The Heat Is Online

Toward A Real Kyoto Protocol

Previous prentations include:

(Inaugural address of "Climate Talks" -- a series of teleconferenced climate discussions involving participants at Harvard, MIT, Tufts and Yale Universities -- Oct. 2001)

(Presented at Woods Hole Research Center to members of WHRC, the National Marine Biology Lab and Woods Hole Oceanographic Institution -- Jan. 8, 2002)

(Presented at Swiss Re Conference on carbon trading market requirements: "Emissions Reductions: Main Street to Wall Street" in New York City -- July, 2002)

(Presented at the Fletcher School of Law and Diplomacy, Tufts University -- Oct. 2002)

(Presented at a seminar hosted by Dr. David Orr, Oberlin College -- Nov. 2002)

(Presented at the Center for Health and the Global Environment, Harvard Medical School -- Dec. 2002)

(Presented at the Climate and Energy Funders Group of the Consultative Group on Biological Diversity, Washington, D.C. -- Feb. 2003)

(Presented at the Center for World Ethics and Society, Colgate University -- April, 2003)

(Presented at Seminar for Doctoral Candidates, Boston University School of Public Health -- May, 2003)

(Presented at Panel Discussion at the Center for Health and the Global Environment -- April, 2004)

This paper contains a set three interactive and mutually-reinforcing strategies designed to reduce the world's use of carbon fuels by at least 70 percent -- at the same time as it would create millions of jobs around the world, especially in developing countries.

The plan is driven by concerns that global climate change is progressing far more rapidly than the world's climate scientists anticipated even a few years ago.

To arrest the escalating pace of change and to allow the climate to re-stablize requires humanity to cut its burning of fossil fuels by at least 70 percent in a very short time. That is the consensus finding of more than 2,000 scientists from 100 countries reporting to the U.N. in what is the largest and most rigorously peer-reviewed scientific collaboration in history.

The urgency of the threat is spelled out in two recent studies -- one on the environmental side, one on the energy side.

In 2001, researchers at the Hadley Center, Britain's principal climate research institute, found that the climate will change 50 percent more quickly than was previously assumed. That is because earlier computer models calculated the impacts of a warming atmosphere on a relatively static biosphere. But when they factored in the warming that has already taken place, they found that the rate of change is compounding. They project that most of the world's forests will begin to turn from sinks to sources -- dying off and emitting carbon -- by around 2040.

The other study, from the energy side, is equally troubling. Eleven researchers found several years ago that unless the world is getting half its energy from non-carbon sources by 2018, we will be locked into an inevitable doubling -- and possible tripling -- of pre-industrial CO2 levels later in this century. A follow-up study by many of the same researchers, published in Science in November, 2002, calls for a crash program to develop a carbon-free energy economy. Using conservative projections of future energy use, the researchers found that, within 50 years, humanity will need to be generating at least three times more energy from non-carbon sources than the world currently produces from fossil fuels to avoid a catastrophic build-up of atmospheric CO2 later in this century.

The science is taken very seriously abroad. Outside the United States, there is virtually no debate about what is happening to the climate. All the debates in the other countries center on policy choices -- i.e., how to change national energy structures without wrecking national economies. The agreement on the urgency of the climate threat is evident in the responses in Europe. Holland has completed a plan to cut emissions by 80 percent in the next 40 years. The U.K. has committed itself to 60 percent reductions in 50 years. Germany is planning for 50 percent cuts in 50 years.

By contrast, the White House has become the East Coast branch office of ExxonMobil and Peabody coal and climate change has become the pre-eminent case study in the contamination of our political system by money.

Two years ago, President Bush reneged on a campaign promise to cap carbon emissions for coal-burning power plants. He then unveiled his administration's energy plan -- which is basically a shortcut to climate hell. In a truly Orwellian stroke, the White House excised all references to the dangers of climate change on the EPA's website in mid-2003. Finally, Bush withdrew the country from the Kyoto climate negotiations and the Administration's chief climate negotiator declared that the U.S. won't engage the Kyoto process for at least 10 years.

There may, however, be an approach that could address our increasingly inflamed atmosphere and our reluctant political leadership as well.

This plan was developed by an ad hoc, informal group of about 15 energy company presidents, economists, energy policy experts and others who met at the Center for Health and the Global Environment at Harvard Medical School.

Since its development three years ago, the plan has been presented at side conferences to the climate negotiations in Buenos Aires and Bonn. It has been endorsed by a number of developing country NGOs. It received a very positive reception from the former CEO of Shell/UK who was also director of a G-8 Task Force on Renewable Energy. It was the subject of a briefing with a group of oil executives in Cairo. It attracted the interest of a small number of senators and congressmen two years ago. Most recently, it was endorsed by a former British Ambassador to the United Nations.

