Searching For The "Son Of Kyoto"

The mooning of George W. Bush by global-warming protesters in Goteborg, Sweden, last week was only the latest and most vulgar example of the criticism that has been heaped on the President since March, when he declared that the Kyoto agreement on climate change was dead. The Administration, otherwise disciplined and well scripted in its first few months, has been left dazed and confused by the outcry at home and especially abroad. It tried to recover its footing by touting a myriad of other worthy environmental initiatives. But the problem hasn't gone away. The President needs to come up with his own "Son of Kyoto."

Bush is right in saying Kyoto has flaws. Chief among them: under the accord, the developing countries (including China and India), which will soon account for the majority of emissions, have no obligation to control emissions growth. Even Senate Democrats acknowledged that with a resolution that passed 95 to 0 in 1997 and declared the Senate unlikely to ratify any agreement that did not include meaningful participation by developing nations. European leaders are probably breathing easier because Bush, by stepping forward, relieved them of the need to take concrete actions at home, where resistance to higher gasoline prices has been intense.

But Kyoto, whatever its drawbacks, did contain one breakthrough: an architecture that would have allowed countries to reduce emissions through a credit-trading system. The concept was pioneered by the President's father in his Clean Air Act, which cut acid rain in half by allowing U.S. utilities to trade sulfur dioxide credits. Today the system would permit the industrialized countries to trade carbon-emission credits (basically licenses to emit specific amounts of greenhouse gases) among one another and participating developing countries. Because climate change is a global problem, its solution is ideally suited to an international-trading regime. Such trading is the key to solving the political puzzle on climate change as well. It is widely predicted that the developing countries, whose industrial processes tend to be less efficient today, will be able to reduce carbon emissions at far lower cost than will the industrialized nations. Countries would choose to make reductions in the hope of making money--in effect financing the upgrade of their industrial plant by selling emissions credits to nations in the West for which the cost of achieving reductions by retrofitting already modern infrastucture would be quite high. That kind of trading would draw developing countries into the fight against global warming. The financial rewards for joining the battle would be substantial. In such a functioning market, carbon-reducing actions would be undertaken by those who could achieve them at the least economic cost, virtually guaranteeing the maximum amount of environmental benefit for every dollar invested.

From that perspective, Kyoto was a pretty good deal for President Bush. It was an extraordinarily difficult task for the Clinton Administration to get other nations to agree to a system that both allowed trading to reduce costs and gave credit for establishing carbon "sinks" by protecting growing forested areas or planting trees on degraded farmland. Clinton and Gore negotiating the flexible, market-oriented Kyoto accord was a bit like Nixon going to China. A conservative like Bush could never have achieved such flexibility without vituperative criticism from activists and Democrats.

Clearly, the President now needs to move toward a Son of Kyoto that re-engages the international community. The plan should include three key elements. It must allow emissions trading, in order to reduce costs and induce all nations to participate. It must ask developing countries to adopt a ceiling against which their reductions can be measured. (For the trading currency to have value, it must be scarce.) And finally, its mechanisms must encourage actions that reduce emissions for the long term, not just an initial period.

Climate change can't be solved overnight. It is the long-term effect that matters. So Bush should propose a graduated set of emissions goals that stretch further into the future and cumulatively address the problem. That would allow time for new technology to deliver efficiency gains, for developing countries to incorporate cleaner growth into their plans and for political leaders to see that if markets are allowed to function, people and businesses will respond to incentives in ways the politicians can't quite imagine today.

The author, a venture capitalist at the Carlyle Group, teaches environmental policy at Stanford Business School. He was a senior aide to President George Bush and helped frame the 1990 Clean Air Act