EU’s Wrongheaded Climate Policy

Assuming that fighting climate change is desirable and that it can be effectively done by limiting man-made CO2 emissions, it is best achieved by making hydrocarbon fuels like oil and gas more expensive. That way, consumers have an incentive to use less of them and embrace alternative, carbon-free energy sources instead. But nowhere do people want to pay more for their energy, which is why doing something about global warming remains a low priority.

The world’s preference for cheap energy over climate action was apparent at the annual G8 Summit of industrialized nations last July in Japan. In the months leading to the Summit, officials from the European Union pressed for climate change to be at the top of the agenda. Specifically, they wanted industrialized nations to agree to firm greenhouse gas emissions targets in 2020 and 2050.

At the time, however, the price of oil was skyrocketing, causing discontent and even protests across the world. And so it was that the high price of oil took precedence at the Summit, while climate change was relegated to the backburner. Far from announcing binding targets in Japan, the G8 actually called for an increase in production of hydrocarbon fuels—one of the causes of global warming.

Politicians wax lyrical about green jobs and green big business, but the fact is that a clean energy future is an expensive energy future. According to the International Energy Agency, reducing global emissions 50 percent by 2050 would cost 45 trillion dollars. Someone must pay if the world is going to de-carbonize energy production.

The United States doesn’t want to foot the bill. That was made clear last June, when the first major global warming bill before the U. S. Congress, the Climate Security Act, failed spectacularly. The Act would have created a so-called cap-and-trade scheme to reduce emissions, but America’s representatives in Congress rejected the legislation because they refused to subject their constituents to higher energy costs. Global warming has since been dropped and debate now centers on whether to drill for oil and gas off the coast and in Alaska, a policy favored by more than 60% of Americans.

In 1998, Canada signed the Kyoto Protocol, thereby pledging to reduce its carbon footprint by 2012. Since then, its emissions have increased more than any other signatory, prompting Canada to abandon the Protocol. Quite apart from addressing climate change, the Canadian government is now involved in a modern day Great Game for oil and gas deposits in the Arctic, made available by global warming that has melted away ice that previously was impenetrable. Indeed, Canada is one of many nations, including the United States and Russia, vying for sovereignty over this mineral rich terra incognita. Prime Minister Stephen Harper has said that Canada must “use it or lose it” in this struggle for access. “And make no mistake,” he continued, “this government intends to use it.”

Developing countries like China and India, which will account for the bulk of future increases in global emissions, have made it clear that they prioritize economic growth over global warming. These countries cling to their “right to develop,” as well they should. After all, a quarter of the world’s population still has no access to electricity.

Even the European Union has yet to ask any real sacrifice of its citizens on behalf the climate. Rather than concerted effort, its emissions reductions to date have been largely smoke and mirrors.

On the one hand, they are a product of historical happenstance. Central Europe’s precipitous fall in emissions was due to de-industrialization after the fall of Soviet Communism. The United Kingdom made a dash for natural gas, which emits half as much carbon as coal, only after Margaret Thatcher broke the back of the once mighty coal unions. And a continent-wide shift to natural gas was facilitated by cheap, plentiful natural gas from Russia in the 1990’s; as the Russian Bear regains its geopolitical footing, however, energy dependence on state-owned Gazprom is less and less appealing. That’s one of the reasons why Germany is planning to build 60 new coal fired power plants through 2018, according to the Deutsche Press-Agentur. More recent emissions reductions in the EU were caused by a slowdown in economic growth.

On the other hand, accounting tricks have aided the appearance emissions reductions. Ministers from the United Kingdom, for example, claim that the country’s emissions have fallen 5 percent from 1992 to 2004. As reported by the Stockholm Environmental Institute, however, the government calculated that figure by omitting emissions from aviation, shipping and imports. When these are taken into account, the UK’s emissions increased 18 percent during that time.