To set the plan in its starkest context: the deep oceans are warming, the tundra is thawing, the glaciers are melting, infectious diseases are migrating and the timing of the seasons have changed. And all that has resulted from one degree of warming. By contrast, the earth will warm from 3 to 10 degrees later in this century, according to the UN-sponsored Intergovernmental Panel on Climate Change (IPCC).

Against that background, we are offering this set of strategies. While they have been vetted by a number of economists and energy policy experts, they are still provisional. Some elements may require major surgery. Although we happen to think this proposal is elegant, we are not dogmatic about its particulars.

What we do believe -- very strongly -- is that these strategies present a model of the scope and scale of action that is appropriate to the magnitude of the climate crisis. To date, we have seen no other policy recommendations that adequately address either the scope or urgency of the problem.

The Plan involves three interacting strategies which include:

· Subsidy Switch: In industrial countries, eliminating government subsidies for fossil fuels and establishing equivalent subsidies for renewable, non-carbon energy technologies;

· Clean Energy Transfer Fund: Creating a fund on the order of $300 billion a year to transfer renewable energy technologies to developing countries; and,

· Progressive Fossil Fuel Efficiency Standard: Adoption, perhaps within the Kyoto framework, of a progressively more stringent Fossil Fuel Efficiency Standard that rises by 5 percent per year. The mechanism of emissions-trading could be employed as a complementary strategy to help nations meet the progressive standard.

While each of these strategies can be viewed as a stand-alone policy, they are better understood as a systemic set of interactive policies which could speed the energy transition far more rapidly than were they to be implemented in piecemeal fashion.

Subsidy switch:

The United States currently spends more than $20 billion a year to subsidize fossil fuels. The aggregate subsidies for fossil fuels in industrial countries have been estimated at $200 billion a year.

We are proposing that, in the industrial countries, those subsidies be withdrawn from fossil fuels and equivalent subsidies be established for renewable energy sources. (Clearly a small portion of the U.S. subsidies must be used to retrain or buyout the nation's approximately 50,000 coal miners.) But the lions' share of the subsidies would still be intended to be used by the major oil companies to retrain their workers and re-tool to become aggressive developers of fuel cells, wind farms, and solar systems. In other words, we envision the subsidies as a tool to help oil companies transform themselves into renewable energy companies.

Again, we believe these strategies would best not be established in isolation. If the subsidy switch in industrial nations were implemented in tandem with the progressive Fossil Fuel efficiency standard, we believe those two policies alone could jumpstart an energy transition in the North. But, as we know, the problem is global in scope. Even if the countries of the North were dramatically to reduce emissions, those cuts would be overwhelmed by the coming pulse of carbon from India, China, Mexico and Nigeria.

Clean Energy Transfer Fund:

The second element of the plan involves the creation of a new $300 billion a year fund to help transfer renewable energy resources to developing countries. Virtually all poor countries would love to go solar; virtually none can afford it. The most air-polluted cities in the world today are in China, Mexico, Thailand, Chile and other developing and transitional countries. (The estimate of $300 billion-per-year for up to a decade to transfer non-carbon energy technologies to developing countries was developed by the late Dr. Stephen Bernow, assistant director of The Tellus Institute in Boston).

One attractive source of revenue to fund the transfer lies in a "Tobin tax" on international currency transactions, named after its developer, Nobel prize-winning economist Dr. James Tobin. Tobin conceived his tax as a way of damping the volatility in capital markets by discouraging short-term trading and encouraging longer-term capital investments. But it would also generate enormous revenues. Today the commerce in currency swaps by banks and speculators amounts to $1.5 trillion per day. A tax of a quarter-penny on a dollar would, for technical reasons, net out to about $300 billion a year for wind farms in India, fuel-cell factories in South Africa, solar assemblies in El Salvador, and vast, solar-powered hydrogen-producing farms in the Middle East.

Since currency transactions are electronically tracked by the private banking system, the need for a large, new bureaucracy could be avoided simply by paying the banks a fee to administer the fund. That administrative fee would, to some extent, offset the banks' loss of income from the contraction in currency trading that would result from the imposition of the tax. The involvement of the private banking system in administering the fund would also help in minimizing corruption in recipient countries by the banks' establishment of clear benchmarks for payment to contractors.

The system, moreover, would allow latitude recipient countries, in negotiating contracts with renewable energy vendors, to ensure domestic ownership of completed facilities and to require substantial employment of local labor in the construction and deployment of new energy facilities.

