Beware of the Kyoto Compromise: Kemp and Smith Op-Ed in NY Times

In November the Clinton Administration signed a treaty, negotiated in Kyoto, Japan, that purports to temper “global warming” by imposing a schedule of emissions reductions on so-called greenhouse gases. The action was widely regarded as a public relations move, pure and simple, because the Senate has voted overwhelmingly–95 to 0–to reject the treaty as written.

But if there is no chance of the treaty’s protocols going into effect, why are large blocs of corporate America booking seats on the Kyoto Express? The explanation is that they are being seduced by the promise of getting credits for any reductions in emissions they achieve before the Kyoto treaty would take effect in 2008, and in some cases for reductions already achieved.

For some companies, the emissions credits earned now could be applied against the strict limits they would face later. And corporations able to make even deeper cuts in emissions now could sell their surplus credits for billions of dollars under a trading system that the Clinton Administration wants to set up. Some large utilities, for example, would benefit, while the petroleum industry would be hurt.

The emissions-credit plan is the brainchild of John Chafee of Rhode Island, the leading Republican environmentalist in the Senate, who worked with Senator Joseph Lieberman of Connecticut, a Democrat, and Senator Connie Mack of Florida, a Republican.

These three Senators, honorable men all, seem to believe they have found a “third way” between pro-Kyoto and anti-Kyoto forces. The stated rationale for their approach is clear enough. Awarding early credits to companies that reduce emissions might encourage a trend toward cutting back on greenhouse gas production. This would win points with the global warming crowd. And the plan also looks attractive to industries, which would find it advantageous to reduce in advance the long-term costs of the Kyoto treaty, or some domestic version of it, and to secure some tangible gain in return.

As usual, though, there is no real third way. Proposals like the one introduced by Senator Chafee and his colleagues will inevitably divide the business community between winners, who can achieve large windfalls, and losers, who will face the full brunt of any emissions controls. The result will be to push the pendulum toward a plan closer to that drawn up in Kyoto.

Unfortunately, this dynamic of giving special breaks to individual companies is all too familiar. It explains why, for example, we have a Federal tax code with rates much higher than they need to be, but with many exemptions, privileges and special rules accorded to favored industries and activities in the form of credits, deductions, exclusions from income and the like.

It represents a cynical bargain between big business and the Federal Government, with the corporations acceding to unreasonably high rates in exchange for special benefits. In 1996, the National Commission on Economic Growth and Tax Reform, also known as the Kemp Commission, a private organization created at the request of then Senator Bob Dole and House Speaker Newt Gingrich, found that “the history of our tax code, in economic terms, mirrors the course of most addictions: advancing dependence, diminished returns and deteriorating health of the afflicted.”

The Kyoto treaty and its progeny portend a repetition of that experience, only on a global scale. The treaty would create a vast array of bureaucrats, at home and abroad, who would employ vague standards, arbitrary conditions and dubious science to allocate economic rights and privileges.

Bad as the existing tax system is, most of us agree the Government must have some mechanism for raising revenue. But it’s not clear at all that we need any regulatory structure for limiting “greenhouse gases,” so shaky is the science on which the treaty is based. There is little hard evidence that internationally enforceable emissions limits, implicitly intended to wean us away from use of fossil fuels, will actually slow global warming.

What is more, the Kyoto treaty has not yet devised clear-cut rules governing emissions trading. They are still being negotiated.

The Kyoto treaty is unlikely to be approved by the Senate because control over much of the American economy would be forfeited to international bureaucrats. It would also impose huge new costs on that same economy and cost jobs. This would have the result of transferring wealth from country to country, industry to industry and company to company. The accord’s strictures would apply to developed nations but not, conspicuously, to developing nations like China and Paraguay.

Ceding power to unelected global authorities would be a hard sell, even if the science behind Kyoto were compelling. Surrendering power on that scale for the sake of a vague, arbitrary promise of modest financial relief doesn’t make sense for any American business. We must therefore guard against a milder version of the Kyoto treaty that would serve the same purpose, offering concessions to companies that acquiesce in creating the biggest global regulatory regime yet conceived. Let’s not put a more appealing face on a treaty that cannot possibly help our economy and is likely to do it immense harm.