The Clinton Administration is counting on the “free market” to forestall global climate change without challenging the energy industry. Originally published in Z Magazine, December 1997.
This December, heads of state from some 180 countries will convene in Kyoto, Japan in an attempt to negotiate the first internationally binding treaty to control levels of carbon dioxide and other climate-altering emissions. It is designed to be the next step in a process which began in 1992, at the U.N. “Earth Summit” in Rio de Janeiro, where most of the world’s governments signed a “Framework Convention on Climate Change.” The 1992 agreement urged countries to reduce carbon dioxide emissions to 1990 levels by the year 2000, as a first step toward heading off potentially catastrophic changes to the earth’s climate.
Few countries have satisfied the expectations that were established in 1992, however. The outstanding exceptions are Germany, which has received credit for the virtual dismantling of East Germany’s aging industrial base, and Britain, which has dramatically reduced its production and consumption of coal in recent years — largely a result of Tory efforts to crush the once powerful coal miners’ union. The U.S., on the other hand, remains the world’s largest emitter of carbon dioxide, with some 25 percent of the world’s total. If current trends continue, U.S. carbon dioxide emissions will be 13 percent above 1990 levels by the year 2000.
In 1990, George Bush was met with worldwide ridicule when he asserted that no international treaty would be allowed to interfere with the “American way of life.” Although his administration ultimately signed the climate change convention, Bush’s team rejected any mandatory timetable for emissions reductions, insisting that only voluntary actions were possible. The U.S. has continued to avoid specific commitments to reduce greenhouse gases. The European Union, in contrast, has already agreed to seek to reduce their emissions 15 percent below 1990 levels by the year 2010.
In mid-October of this year, amidst the usual fanfare that accompanies such pronouncements, Bill Clinton declared the prevention of catastrophic global climate change to be a “solemn obligation,” one of the central challenges of the 21st century. “If we do not change our course now, the consequences . . . will be destructive for America and for the world,” Clinton explained to an audience gathered at the headquarters of the National Geographic Society, a most resilient symbol of environmental respectability. The core of Clinton’s proposal was that current programs of voluntary reductions in greenhouse gases will continue for much of the next decade, with the aid of a meager $5 billion worth of research grants, tax credits and other incentives to help corporations save energy. The mandate to reduce emissions to 1990 levels would not come into force until sometime between 2008 and 2012, and reductions to 5 percent below 1990 levels would not be required until 2020 at the earliest. The incentive package announced by Clinton was largely a repackaging of the administration’s 1993 program of voluntary measures, which have, at best, only marginally slowed steady increasing emissions of carbon dioxide.
The New York Times estimated that Clinton’s $5 billion package would be enough to buy every U.S. citizen one energy-saving light bulb every four years. And while the original Rio climate agreement exempted so-called developing countries from caps on greenhouse gas emissions, Clinton is insisting that continuing increases in CO2 releases from northern industries should be able to be offset by investments in emissions reductions in the South. These offsets are seen as only a first step toward the eventual worldwide trading permits to emit carbon dioxide and other greenhouse gases.
Many Z readers are already familiar with the principle by which accumulations of excess carbon dioxide in the atmosphere lead to climatic instability, and eventually the warming of the earth (see, for example, Z March 1989). Visible sunlight passes freely through the earth’s atmosphere, but the portion of this sunlight that is re-radiated outward as heat is partially blocked by a combination of atmospheric water vapor and carbon dioxide. These gases help maintain the temperature of the earth within the range that is suitable for sustaining life. During the last Ice Age, when the earth was on average less than 10 degrees colder than today, the concentration of carbon dioxide was 190 parts per million (0.019 percent). At the dawn of the Industrial Revolution, it was a rather stable 270 to 280 ppm. In the last 200 years, the atmospheric concentration of CO2 has risen to more than 350 ppm, the highest it has been in some 160,000 years, according to studies of air pockets trapped long ago in glacial ice. This increase is primarily due to the burning of fossil fuels, though other factors, including large scale forest fires (such as those currently burning out of control in Indonesia) have become a significant factor as well.
At present rates, CO2 levels will double by the middle of the coming century, with predicted catastrophic effects on global temperatures, sea level, the ferocity of storms, the integrity of living habitats and numerous other factors. Coastal areas, from New York and Louisiana to the Netherlands, Bangladesh and numerous Pacific island nations, will likely find themselves under water if corrective measures are not successful. In addition to carbon dioxide, global climate change is also exacerbated by rising concentrations of methane, nitrous oxide and synthetic chlorofluorocarbons (CFCs). Global warming also brings increased rainfall to many areas of the world, and decreases in the amount of heat and light that are reflected back from the earth’s surface — due to decreased snowfall and melting glaciers — could drastically increase the pace of warming and set up a rapidly accelerating feedback system. Climatologists have predicted that to maintain the atmospheric CO2 concentration close to current levels will require, not 5 or 10 percent reductions from today’s emissions levels, but rather worldwide emissions reductions of at least 40 – 60 percent.
