Climate Change Policy
Climate change policy action is taking place at three levels: international, national, and state/regional.
International policy: A brief history
Because climate is a global issue, much of the policy discussion has taken place at the international level. Climate policy dates back to 1988, when the G-7 nations announced their intent to create a framework treaty to limit emissions of greenhouse gases. The eventual result, in 1992, was the signing at the “Earth Summit” in Rio de Janeiro of the United Nations Framework Convention on Climate Change (UNFCC), which called for voluntary reductions of greenhouse gas emissions. While started by the G-7, the UNFCC now includes most of the countries in the world.
Although many countries ratified the UNFCC, in the 1990s little progress was made towards lowering emissions. In the few countries that reduced emissions (e.g., Russia, Great Britain, and Germany), the reductions were due to one-time, mostly economic, changes. In the case of Russia, for example, reduced emissions reflected the collapse of the Russian economy after the end of the Cold War. Recognizing this lack of progress, the United Nations held the first Conference of the Parties to the Framework Convention in 1995, with the goal of working toward a protocol that would include binding emissions reduction commitments.
The eventual result of this goal was the Kyoto Protocol, agreed to in late 1997. The protocol mandates that between 2008 and 2012 developed countries reduce their greenhouse gas emissions to at least 5.2% below 1990 emissions. Each country has a specific target: for the United States, the target is 7% below 1990 emissions, while the European Union has a target of 8% below 1990 levels. The protocol will go into effect when 55 nations — representing 55% of developed country emissions in 1990 — have ratified the treaty. As of early 2003, 100 countries have ratified Kyoto, including Japan and the nations of the EU. Russia is the last major industrialized country that has announced intentions to ratify but has not yet done so; when Russia ratifies the treaty, as expected in 2003, the protocol will proceed to become formally implemented.
One of the more controversial aspects of the Kyoto Protocol is that it focuses on developed countries as the source of near-term emissions reductions. To help address this concern, the Clean Development Mechanism (CDM) was created as part of the Protocol. Under the CDM, investments made in reducing emissions in developing countries can be claimed by developed countries and applied towards their emissions targets. The CDM may be of particular interest to businesses that are looking for low-cost ways to claim emissions reductions.
National: The U.S. response
Because the Kyoto Protocol is based on individual countries reaching emissions targets, it has spurred debate at the national level. In the U.S., the Clinton Administration never submitted the treaty to the U.S. Senate for ratification, in large part because the Senate objected to the fact that the treaty does not call for emissions reductions from developing countries. Soon after taking office, the Bush Administration announced that it would not support Kyoto, and would not submit the treaty for ratification. Although it is likely that the protocol will come into effect, it will do so without the participation of the United States.
Despite not supporting Kyoto, the Bush Administration has said that it does support measures to limit greenhouse gas emissions. In early 2002 the president announced his “Clear Skies” initiative, which would reduce emissions “intensity” — defined as the amount of emissions relative to total economic output — by 18% over the next decade. The president also called for increased funding for further study of climate change.
There is debate on two fronts about the effectiveness of reducing emissions intensity as compared with actual emissions reductions. First, there is concern that reducing emissions intensity is inappropriate because it allows for increases in total emissions as the economy grows. Second, some opponents feel that carbon dioxide should be regulated. Proposed legislation now in the U.S. Congress has been termed the “four pollutant” approach because it adds carbon dioxide to the three pollutants now regulated under the Clean Air Act: mercury, sulfur dioxide, and nitrogen oxides. The proposed mechanism would limit total emissions while allowing for trading of emissions credits between companies, similar to the “cap and trade” approach used for other pollutants under the Clean Air Act. This market-based trading method allows for increased efficiency, and lower costs, in lowering total emissions, and is similar to what can be expected in countries that ratify the Kyoto Protocol.
State/Regional
Another response to climate change has been a proliferation of state and regional policy climate efforts. For example:
- New England states joined with eastern Canadian provinces in a pact to reduce greenhouse gas emissions to 1990 levels by 2010 and a further 10% by 2020.
- California created the California Climate Registry, now operating as an independent organization, to allow companies to track and report emissions.
- New Jersey created a climate change action plan that includes provisions for businesses operating in the state.
Despite these and other actions, several states have called for a stronger national climate policy, stressing that state-level action on climate change should not take the place of policy at the national level.
Regardless of which policy mechanism is adopted to reduce emissions, businesses will play a role in these efforts simply because businesses and industry account for such a large percentage of carbon dioxide emissions. In countries where the Kyoto Protocol is the overarching approach, countries will seek to reduce their emissions through a variety of means that will impact businesses either directly (e.g., a cap on emissions) or indirectly (e.g., taxing emissions). In the U.S., the effect on businesses will depend on the extent of the emissions reductions sought through legislation or regulation. The result, over time, will be a carbon-constrained economy in which businesses that have reduced their emissions will benefit.