Moreover, global warming is a global problem, and would require a global solution. Yet when you start talking about an international effort to fight global warming, you bring up principles like fairness and equity—qualities that have never been a hallmark of an interstate system characterized by anarchy and self-help.

The United States has unequivocally rejected any binding emissions reductions that don’t also include China, its “strategic competitor.” The reason is simple: America is the most powerful country in the world, but China is closing in with its rapid economic growth. Under no circumstances would the United States voluntarily shackle its economy and thereby increase China’s relative power. That’s why the U. S. Senate, in 1997, passed by a 95-0 vote the Byrd-Hagel Resolution, which resolved that the U.S. should not sign any international agreement to set mandatory limits on greenhouse gas emissions that did not also set emissions limits on developing countries.

Nor is the European Union immune from geopolitical considerations in its approach to climate change. For Phase II of the Emissions Trading Scheme (Phase 1 was an utter failure because of a gross misallocation of free emissions permits), the EU is leaning towards emissions exemptions for large industrial emitters to protect them from foreign competitors that do not have to pay for emissions. The alternative is a tariff on the carbon content of imports, but that would likely ignite a highly undesirable trade war. In any case, it remains to be seen what good can come of a cap and trade scheme that ignores high-emission sectors.

Even within the EU, there are interstate squabbles over sharing the burden to stop climate change. After the EU Commission announced proposed emissions reductions allotments for members, French President Nicholas Sarkozy wrote to Jose Manual Barroso, the Comission President, saying the proposals are “neither efficient fair nor economically sustainable” because they failed to take into account what France has already done.

A coalition of EU members, mostly from Central and Eastern Europe, objected to the proposals because they felt too much of the burden fell upon the EU’s newest, poorest members. That sentiment was contradicted by Danish Prime Minister Anders Fogh, who insisted that the Commission’s proposals are unsatisfactory because they make the EU’s richest countries sacrifice too much.

The 45 trillion dollar question is: Who’s going to pay what? There is no historical precedent demonstrating that states are capable of sharing a burden of this magnitude.

It is said that there is a scientific consensus that greenhouse gas emissions are causing global warming, which will harm human welfare. Yet there is also an economic consensus that global warming policy would inhibit economic growth, which also would harm human welfare. So which is worse: the warming, or the solution? The answer is not clear.

In a Cato Institute study Indur Goklany suggests that climate change is unlikely to be the world’s most important environmental problem during the 21st century, because a richer but warmer world is better for human welfare than a colder but poorer world would be.

Danish statistician Bjørn Lomborg, in his book Cool It, applies a cost/benefit analysis to climate change mitigation measures like the Kyoto Protocol, and finds that they are a tragic waste of money. According to his research, we could spend a fraction of the cost of climate policies on immediate problems, like HIV or malaria, and save millions more lives than global warming could possibly take.

Dr. William Nordhaus of Yale University estimates that unabated global warming would cost the world $22 trillion this century. Nordhaus calculates that the package of global warming policy prescriptions advocated by Al Gore would reduce warming costs to $10 trillion, at a cost of $34 trillion. That’s a crummy deal.

It’s time to get real: We’re not going to stop global warming. No one is willing to pay significantly more for alternative, “green” energy, and even if they were, states could never agree among themselves how to share the cost of an expensive energy future.

But humans can adapt to a gradual rise in temperatures. To do so, mankind must become resilient, and the best measure of resiliency is wealth. Wealth creation, in turn, is facilitated by economic freedom. But global warming policies are inimical to economic liberty. They dictate what kinds of energy we should use; how we should travel; what technologies should be pursued.

Instead of environmental regulations, we should be liberalizing energy markets. Instead of carbon tariffs, we should be opening up international trade. The solution to global warming is for humans to get as rich as they can, as fast as they can, and for that to happen, we need to reject command and control climate change strategies.

William Yeatman is an energy policy analyst on the energy and global warming team at the Competitive Enterprise Institute.