Capital Formation Newsletter
September-October 1999, Vol. 24, No. 6

Climate Experts at Center Forum Conclude Kyoto Targets for CO2 Cutbacks Cannot Be Achieved

Having analyzed the prospects for the 38 industrial nations (Annex B countries) to collectively reduce CO2 emissions in 2010 to 95 percent of 1990 levels, experts at an October 13 forum sponsored by the ACCF Center for Policy Research concluded that the industrialized countries of North America, the Pacific region, and Western Europe cannot meet their emission targets without exorbitant carbon taxes. The speakers also agreed that in the long run technological progress will facilitate the achievement of global CO2 emission reductions but that, in the short run, there is no "quick technological fix."

The Center's forum, The Kyoto Commitments: Can Nations Meet Them With the Help of Technology, featured new studies by leading climate policy scholars, keynote presentations by congressional leaders on global climate issues, and a panel discussion by industry experts. Studies presented at the forum, held shortly before the Conference of the Parties convenes in Bonn to address technical issues related to the Kyoto Protocol, will add a new dimension to the ongoing debate on climate policy.

The Kyoto Commitments: Can Nations Meet Them With the Help of Technology is part of the multi-year economic research and education project on tax and environmental policies sponsored by the ACCF Center for Policy Research. The Center will release the edited conference proceedings in a book in January, 2000.

Congressional Leaders Assess Climate Policy

Keynoting the Center's forum were Representatives John D. Dingell (D-MI) and John Sununu (R-NH). Congressman Dingell, ranking Democratic member of the House Commerce Committee and a leading congressional critic of the Kyoto Protocol, told forum participants, "In the two years since the signing of the Kyoto agreement, there has been little that I have seen to recommend it. The developing countries, especially China and India, remain as intransigent as ever. The European nations are busily trying to undermine the portions of the agreement dealing with emissions trading and flexibility, the very concepts that Kyoto supporters invoke when they claim that the costs can be made bearable. In the United States, the Kyoto agreement rests in a state of suspended animation and we may hope that that will persist for a time."

Representative Sununu, a member of the House Appropriations and Budget Committees, gave forum participants an assessment of the science, costs, and legislative outlook for the Kyoto Protocol. He stressed that the scientific foundation for the Protocol is weak and that current climate policy models need to be improved. Citing recent analysis by WEFA, Representative Sununu also noted that the real costs of the Kyoto agreement to American consumers and the effect of these costs on U.S. economic growth cannot be ignored. Finally, he questioned the fundamental adequacy of the agreement. "What sense does it make to have a binding treaty on the United States or Annex B countries that isn't binding on China or Mexico or India or even some of the Central European countries?" he asked. "That's not the American way, it's not fair, and that argument alone I think struck a chord strong enough for the Senate to vote against ratification without some binding and fair equivalent mandates on developing nations."

Can Annex B and Eastern European Countries Meet Their Emissions Targets?

Mary H. Novak, senior vice president, Energy and Electric Power Services, WEFA, Inc., commented on the conclusions found in five new government studies and one independent report assessing CO2 emissions. Ms. Novak said, "The studies are unanimous in their assessment of the inability of Annex B countries to meet the emission targets set in the Kyoto Protocol without large carbon taxes or extensive use of flexibility mechanisms such as international emissions trading. The European Community would, for example, have to cut its CO2 emissions in the range of 20-30 percent below the baseline forecast for 2010 emissions. Such drastic reductions in energy use would seriously hamper the EC's goal of strong, self-sufficient economies." (Ms. Novak's complete paper can be found on the Center's web site, www.accf.org.)

Responding to Ms. Novak's paper were Joseph E. Aldy, senior economist for the environment, President's Council of Economic Advisers; Brian S. Fisher, executive director, Australian Bureau of Agricultural Resource Economics; and Robert A. Reinstein, president, Reinstein & Associates, International. Moderating the panel was John J. Novak, director, Environmental Affairs, Edison Electric Institute.

Will New Technology Make the Kyoto Emissions Targets Achievable?

Thomas G. Marx, director, Economic Issues and Analysis, General Motors Corporation, concluded that technology cannot be a viable solution for meeting the Kyoto targets in the time frame envisioned in the Protocol. Mr. Marx said that "A more effective strategy for reducing CO2 concentrations in the atmosphere is to promote and accelerate the development of a broad portfolio of new and breakthrough technologies, their large-scale commercialization, and their global dissemination. Industry must lead the way in conducting technical and market research and in financing the huge new investments needed for innovation and commercialization. For its part, government has a critical role to play in advancing technology through its wide range of policies, programs, and actions that affect industry's opportunities to innovate and barriers to deployment."

Respondents for Mr. Marx's paper were Jay E. Hakes, administrator, Energy Information Administration, U.S. Department of Energy; Henry D. Jacoby, Pounds Professor of Management, Massachusetts Institute of Technology; and Charles O. Velzy, former president, American Society of Mechanical Engineers International. William F. O'Keefe, executive vice president and chief operating officer, American Petroleum Institute, moderated the panel.

Tax Incentives and Technology: Listening to the Stakeholders

Margo Thorning, senior vice president and director of research, ACCF Center for Policy Research, led a panel discussion by a group of experts from the chemical, iron and steel, electric, and coal industries of the impact on industry and costs to consumers of meeting the Kyoto Protocol's emissions reduction targets. The panel also discussed various tax and regulatory options that could encourage the adoption of less carbon-intensive equipment and processes.

Panelists included Rae Cronmiller, environmental counsel, National Rural Electric Cooperative Association; Robert J. Russell, global director, environmental and legislative affairs, The Dow Chemical Company; Bruce A. Steiner, vice president, environment and energy, American Iron and Steel Institute; and Ben Yamagata, executive director, Coal Utilization Research Council.

A special report summarizing Ms. Novak's paper, as well as the full paper, is available on the Center's Web site, www.accf.org. Printed copies may be obtained by contacting the ACCF Center for Policy Research, 1750 K Street, N.W., Suite 400, Washington, D.C. 20006-2302; 202/293-5811; 202-785-8165 fax; info@accf.org.