The evidence that global climate change is indeed occurring has grown considerably since the initial greenhouse scares of the late 1980s. While earlier predictions rested almost entirely on computer simulations of climatological processes, evidence from many diverse areas of study have since converged to affirm these predictions. Temperature measurements in many parts of the world support the finding that the average global temperature has increased about a degree in recent decades, as predicted by various climate models. Substantial melting of glaciers has already been observed from the Alps to the Antarctic, and Alaska’s permafrost is beginning to thaw. A recent study of fifty years of navigational records from southern hemisphere whaling ships offers evidence for as much as a 25 percent decline in the area covered by Antarctic ice. Various alpine plants have been observed to be migrating to higher altitudes as habitat conditions change, and one researcher in California detected a dramatic northward shift in the entire range of a particular species of butterfly over just a five year period, to cite only a few examples.
There is somewhat less agreement among scientists as to whether increasingly erratic weather patterns worldwide are a direct consequence of global climate change. Still, there is little question that new record temperatures are being set at a breathtaking pace, and that the frequency and severity of storms are on the rise. North America might experience a cool summer, while northern Europe sees unprecedented heat waves. The northeastern U.S. might face record snowfalls, while the interior Northwest experiences warmer, dryer winters. Short term climate shifts are blamed on everything from El Niño to sunspots; however it is clear that patterns of increased precipitation, atmospheric turbulence and worldwide climatic instability are exactly what is expected in a warming climate.
What is not in doubt is the growing scientific consensus around the urgency of addressing global climate change. When the U.N.’s Intergovernmental Panel on Climate Change issued its report in 1995 confirming a clearly measurable signal of human-caused climate change, the evidence was sufficient to satisfy most of the remaining skeptics. The small handful of atmospheric scientists who still question the reality of climate change, however, continue to attract vastly disproportionate media attention. Whether their motive is basic scientific skepticism, or whether they are directly employed by energy lobbyists and others seeking to challenge curbs on greenhouse emissions (or some combination of both), this small minority of scientists continue to lend a respectable voice to industry claims that global climate change is merely a theory, too controversial to warrant serious political action.
Given the overwhelming weight of scientific evidence — and scientific opinion — it is worth examining the specific reasons for Clinton’s combination of rhetorical flourish and substantive inaction. Beside the fact that this has become the administration’s standard approach to environmental issues (see Chapter 4 of my book, Earth for Sale, for some further examples), the problem of greenhouse warming offers a number of unique challenges for activists.
First, the oil companies and their allies have reportedly raised some $13 million to lobby against any mandatory steps to curb climate change. After last summer’s decision to delay enforcement of new air pollution rules until 2003 (at the earliest), the energy lobby knows that Clinton has perfected the art of giving them most of what they want, while still reaping widespread praise as an environmental leader. In the case of carbon dioxide emissions, the stakes are far higher, and substantive action would clearly require steps toward ending the petroleum economy as we know it. While Clinton scores rhetorical points by citing the potential for saving vast amounts of energy, and simultaneously curbing pollution, with the use of existing technologies, he is doubtless aware of the implications for his corporate benefactors of taking such measures too seriously. If not, he can rely on considerable help from a Congress that has already blocked such relatively non-controversial measures as an industry-supported plan to strengthen appliance efficiency standards, and a proposal to label tires on the basis of their expected contribution to gas mileage.
So the president will continue to proclaim the benefits of environmental technology, while highlighting pie-in-the-sky projects such as the Arthur D. Little company’s gasoline powered electric car (developed with $15 million in federal funds), which doubles the gas mileage of conventional vehicles using an engine that costs an astounding thirty times as much per unit of energy output. This particular invention was announced with much fanfare by Energy Secretary Federico Peña on the eve of Clinton’s climate announcement. Countless backyard inventors have already done much better at a tiny fraction of the cost.
