The recent Milan conference on the Kyoto Protocol started out with a bang — a commotion of rumors about Russia’s ratification of the treaty — and went out with a whimper, offering no clear signal that the landmark accord on climate change would ever become international law. But one important development became clear amidst the flimflam: Kyoto-supporting countries, including Japan, Canada, and those of the European Union, are not going to stand around and wait for the rogue elephants Russia and the United States to join the pack. Instead of idling while the treaty negotiations make slow progress, these countries have begun implementing climate-change solutions so logical and effective that it seems inevitable that they will catch on worldwide — from Europe’s market for emissions trading to Canada’s personal emissions-reduction target for every citizen.

To make a Milan story short …

Photo: IISD.

“Kyoto is indeed changing the world,” says David Sandalow, a guest scholar at the Brookings Institution who was an assistant secretary of state during the Clinton administration and helped to design the treaty. “We have a long way to go, of course, but already it has helped energize a number of countries to begin solving a long-term problem.” It might take decades to get everyone on board, he added, but the bandwagon has started to roll.

Nowhere is the treaty picking up more steam than in the European Union, which has already begun to implement the world’s most ambitious and concrete regional initiative to curb global warming. In July 2003, the E.U. passed into law a major greenhouse-gas trading program that will take effect in January 2005, and eventually be integrated into other emissions markets currently under consideration in Canada and Japan. The E.U.’s trading program may become the foundation of a worldwide system remembered centuries hence as the single most important milestone in the climate-change campaign.

Though European Union countries have not yet established an exact emissions cap, the program could easily achieve more than half of the greenhouse gas reductions required by Kyoto — an average target of 8 percent below 1990 emissions levels by 2012. The trading system will apply not only to the 15 countries of Western Europe, but also to the enlarged 25-nation E.U., a bloc that will include most Eastern and Southern European countries by 2005 and encompass 450 million people.

Bright solar prospects in
Germany.

Photo: NREL.

The trading program covers almost as many industries as it does nations — electricity, steel, cement, glass, paper, chemicals, coal, manufacturing, and more — and will function like any cap-and-trade system. If a company within a regulated industry reduces emissions to a level below its requirements, it can sell the excess credits to other companies or save them for later. Likewise, companies that anticipate exceeding their limits can invest in emissions-reduction technology or buy credits on the market to offset their emissions — whichever option is cheaper.

The flexibility is designed to allow emissions reductions to occur where they cost the least. “There are any number of emission-reduction technologies that save money because they reduce energy use,” says Jeff Fiedler, a climate policy specialist at the Natural Resources Defense Council. “Of course, it costs money to install cleaner technologies and some policies may result in higher energy prices. Moving too quickly may affect the economy’s larger production potential.”

But in the long-term, says Fiedler, many studies show that under sensible targets, costs would be more than offset by efficient energy use and the economy would be boosted by investments in clean-energy technology. The more industries that compete to devise ever-cheaper abatement technology, the more rapidly we will see quantum leaps in energy efficiency and clean-energy solutions. As a result, experts predict that the total economic impact of the European Union’s efforts to curb emissions by 2012 will be less than 1 percent of gross domestic product.

Europe’s trading system does not include emission-saving mechanisms such as nuclear plants and “carbon sinks” — forests that soak up carbon dioxide. The crafters of the system felt that, among the many drawbacks of such measures, they would inhibit or slow the shift to next-generation clean technologies, including hybrid-engine and fuel-cell cars; solar, wind, and geothermal systems; efficient lighting, appliances, and design strategies; and high-performance industrial equipment such as power plants, boilers, water pumps, fan belts, compressors, and cogeneration systems. In other words, one of the primary advantages of the program is that it will dramatically stimulate the clean-energy market.

Oh Yes, Canada!

Meanwhile, other countries are using very different strategies to achieve that same goal. Though Canada does propose an emissions-trading program, it has yet to pin down the details. What Canada has defined are specific emissions targets for homeowners and citizens. While the E.U. is busy creating incentives for industries to clean up their acts, Canada is focusing on ways to encourage individuals to do the same — for instance, by establishing a goal that each Canadian reduce his or her emissions by an average of one metric ton, with the help of tax incentives and increased availability and affordability of energy-efficient products.

