So China will reduce emission intensity by a “notable margin” by 2020. That’s progress? No that’s what George Bush promised and delivered. It happens automatically. From 1990 to 2000 China cut intensity 50% with no policy at all, but its emissions increased 26%.
As always, there’s a lot of happy talk and promises. Nixon promised to cap oil imports at zero by 1980. Ford, by 1985. China capped its intensity down 10% by 2010. It’s not happening. Canada and Spain are missing their Kyoto caps by over 20%. The Waxman-Markey bill promises caps that the EPA and DOE say
we will miss by a mile. And, both agree that in 2020
we will still be above, not below, our 1990 emission level.
Unfortunately, the U.S. theory, that strong Congressional action will guide us to a strong agreement at Copenhagen, is completely lacking in economic and strategic analysis. Our cap works against global carbon pricing and in favor of “NAMAs.” Listen to any developing country—“tough caps for you; NAMAs for us.” Bush’s national voluntarism has triumphed, and it will never fix the free-rider problem called climate change.
At Kyoto we knew that pricing carbon at zero was the root of the problem. So the focus was on achieving an enforced global price for carbon. That was grounded in serious economics. The current draft agreement barely mentions carbon pricing but focuses on Nationally Appropriate Mitigation Actions (NAMA’s). That’s flimflam. That’s the Bali-Bush voluntary approach backed by developing countries who are dodging caps.
The fault lies squarely with the American and European fixation on caps as the only possible form of international commitment. From news reports you would think there was no other possibility. Yet our two top climate economists (Stiglitz and Nordhaus) and our top climate scientist (Hansen) all agree that caps are a particularly poor—perhaps disastrous—approach to commitment. Kyoto was right about carbon pricing, but politically mistaken about caps.
Ever since Kyoto, pushing for caps has pushed the developing countries to look for another approach. And at Bali they found NAMAs. Now blessed by the G20, these are mentioned over two hundred times in the draft Copenhagen agreement, though you will find few attempts to pin them down. And that’s the idea.
We are headed for a plan requiring industrialized countries to fund “sustainable development projects” having at least some climate benefit. Developing countries will implement them—if they are fully funded. India has already picked its project—20 GW of distributed solar PV. This is just about the least cost-effective climate-policy imaginable. Why did they pick it? Spend a few minutes reading the Indian press and you will find they believe it’s a way to break into the semi-conductor industry, since PV’s are semiconductors.
So how did we get into the mess? Way back before Kyoto there was an alliance between economists, environmentalist, and believe it or not, Enron. Enron, then viewed as heroic, wanted to “make the market” in carbon allowances. The economists wanted carbon pricing and were happy to back cap and trade—one of two market-based approaches. The environmentalists didn’t trust markets, but cap-and-trade had three things going for it, (1) they viewed the caps as good-old command and control, (2) they could sell caps as a modern market-based approach, and (3) all those “free” permits would be great for making backroom deals (bribing polluters).
Had it worked, then fine. But even before Kyoto was signed, it was obvious the developing countries had extremely good reasons to reject caps.
Stiglitz explains this best. Without China and India, there’s no stopping CO2 emissions, so there was no logical choice but to change track. But that was not to be.
The other market-based approach favored by virtually every economist is national commitments to carbon pricings carried out by carbon taxes or, if you like, cap and trade. The key is that India or China could commit to, say, $20/tonne instead of to 6 billion tonnes by 2020. Committing to a price is far less risky and far less humiliating than committing to a cap set at the U.S. emission level in, say, 1885.
Given that our best climate economists and climate scientist think committing to a carbon price is an excellent form of commitment, what right does the U.S. have to continue to browbeat China and India for 15 years for not accepting caps? More to the point, what sense does it make to run the Copenhagen conference into the ground over an economic theory rejected by almost every economist—that cap and trade is better than a carbon tax. This view is even rejected by the economists who invented cap and trade!
And lest anyone think carbon pricing cannot work without caps, history tells a different story. The strongest climate policy ever was carbon pricing without caps. And it worked miracles. That was, of course, OPEC’s oil-crisis policy—the worst possible form of carbon pricing. Still in those 13 years our GDP grew slightly more than in the previous 13, and
CO2 declined absolutely. And it declined relative to its trend by 2 Gt per year (present emissions are 6 Gt/year). There was no cap; no one was even thinking about CO2. And the success was not due to nuclear power (the absolute CO2 decline is calculated assuming all nuclear plants burn coal).
So that’s the story. The U.S. has ruled out the best climate policy—global commitments to a carbon price—to please environmentalists who don’t trust the market. Then we have insisted that developing countries accept caps far below our own. And we have stuck to this absurd position until we have thrown the Copenhagen conference onto the most dangerous track possible for the climate—NAMAs. The Senate is not the problem. The problem is our command-and-control mentality, now disguised as cap and trade.
