Receive the Bulldog Edition

Economic Blogosphere

Economic Journalists banner

October 9, 2005
David Warsh, Proprietor

| contents |

When the Wolf Is Real

In the short history (and prehistory) of global warming, there have been three signal events so far.  The “energy crisis” of the 1970s, though mostly a false alarm, turned out to be a useful cautionary tale on many levels. It illustrated the immense complexity of environmental science and resource economics, and began the differentiation among serious analysts, responsible skeptics, and various Cassandras and Pollyannas.

Then in the 1980s came the “ozone hole” — the confirmation that industrial gases known as CFCs (chloroflourocarbons), then widely used as propellants in spray cans, were dangerously depleting the protective layer of ozone in the upper atmosphere which shielded life on earth from ultraviolet rays. The first suspicions had been voiced in the late 1960s, in connection with the damage supersonic jet transport exhaust gases might cause, crisscrossing the earth at high altitudes.

In 1973, Mario Molina and Sherwood Rowland traced out the previously unsuspected chemical pathways between CFCs and ozone depletion (work for which they won a Nobel Prize 20 years later). The chlorine atom was the villain, it turned out.

By 1985, a team of British scientists established the existence of a hole in the ozone layer over the Antarctic icecap.  And by 1987, the governments of 20 industrial nations had signed the Montreal Protocol of the Vienna Convention (of 1985), agreeing to reduce CFC emissions around the world. The Montreal Protocol was a heartening symbol of scientists’ ability to reach a firm conclusion and governments’ ability to act when confronted with a clear and present danger.

Earlier this year, scientists announced the first strong evidence that the remedy they devised to reverse the damage — a system of caps and emissions permits — was working pretty much as expected. The hole has begun to shrink.

The third epochal event occurred in 2001, when President George W Bush abruptly pulled the US out of the Kyoto Protocol, which called for a universal system of trading emission permits for greenhouse gases, exempting only developing nations.  Never mind that the treaty had been hastily arranged by the Clinton administration, which had made little attempt to persuade Republicans of its necessity.  Never mind that its universal trading system was patently unrealistic and unworkable.

The cavalier manner in which the Bush administration crossed the problem off its list in favor of tax cuts and the war in Iraq sent a worrisome signal to the rest of the world. The US, which twenty years before had led the world by banning CFCs among its manufacturers, had gone off on a carbon dioxide toot, symbolized by the rise of  the sport utility vehicle.

Meanwhile, the evidence kept on accumulating that global warming was real. Whether it was the clearly melting snows atop Africa’s Mount Kilimanjaro, or satellite photos of the shrinking polar ice cap, or the force of the back-to-back hurricanes Katrina and Rita, the case that global warming was a phenomenon to be taken seriously was becoming concrete. It now seems likely that, in some deep and subtle way, American politics has changed in the first few years of the 21st century, and that a new stance on climate policy will be required of political candidates going forward.

So where do we stand?  One way to understand the situation we are in today is to compare it (loosely) to the period during which the thirteen North American colonies, having asserted their independence from Great Britain, struggled to compose their differences under the Articles of Confederation.

It was then, in the decade between 1777, when colonial leaders in the Continental Congress first drafted a set of rules by which the new Americans might govern themselves; 1781, when the Articles, having been ratified by the states, took force; and 1787, when, having failed, they were replaced by the Constitution, which has successfully governed the United States ever since; that a fierce debate took place about the conflicting requirements of centralization and pluralism. The arguments were distilled and refined in a series of pamphlets soon collected and known today The Federalist Papers.

And it is to The Federalist Papers, according to climate policy specialists David Victor, Joshua House and Sarah Joy, that we should look for clues as to how today’s similarly thorny situation might be resolved. — especially those tracts authored by James Madison, numbers 37, 39, 45 and 46 in particular.

David Victor, 40, is director of the program on Energy and Sustainable Development at Stanford University, where Joshua House and Sarah Joy are research fellows.  An MIT PhD in political science, he previously directed the Science and Technology program at the Council on Foreign Relations in New York; he remains an adjunct senior fellow there. He is the author of The Collapse of the Kyoto Treaty and the Struggle against Global Warming.

In the September 16 issue of Science magazine, the trio advocated a “Madisonian approach” to climate policy.  “After years of gridlock and indecision, serious efforts to slow the greenhouse express are finally taking hold,” they wrote. Considerable progress was occurring on a patchwork basis, akin to the federalism that Madison had advocated as the key structural element of the US Constitution.

“Whereas Madison foresaw individual states becoming Ôlaboratories’ for political innovation, this global federalism of climate policy has emerged through innovation within nations, regions and firms.”

