A Deal Rescuing Nothing

The 1997 Kyoto Protocol on global warming seemed headed for the dustbin of history when the Bush administration declared last March that it was pulling out. Then in July, Europe led a coalition of nearly all the world’s nations--minus the U.S.--to rescue the Kyoto pact with a grand compromise. The deal, in fact, rescues nothing. In their zeal to get a deal--any deal--the Europeans and environmentalists crafted an agreement that is acceptable to so many nations precisely because it will have no impact on the emissions of the greenhouse gases. In its quest to kill the treaty, the Bush administration has, ironically, driven the rest of the world to embrace Kyoto rather than face the need to fix its flaws.

The Kyoto Protocol requires 38 industrialized countries to cut their emissions of carbon dioxide and other greenhouse gases on average about 5% below 1990 levels during the years 2008-12. Without the pact, emissions from those nations would probably rise about 8%, so the net effect was supposed to be a modest reduction, as well as the creation of a framework for adopting tighter controls beyond 2012.

Before the Europeans made a deal in Bonn, the biggest obstacle to bringing Kyoto into force was fear that it would be too costly for some countries to meet the targets. For example, despite serious efforts to implement emission-control policies, Canada and Japan are not on track to meet their targets (a 6% cut). Even in the European Union, whose politicians profess deep concern about global warming and whose governments are implementing costly policies, current efforts are likely to fall short of the required 8% cut. The U.S. is in the biggest bind: A growing economy and persistent bipartisan failure to implement effective global-warming policies mean that U.S. emissions will rise perhaps as much as 30%, against the Kyoto expectation of a 7% reduction.

Tinkering with accounting rules in Bonn lessened this problem. For example, diplomats adopted special provisions that will let countries claim generous credits for the carbon dioxide that is absorbed when their forests grow even though most forest restoration predates the Kyoto Protocol and is unrelated to forest-management programs that will be used to justify the credits. Furthermore, nobody knows how to verify forest carbon fluxes.

Desperate political logrolling is transparent in this accounting scheme. Countries that had been most wary of pushing ahead with Kyoto without U.S. participation, notably Japan, got among the largest quantities of credits. The average 5% cut agreed in Kyoto became a 2% cut.

Yet, the key to Europe’s grand compromise was the U.S. By exiting the Kyoto treaty, the Bush administration not only emboldened the rest of the world; it also made it easier for other countries to meet their Kyoto targets. The keystone to the Kyoto Protocol is a provision to allow countries and companies to trade emission credits. The idea was that countries would implement policies to control emissions of greenhouse gases; those unable to meet the Kyoto targets could buy credits from other nations. With the largest expected deficit, U.S. participation in the trading system would ensure strong demand and high prices. Russia, which got a huge excess allocation of credits in Kyoto, would rake in the cash as the world’s largest supplier.

The U.S. exit changes the economics and politics of emission trading. With the large Russian credit surplus and scant demand, prices will collapse. Rather than implement expensive policies that control emissions, countries a bit short on their targets will be able to snap up permits at practically no cost. The surplus is so large that, so long as the U.S. stays out, the other 37 nations can easily comply with the Kyoto “reductions.” In effect, the 38 countries that negotiated the original Kyoto targets will, on average, actually increase emissions by about 8%. Emission levels will be no different than if Kyoto had never entered into force.

Kyoto’s defenders still support the Bonn compromise because, they say, it’s better to have something than nothing. But the deal will actually make it harder to strengthen the regime in the future. As the compromise shows, the framework of setting binding emission targets invites nations to eviscerate those targets with accounting and trading games.

One of the most damaging outcomes of the Bonn compromise will be to make developing countries wary of sticking with a regime that is built on broken promises. The Kyoto treaty explicitly exempts developing countries from emission controls; instead of mandated cuts, the Kyoto system promises they will be able to earn valuable emission credits through “clean” investments that reduce emissions--installing efficient gas-fired power plants instead of coal, for example. The idea was to induce private investors to transfer new technologies to developing countries. In turn, these countries would become undertake serious efforts to control their greenhouse-gas emissions--and not a moment too soon. Developing countries are critical to the long-term effectiveness of any effort to slow global warming because they already account for about half of the world’s net emissions of greenhouse gases--and that fraction is growing.

But the Bonn compromise, by leaving the U.S. out while keeping the Russian credit surplus, erases this promise. Low prices for credits will destroy any incentive for clean investment in developing countries.

In an ideal world, serious action to slow global warming might start by rewinding the tape of history and starting again at the Kyoto mark. That ideal world does not exist; despite its flaws, Kyoto has attracted such deep political support that any serious strategy must work from inside the Kyoto system. Failure to appreciate that is the biggest danger for the Bush administration as it struggles to craft a policy strategy. Zeal to put a dagger through Kyoto’s heart has led the administration to reject any reform; yet for the rest of the world, reform is the only acceptable option.