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Wednesday, July 14, 2010

U.S. Global Climate Change Policy: Evolving Views on Cost, Competitiveness, and Comprehensiveness

Larry Parker
Specialist in Energy and Environmental Policy

John Blodgett
Specialist in Environmental Policy

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

The nature of greenhouse gas (GHG) emissions (particularly carbon dioxide (CO2) emissions) makes their control difficult to integrate with the U.S economy and traditional U.S. energy policy. Despite the obvious interrelationship between energy policy and greenhouse gas (GHG) emissions, the United States has struggled to integrate the two. For a country that has traditionally used its relatively cheap supply of energy to substitute for more expensive labor and capital costs to compete internationally, this linkage is particularly strong, as witnessed by the nation's high GHG emissions per capita. In the face of this economic reality, along with continuing scientific uncertainty, debate over a greenhouse gas (GHG) reduction program can be categorized by three inter-related Cs: Cost, Competitiveness, and Comprehensiveness. 

typically refers to some monetary estimate of what a GHG reduction program would require, often expressed as a gross dollar amount or as a percentage reduction in gross domestic product for some period of time. Competitiveness, at the simplest level, reflects concerns about what firms would be disadvantaged by cost increases as a result of GHG reduction requirements. Comprehensiveness concerns the extent to which all nations have to meet comparable GHG reduction requirements—in contrast to the current situation in which developing nations, such as China, have no obligation to actually reduce emissions.

Fundamental policy assumptions regarding each of the three Cs have changed between the U.S. ratification of the 1992 UNFCCC and key events of the first decade of the 21st century—the George W. Bush Administration's 2001 decision to abandon the Kyoto Protocol process and the 2009 negotiations at Copenhagen.

First, the ratification of the UNFCCC was based at least partially on the premise that significant reductions could be achieved at little or no cost. This assumption helped to reduce concern some had that the treaty could have deleterious effects on U.S. competitiveness. Further ameliorating this concern, compliance with the treaty was voluntary. But the assumption has never lacked critics; and their views—and to some extent, experience based on alternative energy costs—have rendered the "low cost" assumption tenuous in the eyes of many.

Second, the UNFCCC was approved at a time when salient competitiveness issues were focused as much or more on developing nations, rather than developing ones. But the competitiveness issue has increasingly refocused on the rapidly growing economies, especially of India and China—shifting the competitiveness concern to countries that have been absolved from mandatory reduction requirements while they grow their economies.

And third, the UNFCCC was approved at a time when the developed nations dominated GHG emissions, and it was assumed comprehensiveness could be subordinated temporarily to the imperative for developing nations to grow their economies. But by 2005 China had passed the United States to become the world's largest emitter.

The Copenhagen Agreement tried to preserve the twin goals of economic development and emissions reductions by allowing each nation to determine the costs it would accept; and also by establishing a mechanism by which the developed nations would provide funds for greenhouse gas reduction actions by developing nations. What remains to be seen is whether any voluntary program can successfully reduce emissions sufficiently to meet the UNFCCC goal of holding the increase in global temperatures to 2 degrees C.

Date of Report: June 25, 2010
Number of Pages: 18
Order Number: RL30024
Price: $29.95

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