Environmental moderates argue that even if Clinton had the political will to press for more immediate reductions in greenhouse emissions, there is not sufficient public support to overcome an entrenched Congressional opposition. Rising energy consumption in the U.S. is one of the most frequently cited bits of evidence for this view. Last year’s figures, in fact, report the single largest increase in U.S. greenhouse gas emissions (and the first increase in energy consumption per unit of GDP) since the global climate convention was signed in 1992. Economic growth, the persistence of relatively low energy prices, and increased use of coal by utilities seeking to cut costs are the most frequently cited reasons. The increase in emissions from the transportation sector outpaced all other sources, and motor vehicles may soon surpass industry as the leading source of carbon dioxide. Increases in truck traffic over the past two decades, along with the growing popularity of minivans and other large vehicles, have more than outweighed the gains from increased fuel efficiency of passenger cars. Since the EPA allows the auto makers to classify small vans as trucks rather than cars, they are essentially exempt from rules that require car manufacturers to control the average fuel efficiency of their vehicles.
An additional factor which has unexpectedly entered the U.S. debate over greenhouse emissions concerns developing countries’ contribution to greenhouse warming. An agreement signed in Berlin in 1995, with U.S. approval, affirmed the provision of the original climate change convention that exempts “developing” countries from any binding agreement to reduce greenhouse gas emissions. Its intention was to spur the major industrialized countries to take the initiative in curbing climate change without interrupting industrial development in the South. In recent months, this provision has raised the ire of politicians and activists across the political spectrum. For the right, this exemption has become yet another case of “unilateral disarmament.” Luminaries from Jack Kemp to Congressman-from-General-Motors John Dingell have raised the perennial question, why should we have to regulate greenhouse emissions when they don’t have to?
For many liberals, the agenda of promoting “development” is an end in itself, and this is sufficient justification for the exemptions agreed to in Berlin. Indeed, the Group of 77 of the world’s poorest nations have been in the forefront of urging more stringent measures by the North; in October they proposed that the rich countries reduce their greenhouse emissions to 35 percent below 1990 levels by 2020. But for environmentalists and others on the left, this raises a serious dilemma. Many analysts predict that India and China, for example, will be among the leading emitters of CO2 and other greenhouse gases within a few decades. Given the clear availability of technologies to minimize these emissions, why shouldn’t the countries of the South be held responsible for the relative profligacy of their growing middle classes?
The issue comes into much sharper focus if one examines the question of who actually profits from accelerated industrial development in the South. A study published in June by the Institute for Policy Studies demonstrates that energy projects funded by the World Bank since the 1992 Earth Summit will add at least 36 billion tons of carbon tons to the earth’s atmosphere over their lifetime, more than today’s annual worldwide emissions. The study examines in detail more than $10 billion worth of projects, including power plants, oil and gas fields, coal mines and pipelines. Over 80 percent of them listed corporations based in the 7 leading industrial nations (G-7) as investors, suppliers, contractors and customers. Often these World Bank-sponsored projects open the door to more widespread investments by northern multinationals in a particular country’s infrastructure. Thus not only are energy sector investments in Southern countries often a highly profitable outlet for companies such as Exxon, Shell, Amoco and Westinghouse, but the absence of restrictions on greenhouse emissions in these countries adds a further incentive for Northern corporations to export new sources of emissions overseas.
Emissions Trading — A False Panacea
How does the Clinton administration propose to revitalize already faltering voluntary emissions controls, restrain wasteful energy consumption, and address the dilemma of less-developed countries’ rising contributions to greenhouse warming? The solution offered to all these problems and more is to establish a market in tradable credits for carbon dioxide and other greenhouse gases. Clinton’s plan would begin by offering credits as an incentive to companies that reduce their emissions before mandatory limits come into play 10 – 15 years from now. These credits could then be offered for sale to companies that fall behind their emissions reduction goals. Companies that invest in emissions reductions overseas would obtain credits to offset continuing increases at home. Adding pollution controls to foreign power plants, financing energy conservation, or planting trees to absorb excess CO2 are just a few of the possible investments that might accrue these credits. Eventually, a comprehensive international system of freely tradable credits for greenhouse gas emissions is proposed, complete with a futures market, brokerage agencies, and all the other trappings of existing commodities markets.
Emissions trading is not a new idea, as regular Z readers are well aware. The EPA and various state agencies have been experimenting with tradable permits and offset schemes for a variety of pollutants since the 1970s. In 1979, Stephen Breyer (now a Clinton-appointed Supreme Court justice) proposed a more comprehensive system of “marketable rights to pollute” as a solution to the perceived excesses of the federal regulatory apparatus. Emissions trading became enshrined in federal law in 1990, as part of the Bush administration’s plan for curbing the sulfur dioxide emissions that are chiefly responsible for acid rain. Every year since 1993, utilities have been offered tradable credits to emit sulfur dioxide, and the EPA has held a yearly auction to make new credits available to companies wishing to build new facilities or as a hedge toward future increases in pollution.