Perhaps these more intimate proposals make sense — or at any rate, are more likely to succeed — in a country that is already feeling the effects of global warming more than most. In Canada’s chilly north, ice caps are melting and highways and underground infrastructure are buckling from the softening permafrost. Canadians are also feeling the effects of the now-standard global warming symptoms of insect infestations, heat waves, and declining water levels more acutely than those of us in the lower latitudes of the United States.

Saskatchewan me if you can:
A Canadian solar home.

Photo: NREL.

Still, what’s good for the goose is good for the gander, and establishing a personal emissions-reduction goal in the U.S. could be very effective — especially if the program included ambitious incentives and came wrapped in the political bunting of national security and energy independence.

The U.S. could also take a few other pages from Canada’s playbook. By 2010, the nation aims to have completed energy-efficient retrofits of 20 percent of all residential, commercial, and institutional buildings. By that same year, all new homes will have to comply with strict insulation standards — 25 percent more stringent than the current national energy code. To support the development of energy-efficient products, the Canadian government is proposing a collaborative effort with auto manufacturers to improve new-vehicle fuel efficiency 25 percent by 2010. It is also considering tax incentives to increase consumer demand for efficient vehicles and exploring ways to increase the use of public transit.

Increasing energy efficiency is also a major focus of emissions-control measures in Japan — unsurprisingly, given that Japanese companies Honda and Toyota are the industry leaders in manufacturing hybrid-engine and fuel-cell cars, and Japanese companies Sharp and Kyocera are the industry leaders in photovoltaic technology. The Japanese government has pushed these industries into maturity by funding aggressive “business support plans,” with substantial subsidies every year to companies that are helping new efficiencies emerge in the clean-energy sector. In fiscal year 2003, Japan allocated a whopping $12 billion dollars for its climate change policy budget (this includes substantial funds for controversial solutions such as forest sinks and nuclear generation, but nevertheless indicates a serious commitment to the larger cause).

Stimulate this:
Toyota’s gas-sipping Prius.

The Japanese government also creates markets by stimulating consumption of efficient products with tax incentives for items such as low-emission vehicles, instituting tough green building requirements, and actively purchasing next-generation products for its own facilities. Furthermore, it’s not afraid to penalize inefficiency — for instance, by allowing gas prices to hover around $4 a gallon. Along these lines, Japan is also considering a carbon tax, which could be applied to individual households (based on the carbon emissions associated with electricity use) or upstream at the production source of fossil-fuel energy (based on the carbon emissions associated with each unit of output at coal, oil, and natural-gas production and refining facilities).

The Bush administration, of course, favors a more hands-off approach with industry and markets when addressing climate change — despite its repeated claim that stimulating commerce in the direction of eco-friendly entrepreneurship is the centerpiece of its environmental agenda. In his opening speech to employees a few weeks ago, new U.S. EPA Administrator Michael Leavitt praised cap-and-trade programs, noting that “people do more and they do it faster when they have an [economic] incentive to do what’s in the public’s interest.”

And yet, President Bush not only rejected Kyoto but also came out against the less stringent cap-and-trade program outlined in the McCain-Lieberman Climate Stewardship Act, which a number of studies have shown would have little or no net effect on the economy. That act proposed that by 2010, emissions be capped for the electricity-generation, transportation, and heavy-industry sectors at 2000 levels (as compared to the 1990 levels proposed under Kyoto).

Even more ironic, according to Sandalow, is the fact that the very concept of emissions trading is as American as a Chevy Yukon: The first landmark example of this concept — the U.S. sulfur dioxide trading program — was signed into law by Bush’s very own father. And yet this homegrown concept is being applied in far more ambitious ways abroad. Similarly, clean-energy innovations such as solar panels and fuel cells had their first major commercial or institutional applications in the United States, but are now being more aggressively developed by Japan and Europe.

Although the Bush administration insists that mandatory greenhouse gas reductions would be too costly, many economic models suggest that reductions can be achieved with little or no cost, argues Sandalow. Without a more aggressive commitment to addressing this problem, he says, the U.S. will lose its competitive edge in the 21st century global marketplace for clean-energy technologies.

