The Heat Is Online

Toward A Real Kyoto Protocol (Nov. 2005)

        Toward A Real Kyoto Protocol

                                          Ross Gelbspan

          This paper contains a set three interactive strategies which we believe would  reduce carbon emissions by the 70 percent required by nature -- at the same time as it would create millions of jobs around the world, especially in developing countries.


          At the risk of exaggerating their potential, we believe these solutions could, at the same time, address several other major problems facing us as well.


          The most obvious, given our newfound vulnerability to guerrilla attacks, is that a worldwide transition to renewable energy would dramatically reduce the significance of oil -- and with it our exposure to the political volatility in the Middle East.


          A second security-related  connection is that a  renewable energy economy would have far more independent sources of power -- home-based fuel cells, stand-alone solar systems, regional windfarms -- which would make the nation's electricity grid a far less strategic target for terrorist attacks. 


          Perhaps a more relevant connection is that the continuing indifference to climate change by the U.S. -- which generates a quarter of the world's carbon emissions -- will likely provoke more guerrilla attacks from people whose homelands are going under from rising seas, whose crops are destroyed by weather extremes and whose borders are overrun by environmental refugees.   


          Conversely, a properly-funded global energy transition would  represent the kind of proactive policy needed to begin to redress the economic inequity that threatens to split humanity irreparably between rich and poor. Just as runaway carbon concentrations are threatening to destabilize the global climate, runaway economic inequity can only continue to destabilize our global political environment.


For its own security, the U.S. needs to abandon its traditional posture toward developing countries -- which has been by turns defensive and coercive -- and replace that with a new set of policies which are expansive, inclusive and geared toward real poverty alleviation.  It seems to be an article of faith among development economists that energy investments in poor countries create far more wealth and jobs than investments in any other sector.  Were the U.S. to lead a  wholesale transfer of clean energy technologies to developing countries, that would do more than anything else in the long term to undermine support for anti-U.S. terrorism.


On the economic front, it seems clear the entire global economy is susceptible to periods of stagnation, even recession.  Not long ago, some members of the Federal Reserve were even talking about deflation.  A truly floundering economy seems relatively  immune to tax cuts and interest rate reductions.  I think any recipe for stable, long-term economic health must include a component of public works programs -- in this case, a program to rewire the globe with clean energy.


Without question, that would be the most productive investment we could make in our future.  Within a decade, it would begin to generate a major and continuing worldwide economic lift-off. 


Finally there is the climate crisis itself:


Unintentionally, we have set in motion massive systems of the planet with huge amounts of inertia that have kept it relatively hospitable to civilization for the last 10,000 years. We have reversed the carbon cycle by more than 400,000 years. We have heated the deep oceans. We have loosed a wave of violent and chaotic weather. We have altered the timing of the seasons. We are living on a very precarious margin of stability.


There seems to have been a sea change in public opinion in the U.S. on this issue over the past 18 months or so.  Americans finally acknowledge the reality of climate change and, according to a couple of recent polls, more than 70 percent want the federal government to take strong action to avert real climate catastrophes.


As this country's  prolonged denial of the threat global warming recedes -- and the rest of the world begins to grope toward solution -- the scale and urgency of the climate crisis are finally dawning on policy makers. 


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


Two years ago, researchers at the Hadley Center, Britain's main climate research institute, found that the climate is changing 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.  Their projections show that many 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.  This study, published in the journal Nature by 11 blue-ribbon specialists, is based on a conservative trajectory of future energy use.  Using those estimates, the researchers  concluded that if the world is not getting half its energy from non-carbon sources by the year 2018, we will inevitably see a doubling -- and perhaps a tripling -- of atmospheric carbon levels by the end of this century.  And that is likely to be catastrophic.     


The United States has been especially slow to respond to the challenge.  After eight years of foot-dragging by the Clinton-Gore Administration in the international climate negotiations, a number of European countries decided to go it alone.  Holland has completed a plan to cut emissions by 80 percent in the next 40 years.  A Royal Commission in Britain is recommending 60 percent reductions in 50 years.  Germany has committed to 50 percent cuts in 50 years.