The fragmented, “bottom-up” system of carbon emissions trading that had emerged in the aftermath of the disappointment of the Kyoto Protocol was the most concrete evidence of the Madisonian approach, they argued. Fragmented though it may be, it is “not simply a stiff smile to be painted on the wreckage of grander visions for global trading. Rather it is pragmatic and effective.

“The architects of global trading were blinded by the theoretical benefits that could arise from trading among diverse economies; a universal system, they thought, would prevent free-riding.”  But global institutions are too week to monitor and enforce such a system, they argue.  They also lack the means to sanction a member-nation that quits when its commitments become inconvenient — witness the way the US abandoned the Kyoto agreement.

So far, Victor, House and Joy note, six separate carbon-trading systems have emerged from the ashes of Kyoto. The biggest of these is the European Union market in carbon permits, which caps carbon dioxide emissions from about 12,000 industrial facilities in 15 of its 25 nations. The United Kingdom has a similar, smaller system of its own.

The Clean Development Mechanism of the Kyoto Protocol continues to award tradable credits for emission-cutting investments in the developing world, and the World Bank has begun a parallel lending effort of its own.

Even in the United States, 31 firms have voluntarily imposed modest caps of their own, trading permits among themselves on the private Chicago Climate Exchange, as a demonstration project.  And in the Northeast, nine states are nearing completion of a compact that would begin carbon-trading under an emissions cap.

From such a bottom-up series of experiments, say Victor, House and Joy, a global trading system can be expected eventually to emerge. Next, they say, political leaders and their various experts need to begin working on three broad fronts.

First, a new framework will be required to carry international cooperation to the next level. Treaties, because they are legally binding, are inherently a poor vehicle for securing such cooperation in its early stages; better a high-level intergovernmental forum similar to the Group of Seven apparatus that oversees economic collaboration among the leading industrial nations. Setting ambitious but non-binding goals is the better way to steer an uncertain course.

Recently, Canadian Prime Minister Paul Martin had advocated the creation of what he calls the “L20,” a regular summit meeting of leaders of important nations in the northern and southern hemisphere to address a wide variety of global problems, including climate change. Such a forum could take advantage of the full range in institutions that have been worked out to hold nations to voluntary agreements (peer-review and bilateral negotiations in particular), launching treaty negotiations only when the underlying political and technological considerations had been carefully worked out.

Second, say Victor, House and Joy, the strategy of how best to engage developing countries must be re-thought. These newly-industrializing nations already account for half the world’s carbon emissions.  Because they are in a hurry to raise material living standards, they give little thought to measures against atmospheric pollution.

But measures to bring such countries under global caps, as envisaged by the Kyoto treaty, are doomed, according to the Stanford trio — for the simple reason that leaders of industrial natios are unlikely to agree to the kind of massive capital transfers to poorer nations that such covenants imply. Indeed, managers of the EU trading system are likely to prevent the extension of their arrangement to poorer nations precisely because of the transfers that a flood of foreign permits would imply.

Instead, the experts suggest looking to technology to ameliorate emissions problems in rapidly industrializing nations. Natural gas releases less than half the carbon dioxide of coal for each unit of useful energy.  By investing heavily in gas infrastructures, China and India could significantly improve the situation.

But such solutions require considerable international cooperation. The US has opposed the building of an Iranian pipeline to carry gas from Iran to Pakistan and India.  Russia has hesitated to open its rich supplies of gas to China.  An institution such as the L20 could go a long way towards smoothing the way to a handful of important agreements.  Faster gasification in China, for instance, could cut carbon emissions by 2020 by a larger amount than turning off all the cars in California, the authors say.

Third, and most important, if meaningful steps are to be taken to slow greenhouse warming, the US must change its stance. Current US policy consists mainly of accelerated spending on climate science and new low-carbon technologies.  Ten individual states have set emission targets, but none yet has a viable strategy for enforcing its goals.

Nor is there any requirement for consistency. The same week California Gov. Arnold Schwarzenegger announced the goal off rolling back greenhouse emission to 2000 levels by 2010 on its way to still steeper cuts in the future, his state also sought to order more electricity from coal-fired (carbon-intensive) generating stations in Nevada, Utah and Wyoming. Victor notes, “As Madison himself argued, effective governance requires assigning the functions of government to the institutions that have leverage and accountability.”

Accountability means elections. The surge of stories accompanying the current hurricane season is probably the most intense attention paid to global warming by the international press since 1988.  Then, a series of heat waves and droughts and the worst forest fires in a century, combined with various expert warnings, raised public consciousness in the US and Europe, and culminated in the creation of the IPCC.

The events of 2005 are unlikely to have been forgotten by 2008.  Federal priorities will be the central issue of the next presidential campaign. The issues today are much more complicated than they were in 1783.  The stage is global instead of local. But the Madisonian arguments are much the same.

| contents |

Skim past columns here.

Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email