Larry Summers on Global Warming
Fortunately, Larry Summers has entered the fray--Summers is the former Secretary of the Treasury, former President of Harvard, and a highly regarded economist. He has started a series of article in the Financial Times. The first article was published yesterday.
This first article makes two important points. First, the Kyoto Treaty "cap and trade" approach is flawed:
There is a very real danger that the global cap and trade approach directed at achieving the rapid emissions reductions enshrined in the Kyoto protocol – now favoured by most European governments – could be ineffective or even counterpoductive by substituting for more realistic approaches to the problem. Kyoto is now the only game in town for those who do not want to be ostriches with respect to global climate change and so one has to hope for its ultimate success. But it is surely useful to try to be clear about the potential pitfalls, as I am in this column, and as a matter of prudence to consider alternative approaches if the Kyoto approach does not succeed, as I will in my next column.
First, the Kyoto approach depends on the questionable premise that nations will, in fact, be bound by binding targets or penalties for not meeting them. It is instructive in this regard to consider the history of the Maastricht Treaty within the European Union. It addressed fiscal targets directly under the control of governments over the relatively short term within a group of countries that had already achieved a high degree of cohesion. It broke down almost immediately when it looked like the targets would not be binding for big countries, with the goals abandoned and no payment of even the modest penalties.
There is to date little evidence that Kyoto is driving behaviour. Whatever evidence there is of impressive emissions reductions comes from countries such as the UK, Germany and the former communist states, where coal use was being phased out for other reasons. The limited impact of Kyoto is evinced by the fact that carbon permits are now selling in the range of a negligible one euro a ton.
Second, carbon markets are invitations to engage in pork-barrel corporate subsidy politics on a massive scale. If greenhouse gas emissions are to be substantially reduced, the value of the associated emissions rights will be in the tens of billions of dollars. While in principle emission permits could be auctioned, in practice they are always allocated administratively. It should not be surprising that businesses that can pass on carbon costs to their consumers are excited about schemes that compensate for these costs by allocating them permits related to their existing emissions levels. As investigations by this newspaper have highlighted, the clean development mechanism has resulted in substantial payments for emissions reductions that would have occurred anyway or could have been achieved at negligible cost. There is even reason to think that certain industrial gas emissions may have been increased so that credit could be claimed for their abatement.
Second, Summers makes a point quite similar to that made by Nicholas Knisely--that real progress will require participation by the developing countries (especially china and India), but Kyoto ignores developing countries:
[T]he most serious problem with the Kyoto framework is that it is unlikely to generate substantial changes in developing country policies. As my Indian hosts explained on a recent visit, developing country policymakers are not likely to accept binding targets on their energy use or greenhouse gas emissions that fall way short on a per-capita basis of emissions levels in the industrial world.
. . .
The truth about climate change policy is that developing countries are where most of the future action has to be. They will account for 75 per cent of the increase in emissions over the next quarter century and are now making the infrastructure investments that will shape their future economies. Moreover, any international regime that does not include them will not work because emissions reductions in the industrial world will be offset as energy intensive activities relocate to the developing world. The 1997 vote cast by all the Democrats in the Senate suggests that approaches that do not involve the developing world are unlikely to command political support in at least some parts of the industrialised world.
Read it all. Summers promises to offer an alternative framework next month. Stay tuned.
Hat tip to Brad Long for the link.