Brian Fallow: Rationing not the American way

It is ironic, in a way, that George W. Bush owns a ranch in Texas.

Go back far enough and that land would have been no one's property, part of the apparently boundless rangeland of the American west. An ocean of grass. Cattle heaven.

But we have long ago learned that to avoid what economists call the tragedy of the commons - such as the overgrazing of common land which lays waste the resource and leaves everyone impoverished - there comes a point where some form of rationing becomes necessary: boundaries, fences, registries, property rights and a market.

What divides the United States and its loyal sidekick, Australia, from the rest of the developed world is whether that time of rationing and regulation has come for the atmosphere.

Can we continue to burn fossil fuels untrammelled and heedless of the impact on the global climate? Or do we need a system akin to land ownership or fishing quotas that limits those rights and a market to ensure they flow to whoever values them most? The Kyoto Protocol is, of course, an attempt to set up such a system.

But the largest emitter of greenhouse gases will have none of it. And that is not about to change, the chief US climate negotiator, Harlan Watson, made clear on a visit to Wellington late last week.

At the Gleneagles summit this month, the leaders of the eight largest industrial power, plus China, India, Brazil, Mexico and South Africa, agreed on a "plan of action". It is a package of worthy but modest measures to foster the development and uptake of clean technologies.

Ongoing dialogue is scheduled among the G8 plus five group, which includes the leading representatives of devolving countries which collectively will soon exceed the developed countries in greenhouse gas emissions.

But we should not see that as a path forward to some sort of multilateral agreement on a regime to succeed Kyoto after 2012 (the end of the treaty's first commitment period).

The gaps are still too wide.

"Our European colleagues are still very much looking at a targets and timetable approach. We are looking more at a technology-based approach and the 'plus five' are certainly not ready to adopt a targets and timetables approach," Watson said. China, for instance had made it clear in a number of forums that economic development was its priority.

"So we think it is going to be an interesting forum to carry on discussions but it is too early to speculate on what will evolve."

But, even viewed from this distance, it is clear that the US is neither monolithic nor immobile on the issue of global warming.

It is not just that hybrid cars are chic in Hollywood. Various climate-friendly initiatives are occurring at state and city level, notably California's bid to regulate greenhouse emissions from car exhausts.

 

Meanwhile, last month, senators John McCain and Joe Lieberman garnered 38 votes (out of 100) for a Kyoto-style cap-and-trade regime within the US. The targets are less ambitious than those the US agreed to at Kyoto but later walked away from. It suggests the Senate has moved some distance from 1997 when it voted 95-0 against any international agreement that would harm the US economy and which did not impose commitments on developing country emitters.

But it is five fewer votes than McCain-Lieberman got two years ago. "We don't really think the cap and trade approach has gained much more momentum in the Senate and the House [of Representatives] would block it in any event," Watson said.

"And, for an international treaty to be ratified, it requires a two-thirds majority in the Senate, no matter who is president."

One of the ironies in all this is that what is arguably Kyoto's greatest strength - its preference for market mechanisms rather than regulatory fiat to achieve emission reductions - reflects US advocacy, but it is the Europeans who are trying to make it work. The US had used the cap and trade system successfully to tackle emissions of sulphur dioxide, the cause of acid rain.

The problem it has with Kyoto is that too much of the world's emissions would fall outside the cap, even if the US was in.

"You certainly want emission reductions to be done in the most efficient, cost-effective manner. But the size of the pie and how you divide up the pie is where you get into difficulty. The developed world is soon going to be outpaced by developing country emissions."

The US Government prefers to put money - serious money, it has to be said - into research and development in areas with promise for emissions reductions in the future, such as "clean coal" technology, fuel cells and carbon capture and storage.

It is easy to dismiss this as corporate welfare and picking winners, but such technologies do need to be developed.

But Kyoto's defenders would say that if the successor technologies are to be commercialised, they have to make sense to final consumers of energy.

That is the case for having a price for carbon emissions built into energy prices and climbing inexorably over time so that cleaner technology is commercially viable.

"But we are seeing plenty of price signals now with US$60 oil and it is not clear to us, I guess, what additional price signals the market needs," Watson said.

"You would have to raise taxes or do it through the back door via a cap and trade system which has the same effect. We haven't figured out a way yet where you tax the economy and maintain appropriate economic growth. Not too many economies have figured out how to do that."

That, it seems, is the bottom line.

While that view prevails in Washington, the geopolitics of climate change are going to stay intractably difficult.

Climate debate

Europe wants a targets and timetable approach.

The US wants a technology-based approach.

Developing countries think economic development is the priority.