          By contrast, the position of the Bush Administration has isolated the U.S. politically and raised fears that an effective program of climate protection would jeopardize the U.S. economy.


          Two years ago, President Bush made it clear that any solution to the climate crisis must meet two criteria:  it must involve the participation of developing countries and it must be beneficial to the U.S. economy.


          It seems at first glance the U.S. is on a collision course with nature.


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


The Plan at the center of this presentation was developed by an ad hoc, informal group of about 15 energy company presidents, economists, energy policy experts and others  in 1998 who met at the Center for Health and the Global Environment at Harvard Medical School.


Since that time, 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 and has attracted the interest of a small number of senators and congressmen.  Most recently, it was endorsed by a former British Ambassador to the United Nations and by the Environmental Commissioner of the European Union.


          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 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.  And, to date, we have not seen other policy recommendations that adequately address either the scope or urgency of the problem.


          Largely because of inaction by the world's governments, it seems that the Kyoto goals (but not the Kyoto process) are fast becoming obsolete -- and that it is soon time to go straight for the goal of 70 percent reductions globally. Our hope is to get ideas of this scope into the conversation to help move it to an appropriate level. 


          The Plan involves three interacting strategies which include:


        · a change of energy subsidy policies in industrial countries;


        · the creation of a large fund through a small tax on global commerce to transfer clean energy technologies to developing countries; and, 


        · the subordination within the Kyoto framework of the mechanism of international emissions trading to a progressively more stringent Fossil Fuel Efficiency Standard that rises by 5 percent per year.


          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. Industrial country subsidies for fossil fuels 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 to promote the development of clean energy sources.  (Clearly a small portion of the U.S. subsidies must be used to retrain or buyout the nation's 50,000 or so coal miners.)   But the lions' share of the subsidies would still be available for use 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. Therefore 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. 


Energy Modernization Fund: One attractive source of revenue to fund the transfer lies in a small tax on global commerce to preserve the global environment. This tax on international currency transactions was conceived by the late Nobel prize-winning economist Dr. James Tobin as a way of damping the volatility in capital markets. But it would also generate enormous revenues.  Today the commerce in currency swaps is approaching $2 trillion per day. A tax of a quarter-penny on a dollar would 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 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 only new bureaucracy we envision would be an  international auditing agency to monitor transactions to ensure equal access for all energy vendors and to minimize corruption in recipient countries. 



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


If a Tobin Tax proves unacceptable -- and some people have expressed a nervousness about it -- a tax on airline travel or a carbon tax in industrial countries, while more regressive, could fulfill the same function. 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 from a tax on currency transactions. 


(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 at the same time.  That may, or may not, be an economically viable step.)


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 the windfarms, solar panels and fuel cells it wanted.  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 plan of this magnitude would have a similarly enriching effect on the world's developing economies.  It would create millions of jobs. It would  raise  living standards abroad without compromising ours.  It would allow developing countries to grow without regard to atmospheric limits -- and without the budgetary burden of imported oil.  And in a very short time, the renewable energy industry would eclipse high technology as the central, driving engine of growth of the global economy.


Progressive Fossil Fuel Efficiency Standard: The third -- and unifying -- strategy of the plan calls on the parties to Kyoto to subordinate the uneven 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 mechanism of 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 companies and countries as a complementary mechanism to help them meet the five percent annual increase in the 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 want each country's emission rights 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, director 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 poor countries and to bank them indefinitely into the future. This means that when developing nations eventually become obligated to cut their own emissions, 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 cant 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. (National "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, say, 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 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  more and more energy from non-carbon 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, I think,  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 world's multi-national 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. Two years ago, the largest property re-insurance company in Britain projected that, unchecked, the impacts of climate change could bankrupt the global economy within 65 years.  Recently, the United Nations Environmental Programme said it anticipates losses from climate impacts to jump to about $150 billion a year within this decade. Munich Re, one of the world's largest reinsurers, 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. And the largest re-insurer in Britain has expressed concerns that, unchecked, climate impacts 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.


          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. I believe the very act of addressing the true proportions of the climate crisis would bring home to everyone around the world 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, I believe, 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.        


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.  


     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 -- 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. 


          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, November, 2005