Tuesday, Jul. 08, 2008

Environment: Now What?

American ecologist garrett hardin outlined a rather grim future for mankind when he published "The Tragedy of the Commons." The seminal essay, which appeared in the journal Science in 1968, described how a freely shared resource — in this case, the Boston Common, once a community pasture — is ultimately destroyed because sheepherders, acting in their individual interests, pile on the livestock beyond the land's carrying capacity. In the 40 years since the essay's publication, its thesis has been demonstrated again and again in the crash of fisheries and obliteration of forests. "In a crowded world of less-than-perfect human beings, mutual ruin is inevitable if there are no controls," Hardin wrote. "This is the tragedy of the commons."

Today this scenario is playing out on an epic scale. The commons is the entire planet. The looming tragedy is global warming. Not that the world is indifferent to the increasing odds for catastrophe due to climate change. Consumers, businesses and governments are taking steps to reduce carbon dioxide and other greenhouse-gas emissions. But there is only one comprehensive, international program in place to fight global warming — the Kyoto Protocol — and the countries that ratified the landmark 1997 agreement are falling short of even the minimum levels of reductions that scientists say can avert the worst effects of climate change. Europe is failing to meets its targets. The top two polluters — China and the U.S. — have not joined the effort, arguing the pact is unfair and toxic to their economic growth. Kyoto's greatest failing, according to critics, is that developing countries including China and India, which rely heavily on cheap, polluting energy sources such as the burning of coal, are not participating. Since it is estimated that by 2030 emerging economies will account for half of all greenhouse-gas emissions, "The idea of dealing with climate change without asking the opinion of China would be plainly absurd," said former British Prime Minister Tony Blair following a recent meeting on climate change with Japan's Prime Minister Yasuo Fukuda.

Fortunately, the global-warming battle plan is still a work in progress. The Kyoto Protocol expires in 2012 and the search for an improved, more inclusive version is under way. Starting July 7, the leaders of the G-8 industrialized countries will meet for a three-day summit in Toyako, Japan. Global warming will be high on the agenda, and there is a growing sense of urgency to the debate. The deadline for a new agreement is December next year at a meeting of the United Nations Framework Convention on Climate Change in Copenhagen. "At this stage, we do not have time for the G-8 heads of state to not agree on something," says Kiyoshi Kurokawa, science adviser to Fukuda's administration.

As it has in the past, Japan is taking a leadership role. The country's economy, second largest in the world, surpasses many other major countries in energy efficiency — Japan uses roughly half the energy that the U.S. does to generate a dollar of economic output, for example. Japan also has the toughest carbon-reduction target under the Kyoto Protocol. By 2012, it must reduce overall greenhouse-gas emissions to 6% below 1990 levels; the overall average Kyoto target is 5.2%. But it appears unlikely Japan will be successful. The country now emits nearly 7% more greenhouse gases than it did in 1990.

How can countries do better? Much of the debate revolves around the Kyoto Protocol's central mechanism for emissions reductions. Under this system, known as "cap and trade," countries agreed to reduce their total emissions by a certain amount — measured against their output in 1990 — by a certain time. That's the cap part. The trade part comes via the creation of a market for the buying and selling of carbon credits — which represent the right to spew a specific amount of greenhouse gases. Companies that cannot reduce emissions must buy credits from those that pollute less. In effect, the buyer pays a penalty for polluting, while the seller gets a bonus for having reduced emissions by more than was required under the cap.

In theory, the trading of carbon credits creates economic incentives for companies and countries to clean up. But in practice, critics say, cap and trade is difficult to monitor, easy to manipulate and, when applied on an international scale, tends to penalize the developing world. In part that's because industrializing economies are growing more quickly (and increasing their use of energy more quickly) than advanced economies, so a cap on emissions is like yanking on an economic handbrake. Not only that, poorer countries can afford mainly older, dirtier industrial technologies. Upgrading to cleaner infrastructure is costly and puts companies at a competitive disadvantage in the global marketplace.

