Climate Obstacles Ahead

By Sebastian Mallaby
Monday, November 26, 2007

The good news on climate change is that the world wants to do something. It's no longer just the Europeans and a few fellow travelers; a recent survey suggested that 96 percent of South Koreans and 66 percent of Ukrainians regard global warming as an important threat. The latest report from the Nobel-anointed Intergovernmental Panel on Climate Change got the blanket media coverage it warranted. In the United States, business and congressional leaders have decided action is inevitable.

Then there is the bad news: None of these fine sentiments will matter unless a critical mass of countries unites around a real policy. And unity is miles away. Former Treasury secretary Larry Summers remarked recently that today's climate debate is like the U.S. health-care debate of 15 years ago. People agree that action is essential, but they disagree so fiercely on the details that action may prove impossible.

Start with the international arena. Delegates from around the world will meet next month in Bali, supposedly to launch negotiations on a successor agreement to the Kyoto Protocol. But there is no consensus on what these negotiations should accomplish. Should they aim to create some kind of global cap-and-trade system? Should they go for a series of narrower agreements on biofuels, forest conservation and so on? Should they help countries adapt to global warming, since some warming is inevitable, or emphasize efforts to stop the warming in its tracks? The first task in Bali will be to negotiate what to negotiate about.

The one certainty in Bali is that excessive ambition will backfire. The failure of the Doha trade talks has shown that the multilateral system is clogged: It cannot deliver tariff cuts even though the intellectual case for trade is more widely accepted than at any time in recent history -- think of the transformation of once autarkic nations such as Brazil, India and China into successful globalizers. Given Doha's failure, the idea of negotiating a global cap-and-trade regime seems absurdly ambitious. Trade boosts countries' prosperity, so a deal should in principle be doable. But climate action imposes costs, and negotiators are likely to argue forever about who pays what.

Faced with that prospect, some argue that the United States should force collective action on foreign foot-draggers. The leading Senate climate bill, written by Joe Lieberman and John Warner, would threaten countries that fail to curb emissions with a quasi-tariff. The logic is that, if rich countries limit emissions while developing countries don't, greenhouse-gas-intensive industries will migrate to developing countries. And if developing countries have dirtier factories than rich ones, the perverse effect of limits on greenhouse gases in the United States might be that global emissions go up.

There's truth to that logic, but it leads to a brick wall. Developing countries would probably challenge the tariffs at the World Trade Organization. The United States would argue that it has a right to stand up for its environmental principles; developing countries would retort that the United States has way more greenhouse emissions per person than they do. It's not clear who would win. But legal wrangling over green tariffs is not likely to promote a unified global response to climate change.

Then there is the disunity within the United States. Many economists favor a carbon tax over cap-and-trade, mainly because the complexity of cap-and-trade systems opens the door to political mischief. The European trading system was captured by lobbies: Permits were given away rather than auctioned, which was a windfall for incumbent polluters, and permits were so plentiful that their market price was too low to deter emissions. Equally, the Clean Development Mechanism, set up to allow the purchase of pollution credits from poor countries, has turned out to be farcical. Chinese factories are being engineered to maximize greenhouse emissions, then re-engineered to generate pollution credits by reducing them. The upshot is that Westerners pay China vast sums for pollution credits. Global warming carries on.

Maybe Congress can produce a cap-and-trade bill that avoids these pitfalls. Lieberman-Warner is an honorable effort; the risk is that lobbies may dilute it if it gets close to enactment. Even as it stands, the bill would initially give away two-fifths of the permits to polluters, which would blunt their incentive to curb emissions. Cap-and-trade systems are politically popular precisely because they disguise this sort of horse trading and make change sound painless. If politicians were willing to admit that an emissions cap amounts to disguised taxation, they would go ahead and propose just that -- a tax.

So it's great that the world wants to act on global warming, and it's remarkable how fast the mood has changed. But we are a long way from clarity and honesty. As deadlocked trade diplomacy tells us, it's one thing for the nations of the world to declare that they want action. Brokering the compromises that make action possible is altogether harder.


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