Nicholas Stern is one of the world’s über-environmentalists, the author of the famous Stern Review, a 700-page study released by the British government in 2006, which concluded, “Climate change is a serious global threat, and it demands an urgent response.” Eight years on, Stern professes himself satisfied that the 13-day, 20th session of the Conference of the Parties to the United Nations Framework Convention on Climate, concluded last week in Lima, Peru, is an important step towards a new agreement at the climate change summit to be held in Paris in December 2015. Of course, Stern and others in the climate change crowd agree there is much work to be done by then, and even after a deal is reached.
That may well be, but neither the Lima agreement nor what is yet to come has much to do with whether the goal of this exercise, set in Copenhagen in 2009 by world leaders, will be obtained—to prevent global temperatures from rising by 2 degrees Celsius above preindustrial levels, thereby averting floods and droughts, storms and insects, and perhaps even the plagues visited upon the Egyptians by a wrathful God. The U.N. Environmental Program reported last month that to avoid this 2-degree increase and the catastrophic damage it is forecast to bring, global emissions must peak by around 2025 and fall to half their current level by 2050.
That’s a tall order for three reasons. First, Latin American and other poor countries (and some not-so-poor ones) are desperate for growth and see green policies as impediments to growth. Second, many participating countries do not even have the ability to measure their emissions, which should be a prerequisite for proving that commitments have been met. Finally, President Obama is insisting that the goals nations set for themselves be nonbinding. He points out that despite America’s failure to sign the 1997 Kyoto Protocol, we have met its target, no matter that it took a huge increase in supplies of natural gas and a long recession to get us there.
Obama has no choice but to rely on some form of voluntary compliance. Recall that the Senate in 1997 voted 95-0 to set conditions for ratifying Kyoto that the Clinton-Gore administration knew it could not meet. So President Clinton, taking the Senate’s advice that it would not consent, did not send the proposed treaty for ratification, although Al Gore nevertheless went ahead and signed it, to no effect other than to secure his standing as America’s greenest politician. Kyoto expires in 2020, and the purpose of next year’s meeting in Paris is to replace it with . . . well, certainly not with another treaty that will not be ratified by the Senate. Instead, each country is to come to the table in March to lay out its “intended nationally determined contribution” [INDC] to reducing its emissions starting in 2020.
Those INDCs, which some countries say they cannot contrive until June, will cover 50 shades of green, a spectrum ranging from Obama’s dark green, to Canada’s, Australia’s, and Russia’s shades of pale green, and on through India’s forget green, we prefer coal-gray. The developing countries are interested in a different kind of green—greenbacks. They were exempted from the Kyoto Protocol and surrendered that exemption in Lima in return for promises of cold cash and treatment that differentiates them from developed countries, e.g., no outside monitoring. They say: We are where we are because the rich countries have been sending emissions skyward since the industrial revolution, and therefore
the wealthy countries should shoulder most of the burden of reducing emissions, and transfer large sums to developing countries to compensate us for joining the battle to reduce emissions. The relation of these demands to problems created by their cooperation in reducing emissions is somewhat unclear: Similar demands had been put to the developed world well before climate change became an issue and a new bottle into which to pour this old wine. The Lima award for chutzpah was won by Saudi Arabia, which is demanding compensation from wealthier countries, if any there be, for oil revenues the kingdom might lose as a result of any emission-reduction policies that result from these meetings.
President Obama pledged $3 billion of taxpayers’ money (specific source of funds as yet unidentified) to the Green Climate Fund, a U.N. agency in South Korea (headquarters for these sorts of organizations get spread around the world), matching the total pledged by Germany, France, and South Korea. Japan says it will toss $1.5 billion into the pot, and other countries have contributed enough to meet the fund’s initial capitalization goal of $10 billion. That still leaves it more than a bit short of the $100 billion annually developed countries pledged to mobilize back in 2009.
America entered the negotiations in a better bargaining position than it might have hoped only a few months ago. By getting Xi Jinping to agree to stop the increase in China’s emissions sometime around 2030, Obama feels he has made life difficult for domestic opponents who fear his plans will weaken our international competitiveness. Never mind that China’s emissions will continue rising for another 16 years, while ours will fall—immediately. Or that many experts say China cannot keep its promise if it is to maintain anything like its current growth rate and the pace of construction of coal-fired generating stations, especially since its plan to triple nuclear capacity by 2020 is likely to be derailed by the regime’s decision not to use Western designs but to opt for “indigenization” in order to build a nuclear-plant export industry.
The deal with China has also put India’s Narendra Modi on the defensive, forcing him to replace his “don’t bother me until we are as rich as you are” policy with a seemingly more cooperative one, while at the same time distinguishing coal-guzzling India’s situation from that of China. India, being poorer and far less developed, is entitled to a bit of breathing room, pun intended. It should not be asked, he argues, to cap its emissions until well beyond the 2030 date agreed by Xi.
Meanwhile, although the European Union cannot plead poverty, at least not yet, it is less certain about its announced plans to have reduced emissions by 40 percent from 1990 levels, come 2030. France and Germany are wavering, asking Brussels to ease planned restrictions on vehicle emissions, which account for about 11 percent of greenhouse gas emissions in Europe. France’s economy is moribund, and President François Hollande, his popularity rating abysmal and sinking, fears new measures that threaten auto output. So do German auto companies. Also, and more important to an edgy business community, Germany’s love affair with renewables is cooling in the face of rising energy costs. What Chancellor Angela Merkel’s energy/environmental policy will be when Germany takes its seat in Paris will very much depend on whether the current slowdown is a blip, or the beginning of stagnation. Even the most sincere believers in the existential threat of global warming will reexamine their fealty to the cause if their economies are not growing at a relatively rapid rate.