On the heels of this scheme’s passage in 1990, the Environmental Defense Fund, a leading advocate of pollution trading, began to promote a plan for worldwide trading of greenhouse gas emissions. EDF senior economist Daniel Dudek described the acid rain program as a “scale model” for this more ambitious effort, explaining that its “global scope implies a much richer set of trading opportunities.” In his best selling book Earth in the Balance, then Senator Al Gore endorsed greenhouse emissions trading as a way to “rationalize investments” in industrial processes that might reduce the production of carbon dioxide.
Overseas emissions offsets have been promoted for some time by industries seeking to clean up their environmental image. One Connecticut utility reaped considerable praise by helping to fund an agroforestry project in Guatemala, and chemical companies have proposed a variety of offset schemes to satisfy pollution control requirements while continuing to expand their own facilities. Western European industries have been seeking to offset increased pollution at home by investing in pollution control measures in the former East Bloc countries. The concept of international emissions trading gained further legitimacy through a U.N. Conference on Trade and Development study issued in 1992. Kidder and Peabody Executive Managing Director and Chicago Board of Trade director Richard Sandor, a co-author of the U.N. report, told the Wall Street Journal, “Air and water are simply no longer the ‘free goods’ that economists once assumed. They must be redefined as property rights so that they can be efficiently allocated.”
While it is beyond the scope of this article to describe the limitations of sulfur dioxide trading in detail (see Earth for Sale, Chapter 2), it is might be helpful to point out some of the specific problems that have arisen. The immediate effects of emissions trading have often run counter to the program’s stated intentions. One of the first publicized deals was a sale of credits by the Long Island Lighting Company to an unidentified Midwestern company, raising concerns that a region suffering from the effects of acid rain was selling “pollution rights” to the very region where most of the pollution that causes acid rain originates. Another early player, the Illinois Power Company, canceled construction of a $350 million scrubber system in the city of Decatur, Illinois, explaining that for now, “Our compliance plan is based almost totally on the purchase of credits.” Various brokerage firms have tried to cash in on the confusion by assembling packages of “multi-year streams of pollution rights,” allowing utilities to defer or cancel investments in pollution controls. “What a scrubber really is, is a decision to buy a 30-year stream of allowances,” John B. Henry of a company called Clean Air Capital Markets told the New York Times, with impeccable capitalist logic. “If the price of allowances declines in future years,” paraphrased the Times, “the scrubber would look like a bad buy.”
Even in simple market terms, the plan has failed to work as its proponents claimed. While the cost of sulfur dioxide permits was expected to rise, as the most cost-effective means of reducing emissions were implemented first and more expensive measures were delayed through emissions trading, the purchase price of these credits has instead declined steadily. They were expected to begin selling for around $500 per ton of sulfur dioxide, and have a theoretical ceiling of $2000 per ton, which is the legal penalty for violating federal emissions standards. Instead, their value has dropped precipitously, with allowances averaging only $68 per ton of CO2 at the 1996 EPA auction. Often, utilities were mandated by state regulators to go ahead with pollution control projects, such as the installation of new scrubbers, that were planned before the credits became available. Others switched to low-sulfur coal and increased their use of natural gas in order to meet regulatory targets of 50 percent reductions in sulfur emissions by the year 2000.
On the other hand, a few companies, such as North Carolina’s notorious Duke Power, have been aggressively buying these credits. In 1995, seven companies bought 97 percent of the new short-term credits that were auctioned by EPA and 92 percent of the longer-term credits. Meanwhile, various student groups have been raising funds to buy emissions credits on auction, in an effort to reduce pollution by keeping them out of industry’s hands. A middle school group on Long Island raised $20,000 toward this effort in 1996, and purchased about one percent of the new allowances available on auction that year. These well-meaning but ultimately naive attempts to fight pollution by “buying” a few tons of sulfur dioxide at a time offer a curious testament to the emerging quasi-religious faith in “free-market solutions” to environmental problems.
Robert Stavins of Harvard’s Kennedy School of Government, one of the leading gurus of emissions trading, predicted in 1992 that control of ten percent of the market might be enough to allow firms to engage in “price-setting behavior.” On a global scale, where inequities of power and wealth are even more severe, the potential for widespread abuses of a pollution-trading system is staggering. Reporting on a recent interview with Stavins, the New York Times explained that “Apart from the practical issues of insuring compliance in countries with inadequate infrastructure, corrupt governments and courts unwilling to enforce contracts, he is concerned that in agreements between companies, ‘both parties will have powerful incentives to exaggerate the gains.'” Stavins argues that such inequities can be addressed by requiring fossil fuel producers, rather than consumers, to obtain (tradable) permits for the resulting emissions.
