sought by the Kyoto Protocol.”
The BRT also recognizes a role for government in developing new technologies, albeit a small one. “A central policy tenet is that governments cannot foster private sector technology advancement by picking winners and losers,” says the report. “Instead, a central role for government is to ensure its policies are coordinated and consistent, and that unintended regulatory, policy and tax impediments to innovation are remedied.”
The report also points out that a necessary prerequisite to innovation is robust economic growth. Without the financial means to invest in R&D, there is no technological progress. Moreover, developing countries will not be able to benefit from new technologies unless they become wealthier. The report can be downloaded from www.brtable.org.
Science
CO2 Estimates Adjusted Downward
Scientists have been basing their global warming predictions on the assumption that the concentration of greenhouse gases in the atmosphere will accelerate. Now they have discovered that the growth rate has declined by about 25 percent since 1980, which throws a kink into their projections. This has occurred even though CO2 emissions continue to increase.
Scientists have been predicting a doubling of atmospheric CO2 by 2050, but current trends suggest a doubling sometime after 2100. According to James Hansen, head of NASA’s Goddard Institute for Space Studies, this new revelation shows that “our understanding of … greenhouse gases is not all that good.” Hansen also said, “we really have to understand the cycles of these greenhouse gases if we’re going to reliably forecast what’s going to happen in the next century” (The Christian Science Monitor, July 15, 1999).
Scientists have shown under the old assumptions about CO2 accumulation rates that we can wait 10 years before we do anything about global warming without any adverse effects. Now that CO2 is not accumulating as rapidly as thought, wouldn’t it make sense to wait before we commit ourselves to drastic action? A few more years may give scientists enough time to determine if global warming is truly a threat.
Japan’s Odd Temperature Record
A new report by the Greening Earth Society (GES) reveals the difficulties of interpreting temperature data. Robert C. Balling, Jr., Director of the Laboratory of Climatology at Arizona State University, analyzed the temperature data from Japan that he obtained from the Intergovernmental Panel on Climate Change. The data, which begins in 1878, shows a curious pattern. From 1878 to 1947, the IPCC data shows a slight and statistically insignificant cooling of 0.18 degrees C. It also shows a statistically insignificant cooling of 0.09 degrees C from 1948 to 1998. Yet over the entire 121 year record, Japan warmed by 1.02 degrees C.
This is possible because all of the warming took place in one year, 1947 to 1948. Balling argues that “the temperature records from Kyoto and Japan can be interpreted a hundred different ways. One could fairly argue (a) Japan has warmed significantly over the past century, (b) Japan has warmed quickly in the most recent two decades, (c) 1998 is the warmest year on record for Japan, and (d) the greatest warming is occurring at night in the winter. All of these findings are broadly consistent with expectations from climate model simulations for increasing concentrations of greenhouse gases. From this perspective, the temperature record from Japan is another reason to support the Kyoto Protocol.”
On the other hand, the same temperature record could be used to argue that there is no justification for supporting the Kyoto Protocol since “without that jump, there is no warming in Japan.” Balling concludes, “in discussing the climate shortcomings of the Kyoto Protocol, one need look no farther than Japan to begin to see reasons many folks are skeptical about the scientific basis for the agreement. If the temperature record from Japan represents the type of facts the Protocol is built upon, it’s time to say ‘sayonara’ to Kyoto.” The report can be found at www.greeningearthsociety.org.
Announcements
- The American Enterprise Institute is sponsoring a conference, The Greening of Global Warming, featuring Robert Mendelsohn of Yale University. Mendelsohn claims that global warming will not be as harmful as previously claimed. The conference will be held on July 26 at 1150 17th Street, NW, 12th floor, Washington, D.C. Registration begins at 1:45 p.m. Contact Amy Wendholt at (202) 862-5847 for more information.
THE COOLER HEADS COALITION
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