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Toward a Real Kyoto Protocol

(Presentation to the Harvard Seminar on Environmental Values
10 October Teleconference Session)

http://ecoethics.net/hsev/2001-2002/200110-txt.htm

By

Ross Gelbspan

First talk since Sept. 11. In the wake of that horror, it feels very difficult to summon up the passion and the sense of urgency that is required by the gathering climate crisis.

The attacks in New York and Washington were heartbreaking – even, potentially, spirit-breaking. With the ensuing cycle of retaliations, the future is as ambiguous as it is ominous.

The events leave us groping for some meaningful linkages to the climate issue.

On the emotional level, global warming carries impacts which may be truly apocalyptic in scale. Before the tragedy, I think there was a reluctance by many people to believe that, in today’s sophisticated and complex world, events of such magnitude could really take place. September 11 has changed that. This country’s new sense of vulnerability could make it much more responsive to the climate crisis.

On the philosophical level, the evolutionary biologist Stephen Jay Gould has written eloquently about the asymmetry of evil. "The tragedy of history," Gould wrote, "lies in the enormous potential for destruction in rare acts of evil." Constructive progress can only be accomplished by millions of small, positive efforts -- whereas destruction requires but an instant.

I think perhaps the best way to cut through the lingering smoke of confusion and despair is to refocus on all the work of so many people who have given so much of themselves to keep this planet hospitable for the children.

Finally, while it is true that our political world has been changed forever by the events of Sept. 11, our natural world has not. Despite the upheavals and ruptures in our collective lives, nature moves forward with a relentless indifference.

And that is what we want to talk about today.

I would like to take the next 20 minutes or so to lay out a set of 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 sounding like a salesman on steroids, I think these solutions could, at the same time, address a couple of other major problems facing us as well.

The most obvious, given current events, is that the solution to the climate crisis – a worldwide transition to renewable energy – would dramatically reduce the significance of oil – and with it our vulnerability to the political volatility in the Middle East.

A second, but still remote, connection is that a renewable energy economy would have far more independent sources of power – home-based fuel cells, small-scale hydro dams, stand-alone solar systems – which would make the nation’s electricity grid a far less strategic target for future guerrilla attacks.

I also think 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. I think set of new proactive policies toward developing countries, which are expansive and inclusive, would go far to establishing a tone of cooperation by the U.S.

On the economic front, it seems possible that the entire global economy may be headed for a deep recession. And it seems clear that serious recessions – or depressions -- are relatively immune to tax cuts and interest rate reductions. The best remedy for a truly floundering economy would seem to a public works program – in this case, a program to rewire the globe with clean energy.

The World Energy Modernization Plan was developed by a small informal group of energy company presidents, economists, energy policy experts and others in 1998. It 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 director of a new G-8 Task Force on Renewable Energy, and it has attracted the interest of a small number of senators and congressmen.

The plan is predicated on the IPCC’s finding that climate stabilization requires us globally to cut emissions by about 70 percent.

And it is informed by the sense of urgency reflected in a recent paper in the journal Nature by researchers who concluded the world must pursue a global energy transition "with the urgency of the Manhattan project." The lead author of the study, Dr. Martin Hoffert of New York University, explained that, according to the their calculations, the world must get half its energy from non-carbon sources by 2018. Otherwise the concentrations of heat-trapping carbon in the atmosphere will quadruple early next century. That would clearly be catastrophic.

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 4 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.

Finally, one request. Given this illustrious and enthusiastic audience, I have no doubt that much of what I put forth will be shredded in the ensuing conversation. What I would most appreciate is that as you savage this offering, you include constructive alternatives in your comments. That, I think, is the one contribution we could all make to ensuring a positive and creative direction for this critically important new series of seminars.

The World Energy Modernization Plan involves three interacting strategies which include:

· a change of energy subsidy policies in industrial countries;

· the replacement in the Kyoto framework of the ineffectual and inequitable mechanism of international emissions trading with a progressively more stringent Fossil Fuel Efficiency Standard; and,

· the creation of a large fund to transfer renewable energy technologies to developing countries.

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.

On the subsidy issue: the United States currently spends $20 billion a year to subsidize fossil fuels and another $10 billion to subsidize nuclear power. Globally, subsidies for fossil fuels have been estimated at $300 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 – and to help site clean-energy manufacturing plants in poor mining regions.) But the lions’ share of the subsidies are 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.

The second arm of the plan calls on all nations to replace the ineffectual and inequitable system of emissions trading with a simple and equitable progressive Fossil Fuel Efficiency Standard.

The mechanism of emissions trading can work 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.

At the international level, however, the system of "cap-and-trade" totally breaks down. 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 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 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. 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, the progressive efficiency standard would drive down emissions as it outpaced 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 Energy Modernization 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 become more expensive to capture, countries would meet the progressively more stringent standard by drawing more and more energy from non-carbon sources.

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. (It’s worth noting that under a Fossil Fuel standard any non-carbon energy source – solar, hydrogen, wind -- is 100 percent efficient.)

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

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.

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.

It is worth repeating that the progressive efficiency standard would best not be established in isolation. If it were implemented in tandem with the subsidy switch in industrial nations, we believe those two elements alone could jumpstart an energy transition in the North.

But, as we all 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 Brazil. Therefore the third element 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.

An 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 initially 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 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. (According to several developing country commentators, that corruption could be further minimized by requiring governments to include representatives of universities, NGOs, indigenous and ethnic minorities and labor unions in making decisions about new energy resources.)

If a Tobin Tax proves unacceptable, a carbon tax in industrial countries 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, while a carbon tax by itself would be somewhat regressive, several economists have suggested it could be coupled with a reduction in payroll taxes – so that consumers would ultimately lose little – or perhaps even gain from the combination of lower energy prices and bigger paychecks.)

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 an energy modernization fund 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.

The plan 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. Last year, the largest property re-insurance company in Britain projected that, unchecked, the impacts of climate change could bankrupt the global economy within 65 years. In January, Munich Re-Insurance, one of the world’s largest reinsurers, estimated that within several decades, the damages from climatic instability will average $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.

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, and, ultimately, a whole new ethic of sustainability that would transform our institutions and practices and dynamics in ways we cannot begin to imagine.

This perspective may well be overly visionary. But the alternative – given the escalating instability of the climate system – is truly horrible to contemplate.

The ultimate hope is that a meaningful solution to the climate crisis could potentially be the beginning of a larger transformation of our social and economic dynamics. Our modern history has been marked by a dichotomy between the totalitarianism of command-and-control economies and the opulent and brutal chaos 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, October, 2001