Even when such schemes are supposed to be working, however, the outcome may be very different from what their proponents would predict. The Times, for example, cited a “philanthropic” effort by which British Petroleum and two U.S. utilities are intervening to save 5 million acres of forest in Bolivia, in the hope of sequestering a significant amount of carbon dioxide at a small fraction of what this would cost in the United States. Bolivia, it should be noted, was the site of the first so-called debt-for-nature swap in 1987, in which a portion of the country’s unpaid international debt was bought by Conservation International in exchange for an agreement to expand an important biological reserve. In that case, logging in the buffer zone surrounding the reserve increased dramatically, seven new sawmills were built in the area, and two groups of indigenous people were displaced further from their traditional lands. Elsewhere, Northern companies have invested in large tree plantations in the South, replacing native forests and grasslands with vast acreages of eucalyptus and other fast-growing trees, which disrupt biodiversity and severely strain groundwater reserves. Eucalyptus is seen as a highly profitable, renewable cash crop which, due to its fast growing properties, consumes more carbon dioxide in the short term than most native species. There is growing resistance by people in “underdeveloped” areas of the South to efforts to turn their homelands into timber plantations that may help offset the industrialized world’s increasing appetite for energy.
Market-based schemes to promote energy conservation in the U.S. have proved disappointing as well. Throughout the 1980s, state regulators offered electric utilities a variety of incentive plans to encourage investments in conservation. These included rate increases comparable to those which inevitably follow the construction of new power plants, while ratepayers were promised that they would reap the savings through lower overall electric bills. Some savings were achieved through utilities subsidizing home weatherproofing, energy-saving light bulbs, and even experimental purchases of solar water heaters. Yet much of the available funds were squandered on high-profile demonstration projects, administrative costs, and specialized programs only accessible to the most affluent homeowners. Many programs inadvertently served to heighten the inequities in energy costs between wealthier homeowners and low income people, who spend a far greater portion of their total income on electricity. Once the effects of low oil prices, excess supplies of electricity and increased competition in the utility sector began to be felt in the mid-1990s, many companies petitioned to opt out of these programs, and with growing nationwide pressure to largely deregulate the electric utility industry, this particular experiment in market-driven conservation will most likely prove short lived.
Advocates of “free market” conservation and emissions trading argue that all of these experiments have relied too much on regulatory mechanisms, rather than allowing the “invisible hand” of the market to do its work. These true believers in the benificence of the market, however, willfully overlook one central reality: that capitalism is oriented toward maximizing profits, not efficiency. While efficiency improvements may lower costs in the long-run, corporations will generally accept the expense of sustaining a status-quo that has kept profits rising. Companies only bring economic “externalities” such as environmental costs into their calculations when required to do so by outside political intervention of one sort or another. Today companies are more often reducing production costs by laying off workers, contracting out large portions of the production process or moving entire factories overseas. In this setting, the far less certain promise of reduced costs from improving energy efficiency, or changing technology to reduce greenhouse gas emissions, holds considerably less appeal. Market-oriented schemes to save energy and curb greenhouse gases run against the tide of a business world aggressively oriented toward growth, capital mobility and the increasing concentration of economic power. Even as companies advertise their environmental commitments and support the occasional high-profile pollution reduction scheme, a far greater portion of their resources are generally devoted to lobbying for weaker environmental regulations than to investments in conservation or “clean” technology.
The Clinton administration’s effort to postpone meaningful reductions in greenhouse emissions is viewed rather grimly by most world leaders. “What we have witnessed in the five years after Rio has been a nearly complete halt to international dialogue on environment and sustainable development,” President Robert Mugabe of Zimbabwe said this past June, after a special “Rio+5” session of the U.N. General Assembly ended without a single substantive agreement. The 1992 Rio summit promised the nations of the South increased development assistance to help meet internationally agreed upon environmental goals. Instead, development assistance from the North has fallen sharply, the funding of environmental projects in the South has been appropriated by the World Bank, and the Earth Summit’s biodiversity convention has been co-opted by the U.S. and other powers as a means to expand the global reach of the biotechnology industry. This month’s climate conference in Japan has the potential to stem this tide, as the issue of climate stabilization enjoys a far wider international consensus. As in countless other U.N. proceedings in recent years, however, the intransigence of the United States remains the main obstacle to meaningful international progress.