In the search for a solution that includes China, India and the emerging-world peloton, Japan is lobbying for change. At the World Economic Forum's Davos conference in January, Fukuda introduced a scheme called the "sectoral approach," which seeks to mitigate emissions starting with individual industries, rather than by imposing blanket emissions caps on a country-by-country basis. The idea, greatly simplified, is that by focusing attention on industries, not countries, that pollute the most — and by channeling investment in cleaner technologies into those sectors — the debate can be scrubbed of some of the "us-versus-them" thinking that bedevils the international dialogue between developed and developing worlds. "It's an opportunity for a new direction," says Ichiro Kamoshita, Japan's Environment Minister. Japan's Ministry of Foreign Affairs (MOFA) calls it "fair, equitable and scientifically proven."

It's hardly that clear-cut. There are differing proposals for implementation of the sectoral approach. Nippon Keidanren, Japan's largest and most conservative business lobby with close government ties, is calling for every industrial sector, such as steel and cement, to be analyzed taking into account national production levels and how advanced the industries are in the use of green technologies. The goal is the establishment of realistic, voluntary emission-reduction goals that can be applied within each country. This approach, say Keidanren officials, will drive technological innovation, while cap and trade actually has the potential to undermine green research and development because it forces polluters to pay for carbon credits when the money would be better spent on green-tech investments.

Japan has thrown in a sweetener for the developing world. At the Davos summit in January, Fukuda proposed a program called the Cool Earth Partnership, a multinational effort to develop energy-efficient technologies in emerging economies. Japan promised to contribute $10 billion over the next five years to jump-start the program. Instead of binding emissions targets, "If we focus on technology transfer and financing, developing countries are very willing to adopt the sectoral approach," says Masami Hasegawa, manager of the environmental group at Keidanren.

But critics say Japan's proposal is actually a backdoor way for Japan Inc. to rid itself of onerous reduction requirements. "It is a way for business to avoid mandatory controls," says Yurika Ayukawa, vice chairwoman of the G-8 Summit's NGO Forum. "Japan's energy efficiency is better than most countries and so Japan feels it doesn't have to make an effort toward reductions." Others say a system based on voluntary compliance may work in socially cohesive, environmentally conscious Japan, but it won't work on an international scale, where the every-man-for-himself ethic prevails in business. "Nippon Steel might think the sector-based approach is useful, but Alcoa would not," says Dominic Waughray, director of environmental initiatives for the World Economic Forum.

Besides, cap-and-trade variants are quickly becoming the gold standard. Programs are already operating in Europe, and a cap-and-trade system was central to environmental legislation recently debated in the U.S. Congress (the bill was defeated, but similar legislation is expected to be reintroduced next year). "Japan is going to realize [at the G-8 summit] that around the world cap-and-trade programs are emerging as the preferred instrument," says Robert Stavins, director of the Harvard Environmental Economics Program. Still, Koji Tsuruoka, director general for global issues at MOFA, makes the point that "cap and trade and the sectoral approach can coexist," with the latter helping to set achievable national reduction targets. "The sectoral approach is a tool, and if the tool is sophisticated, it can be very effective."

Although Fukuda is chairman of the G-8 summit in Toyako, he may not get far with the sectoral approach. Some observers say the conference will be counted a success if a more humble goal is met: that the holdout U.S. agrees to join other nations in a long-term target of reducing global emissions 50% by 2050. The target was announced by Germany's Chancellor Angela Merkel and former Japan Prime Minister Shinzo Abe at last year's G-8 summit. "For this year's Japan G-8, the essential thing is to get the global 2050 target agreed and then get the elements that will go into the package for next year," said Blair on his recent visit to Tokyo.

The devil will be in the details. "The post-Kyoto agreements are likely to be some of the most complex and some of the most difficult ever undertaken," says Theodore Roosevelt IV, chairman of the Council on Climate Change, which directs global-warming initiatives for U.S. investment bank Lehman Brothers. No one said Hardin's tragedy of the commons is inevitable. But avoiding a planetwide environmental meltdown may require an unprecedented level of international cooperation and sacrifice.

With reporting by Yuki Oda and Michiko Toyama/Tokyo