Several developing country commentators have suggested that corruption could be further reduced by requiring recipient governments to include representatives of ethnic and indigenous minorities, universities, NGOs and labor unions in making decisions about the procurement and deployment of new energy resources.

The only new bureaucracy we envision would be an international auditing agency to monitor transactions to ensure equal access for all energy vendors and to review contracting procedures between banks, vendors and recipient governments.

If a Tobin Tax proves unacceptable, a fund of the same magnitude could be raised from a tax on airline travel or a carbon tax in industrial countries, although both these sources are more regressive. Florentin Krause, of the IPCC's Working Group III, and Stephen DeCanio, former staff economist for the Reagan Council of Economic Advisers, estimate that if carbon emissions were taxed at the rate of $50 a ton, the revenue would approximate the $300 billion to transfer clean energy technologies to developing countries.

(Parenthetically, at this point, we have not calculated what would happen to transitional prices of carbon fuels if subsidies were removed and a carbon tax imposed simultaneously. That may, or may not, generate too large an economic shock in the short term.)

Regardless of its revenue source, the fund -- on the ground -- would be allocated according to a United Nations formula based on climate, energy use, population, economic growth rates, etc. to determine what percentage of each year's fund would go to each developing country.

If India, for instance, were to receive $5 billion in the first year, it would then decide what mix of wind farms, village solar installations, fuel cell generators and biogas facilities it wanted.

The Indian government (in this hypothetical example) would then entertain bids for these clean energy projects. As contractors reached specified development and construction benchmarks, they would then be paid directly by the banks. And the banks, as noted, would receive a fee for administering the fund.

As self-replicating renewable infrastructures took root in developing countries, the fund could simply be phased out. Alternatively, progressively larger amounts of the fund could be diverted to other global environmental and development needs.

The fund is not a traditional North-South giveaway. Rather it represents the transfer of resources from the finance sector -- in the form of speculative, non-productive transactions -- to the industrial sector -- in the form of intensely productive, wealth-generating, job-creating investments.

The fund also represents a critical investment in our own national security. The global climate envelops us all. What is needed is the kind of thinking that gave rise to the Marshall Plan after World War II. So that today, instead of a collection of impoverished and dependent allies in Europe, we have prosperous and robust trading partners. We believe a clean energy transfer fund of this sort would have a similar impact on developing and transitional economies.

Progressive Fossil Fuel Efficiency Standard:

The third -- and unifying -- regulatory strategy of the plan calls on the parties to Kyoto to subordinate the ineffectual and inequitable system of international emissions trading to a simple and equitable progressively more stringent Fossil Fuel Efficiency Standard which goes up by about five percent per year.

This mechanism, if incorporated into the Kyoto Protocol, would harmonize and guide the global energy transition in a way that emissions trading can not.

The system of international emissions trading at the heart of the Kyoto Protocol is based on the concept that a country which exceeds its allowed quantity of carbon emissions can buy emission credits from a country which emits less than its allowed quantity. Under this system, the United States, for instance, can pay Costa Rica to plant more trees to absorb carbon dioxide -- and subtract the resulting reduction from its own allowance.

In this particular example, new scientific findings cast substantial doubt on the long-term viability of using trees and other forms of vegetation to absorb carbon dioxide for a number of reasons.

Far more important are the significant policy failings of this system of international "cap and trade" as it is called in the jargon of the Kyoto negotiators.

Emissions trading can work relatively well within nations. Domestic cap-and-trade programs -- like the U.S. trading program set up to reduce sulfur dioxide emissions -- were relatively successful because they are easy to monitor and enforce. Most of the SO2 emissions came from 2,000 smokestacks in the Midwest -- a manageable number to monitor. The program, moreover, was subject to an enforceable system of national regulation.

For that reason, a well-constructed, properly monitored "cap-and-trade" system could work well within individual countries as a complementary mechanism to help them meet the goals of a progressively more stringent Fossil Fuel Efficiency Standard.

At the international level, however, the system of "cap-and-trade" breaks down on several counts. It is not monitorable. It is not enforceable. Moreover, it is plagued by irreconcilable equity disputes between the countries of the North and South.

At one level, there is a profound controversy between industrial and developing countries over how to allocate emission rights. The industrial nations participating in the Kyoto process determined that each country's emission rights be based on its 1990 levels to ensure continuity of their economies. By contrast, developing countries contend that only a per capita allocation is fair and democratic. But if the emission quota for each U.S. citizen were the same as for each citizen of India, that would decimate the U.S. economy. Personally, I think there is moral justice on both sides of the argument.