Singing Off Kyoto

In the short term, however, it is the European Union that will feel the burn. Although the hit to its gross domestic product from emissions reductions is forecasted to be only about 1 percent when Kyoto restrictions take effect in 2012, that could amount to as much as $100 billion lost each year. Meanwhile, the economy of the United States — not to mention China, India, and other fast-developing countries — will be growing entirely unconstrained by regulations on greenhouse gas emissions.

The New Economics Foundation, an independent British think tank, has proposed a strategy to level the playing field with the United States and Russia: Impose trade sanctions on all imports from those countries into the European Union. “Short of unthinkable military action, the only other approach we have to bringing these free-riding countries into line is legal, economic, and trade sanctions,” says the think tank’s policy director, Andrew Simms. “Economic signals, after all, are one thing the United States will surely respond to.”

If anything positive could come out of the Bush administration’s resistance to Kyoto, it would be if it decided to more strongly advocate an approach it likes to greenhouse gas regulations known as an “intensity-based target,” which assigns reduction limits according to the number of tons of emissions per unit of a country’s economic output. “The idea of an intensity-based target is particularly useful in application to developing countries that have rapid growth but also fluctuating growth,” says NRDC’s Fiedler. “It’s useful because it smoothes out fluctuations in economic activity, so your life doesn’t get harder when your economy grows more than expected, as it would with a fixed target. The argument is, you still grow your economy, but over time you become proportionately more efficient in your emissions output. It reduces the cost uncertainty a little bit, but the downside is that you’re less certain about reducing actual emissions.”

The strategy may be a good one — indeed, it is the one that experts consider the most viable climate-change strategy for China, India, and other major developing countries — but of course the bottom line for any kind of target, intensity or otherwise, is how stringent it is. In the case of Bush’s proposal, the target is not only voluntary, but far too weak. Although it would slow the growth of emissions, it would still result in a 20 percent net increase in emissions over 1990 levels by 2012.

And while the administration complains that the Unites States would be hit with a much more cost-intensive plan because the country’s emissions are so much higher than those of any other nation, that argument can also be turned on its head. “The U.S. is also a more energy-intensive economy than the European economy, so there’s a lot more low-hanging fruit for saving energy and carbon dioxide reductions,” says Neil Strachan, a senior research fellow and in-house economist at the Pew Center on Global Climate Change. “Your average house and car is much less efficient in the U.S. than it is in Europe, so what economists call the marginal cost of making improvements is much [lower] in the U.S., because you are starting from a much more energy-intensive point.”

But the Bush administration is leaving it up to the states to pluck this low-hanging fruit. While in Milan, Harlan Watson, the administration’s chief climate negotiator, repeatedly invoked state-level efforts to address global warming as proof of America’s good intentions on the issue. Without a trace of irony, he praised America’s “truly bottom-up approach to addressing global climate change” in which local communities act as “laboratories where new and creative ideas and methods can be applied and shared with others and inform federal policy.”

States are indeed introducing exciting climate-change initiatives [see a Grist special edition on this topic], but they complain that there’s absolutely no federal policy for them to inform. New York, for one, is leading an effort to institute a regional cap-and-trade system for greenhouse gas emissions among Northeastern states from Maryland to Maine. California has instituted a law — supported by new Gov. Arnold Schwarzenegger (R) — requiring limits on greenhouse emissions from cars. (As a political phenomenon, it’s quite notable that the Republican governors of the two most populous states in the country both support serious measures to control global warming.) More than a dozen states, including Texas, have implemented renewable portfolio standards, which require utilities to produce a set percentage of their electricity from renewable sources, as well as significant tax incentives for clean-technology applications and green building.

“The state-level efforts show progress, but a piecemeal approach is obviously no substitute for federal action,” says Sandalow. “Global warming is a cross-border problem that requires national policies and, indeed, cooperation with the world.” In other words, Bush’s philosophy of leaving things up to the grassroots domestically and acting unilaterally in the global theater are grossly inappropriate when addressing the biggest environmental challenge of our time.