The thousands of academic, business, government, and other representatives jetting to these meetings must have left a significant carbon footprint in pursuit of a deal that doesn’t really matter. Not because we can be certain that those who predict dire consequences from climate change are wrong. They might be, and I rather suspect they are. But I might be wrong. After all, some environmental activists have a long record of contributions to policies that have improved air and water quality without slowing economic growth. Others, of course, are motivated by their desire to get their hands on the energy sector of the economy so that they can control it, oblivious to the fact that the Chinese Communist regime runs the world’s most closely controlled energy sector—and is the world’s largest emitter of greenhouse gases. Even if it is imperative to lower emissions, all of this international to-ing and fro-ing is leading us nowhere, for several reasons.
If the participants emerge from the Paris conference with a piece of paper assuring us of cooling in our time, the agreement won’t take effect until 2020, by which time it might be too late to achieve the goal called for in Copenhagen five years ago. Moreover, if an agreement is signed in December 2015, Obama will have only a year left in office, the deal will be a campaign issue, and a new president might follow the path George W. Bush took with Kyoto and withdraw from participation. Or a new administration might refuse only to go further down this road, something environmentalists such as Stern are already saying will be needed: “Countries . . . must build into the Paris agreement arrangements for moving purposefully thereafter to increase the scale of action.” The Economist concurs: “Few expect the INDCs, when totted up, to be ambitious enough.” It is highly unlikely that a Republican-controlled Congress will be enthusiastic about that, or willing to “accept the responsibilities that are associated with [our] greater wealth,” i.e., to send more taxpayer money to developing countries.
There is, besides, no enforcement mechanism, tempting more than a few signatories, especially disgruntled poorer countries dissatisfied with the magnitude of transfer payments, to free-ride on more fastidious ones. And if America is to meet the commitments Obama has made, his successor will have to push through additional legislation, an unlikely course, since preserving the Obama legacy will not be a priority of the new president, whatever his or her party.
There is, as it happens, a better way to reduce emissions: pricing carbon, or more directly stated, taxing it and using the proceeds to lower growth-stifling taxes on work and risk-taking. According to CDP (formerly the Carbon Disclosure Project), some 29 companies based or operating in the United States already “use an internal price of carbon in their business planning.” Companies such as ExxonMobil are assuming that the current market price on emissions—zero—will be replaced in developed countries with prices as high as $60 per ton by 2030, and are already building those costs into capital-allocation decisions that determine whether new refineries and other facilities get built.
Revenue-neutral emission taxes would achieve several conservative goals. They would face consumers with prices that incorporate all of the costs of using fossil fuels, and leave them free to decide how much of which fuels to use. They would provide revenues with which to lower regressive employment taxes, increasing the incentive of many to rejoin the labor force and reducing inequality of take-home pay. And they would be a substitute for further entanglement with the U.N. redistribution bureaucracy, and with the home-grown regulation-writing bureaucracy. Note that these advantages are available under the label “pro-growth tax reform” rather than “man-made climate change” for those who doubt that the latter phenomenon exists.
Liberals, too, should be pleased, for many of the same reasons, and for the additional reason that a carbon tax is a way of achieving their goal of arresting global warming, something no multinational, unenforceable agreement can do. Of course, those who prefer regulatory solutions to market-based ones will not be pleased, but there isn’t much that can be done about that.
The only question is how to impose a carbon tax that does not harm U.S. competitiveness. The Obama-Xi agreement is one-sided, and will surely give Chinese exporters an advantage over our firms both here in America and in overseas markets. But neither China nor any other U.S. trading partner would have an unfair advantage if the president decides the critics are right and the road to Paris is best not taken. He could, for instance, broker a carbon-tax agreement between environmentalists in Congress who share his fear of climate change and those who doubt such change is under way but are interested in tax reform. To prevent competitive damage to U.S. industries, he could impose what is called a border adjustment, a tax on the carbon content of imports from countries that do not join us in adopting a carbon tax, plus forgiveness of any carbon tax that might be incurred by U.S. manufacturers of goods exported to countries that do not tax carbon emissions.
Should the president decide instead to use his well-worn executive pen in Paris, Republicans in Congress would have an opportunity to show that they can govern. First, they could prohibit the use of any funds to meet Obama’s $3 billion pledge, just as they already prevent the use of any funds to move Guantánamo detainees to mainland facilities. That alone might be another Kyoto moment—scuppering an international agreement unfavorable to U.S. interests. Second, they could add provisions to any trade bill Obama submits to Congress for approval, requiring our trading partners to impose taxes equivalent to any we impose on emissions, much as we now require them to adopt health and safety regulations equivalent to our own. Third, Republican leaders could use negotiations over tax reform to insist on raising taxes on bad stuff, emissions, while lowering them on good stuff, labor and risk-taking.
The failure of Lima to clear the way for a meaningful deal in Paris creates an opportunity to put sensible policies in place that should satisfy just about everyone involved in environmental policy and in tax reform. The president could seize the moment, but if he does not, Republicans and conservative Democrats can do the seizing.