A second equity issue, articulated by the late Anil Agarwal, founder of the Centre for Science and Environment in New Delhi, focuses on provisions in the Kyoto Protocol which allow industrial nations to buy limitless amounts of cheap emission reductions in developing countries and to bank them indefinitely into the future. This means that when developing nations eventually become obligated to cut their own emissions (under a subsequent round of the Kyoto Protocol), they will be left with only the most expensive options. This clearly constitutes a form of environmental colonialism.

Finally, even if all the shortcomings involving monitoring, enforcement and equity could be resolved, international carbon trading would most appropriately be used as a fine-tuning instrument -- to help countries attain the final 10 to 15 percent of their obligations. It is not the workhorse vehicle required to propel a worldwide energy transition.

We simply can't finesse nature with accounting tricks.

Instead, we are proposing that the parties to the Kyoto talks adopt a progressively more stringent Fossil Fuel Efficiency Standard which we believe would be simple to negotiate, easy to monitor and ultimately fair. (Verifiable domestic "cap-and-trade" regimes could be useful in helping countries meet the progressive standard.)

Under this mechanism, every country would start at its current baseline to increase its Fossil Fuel energy efficiency by 5 percent every year until the global 70 percent reduction is attained. That means a country would produce the same amount of goods as the previous year with five percent less carbon fuel. Alternatively, it would produce five percent more goods with the same amount of carbon fuel use as the previous year.

Since no economy can grow at five percent for long, emissions reductions would outpace long-term economic growth.

The fact that every country would begin at its current baseline would eliminate the equity controversies inherent in the "cap-and-trade" system -- and would, in tandem with the Fund -- assure the participation of developing countries.

For the first few years of the efficiency standard, most countries would likely meet their goals by implementing low-cost or even profitable efficiencies -- the "low-hanging fruit" -- in their current energy systems. After a few years, however, as those efficiencies became more expensive to capture, countries would meet the progressively more stringent standard by drawing progressively more energy from renewable energy sources -- most of which are 100 percent efficient by a Fossil Fuel standard.

That, in turn, would create the mass markets and economies of scale for renewables that would bring down their prices and make them competitive with coal and oil.

This approach would be far simpler to negotiate than the current Protocol, with its morass of details involving emissions trading, reviews of the adequacy of commitments and differentiated targets.

It would also be far easier to monitor and enforce. A nation's compliance would be measured simply by calculating the annual change in the ratio of its carbon fuel use to its gross domestic product. That ratio would have to change by 5 percent a year.

This approach has a precedent in the Montreal Protocol, under which companies phased out ozone-destroying chemicals. That protocol was successful because the same companies that made the destructive chemicals were able to produce their substitutes -- with no loss of competitive standing within the industry. The energy industry must be reconfigured in the same way. Several oil executives have said in private conversations that they can, in an orderly fashion, decarbonize their energy supplies. But they need the governments of the world to regulate the process so all companies can make the transition in lockstep without losing market share to competitors. A progressive Fossil Fuel Efficiency Standard would provide that type of regulation.

The plan, then, would be driven by three engines:

· The subsidy switch would propel the metamorphosis of oil companies into energy companies;

· The progressive fossil fuel efficiency standard would harmonize the transformation of national energy structures, create a level field of predictable regulation for the major energy corporations, and jump renewable energy into a global industry;

· The competition for the new $300 billion a year market in clean energy would power the whole process.

On economic grounds, a plan of this sort seems to be a no-brainer. Recently, Swiss Re-Insurance said it anticipates losses from climate impacts to reach $150 billion a year within this decade. Munich Re, the world's largest reinsurer, estimates that within several decades, losses from climate impacts will reach $300 billion a year from losses to the banking and insurance industries, property damage, health care costs, crop losses and destruction of energy, communications and transportation infrastructures. Last year, the largest re-insurer in Britain said that, unchecked, climate change could bankrupt the global economy by 2065.

By contrast, the dramatic expansion of the overall wealth in the global economy from a worldwide energy transition would create new markets and significantly invigorate existing ones.

It is an article of faith among development economists that energy investments in poor countries create far more wealth and jobs than equivalent investments in any other economic sector. We believe a plan of this magnitude would create millions of jobs in developing nations. It would raise living standards abroad without compromising ours. It would allow developing countries to grow without regard to atmospheric limits -- and, in many cases, without the budgetary burden of imported oil. And in a very short time, it would jump the renewable energy industry into a central, driving engine of growth of the global economy.

A global energy transition requires the governments of the world to regulate some of the largest corporations on the planet. On the record, corporations reflexively resist any move toward new regulation. But history indicates that if the regulations are non-discriminatory, industry-wide and, most important, predictable -- so corporations can depend on them in formulating their strategic plans -- business leaders will accept them. These climate solution strategies present a clear deal to the multi-national oil majors: the relinquishing of a measure of corporate autonomy in exchange for a new $300 billion a year market.

Finally, there is the issue of sustainable development in a rapidly deteriorating biosphere. Many commentators have observed that changes in values frequently follow changes in technology. It is hoped that the very act of addressing the true proportions of the climate crisis would bring home to everyone the realization that we are living on a planet with limits -- and that we are now bumping up against those limits.

Ultimately a worldwide crash program to rewire the world with clean energy would hopefully yield far more than a fuel switch. It could very easily lead to closed-loop industrial processes, "smart-growth" planning, far more recycling and reuse, the adoption of "environmental accounting" in calculating national GDPs, and, ultimately, a whole new ethic of sustainability that would transform our institutions and practices and dynamics in ways we cannot begin to imagine.

I think the realization that we are all part of a larger -- and increasingly vulnerable -- community could engender a new sense of common purpose -- which would begin with an energy transition and lead, in turn, to a sustainable redesign of the entire human enterprise in a global project which could keep us all very busy for years to come.

This perspective may well be overly visionary. But the alternative -- given the escalating instability of the climate system and the increasing desperation of global economic inequity -- is truly horrible to contemplate.

The ultimate hope is that -- especially given the centrality of energy to our modern lives -- a meaningful solution to the climate crisis could potentially be the beginning of a much larger transformation of our social and economic dynamics. A solution which is appropriate in scale and magnitude could also, I think, provide a pilot project to begin to put democratically-determined boundaries around the operations of the multi-national corporations while preserving their productive vitality.

Even as we are seeing the globalization of the economy, we are also seeing the globalization of communications among activist groups all over the world. In many countries, NGOs have significant input in shaping national policies. The need for an international governance mechanism -- in this case, the UN Framework Convention on Climate Change -- provides an entry point for electronically-connected NGOs to influence the process. In the long run, one can envision a process which begins with a global community of activists influencing the pace of emissions reductions -- and leads to other areas of economic governance.

For instance, one can imagine people voting on what is an acceptable discrepancy between the salary of a CEO and a janitor. One can imagine people deciding that that entry-level workers in Asian sneaker factories be paid 150 percent of median income. One can imagine voting to limit harmful impacts of specific industries on vulnerable communities even as it lowers the overall profit margin in a way that is uniform, non-discriminatory and industry-wide. In short, one can imagine the arena of climate change and emissions reduction providing a small pilot project that could begin to democratize the global economy.

Our modern history has been marked by a dichotomy between the totalitarianism of command-and-control economies and the opulence and brutality of unregulated markets and runaway globalization.

It is just possible that the act of rewiring of the planet could begin to point us toward that optimal calibration of competition and cooperation that would maximize our energy and creativity and productivity while, at the same time, substantially extending the baseline conditions for peace -- peace among people and peace between people and nature.

© Ross Gelbspan, Nov. 2003

Principal Participants in discussions of the World Energy Modernization Plan:

The strategies outlined in this paper resulted from an initial collaboration among the following group of people who met during the summer of 1998 at Harvard.

Dr. Frank Ackerman, Global Development and Environment Institute, Tufts University, Medford, Ma.

Dr. Steven Bernow, vice president, Tellus Institute, Boston, Ma.

Thomas R. Casten, CEO and founder, Trigen Energy Corporation, White Plains, N.Y.

Dr. Michael Charney, Cambridge, Ma.

Stephen Cowell, CEO, Conservation Services Group Boston, Ma.

* Dr. Paul Epstein, Associate Director, Center for Health and the Global Environment, Harvard Medical School, Boston, Ma.

* Ross Gelbspan, author, The Heat Is On, Brookline, Ma.

Dr. Jonathan Harris, Global Development and Environment Institute, Tufts University, Medford, Ma.

Ted Halstead, founder, Redefining Progress, Washington, D.C.

Sivan Kartha, Stockholm Environment Institute, Boston, Ma.

Dr. David Levy, School of Management, University of Massachusetts, Boston, Ma.

Dr. William Moomaw, director, International Environmental Research Program,

Tufts University, Medford, Ma.

Dr. Irene Peters, economist, Zurich, Switzerland.

Dr. Kilaparti Ramakrishna, Woods Hole Research Center, Woods Hole, Ma.

Kelly Sims, Kennedy School of Government, Harvard University, Cambridge, MA.

* Convenors