Impact of U.S. Climate Change Policy on U.S. Energy, Environmental and Foreign Policy Initiatives

Kyle Danish

On April 23, 2002, the American Bar Association and the Air & Waste Management Association cosponsored a national teleconference entitled: "Developments in U.S. Climate Change Policy: Impacts of the Bush Administration's Proposal on U.S. Energy, Environmental, and Foreign Policy Initiatives." The panelists for the teleconference were:

• Harlan L. Watson, Senior Climate Negotiator and Special Representative, U.S. Department of State;
• William. L. Fang, Deputy General Counsel, Edison Electric Institute and Vice-Chair of the American Bar Association Committee on Climate Change and Sustainable Development; and
• Joseph Goffman, Senior Attorney, Environmental Defense.

Watson spoke first and outlined the climate change policy announced by President Bush on Feb. 14, 2002. The Bush administration has recognized that, while the science remains somewhat uncertain, climate change is an issue that needs to be addressed.

The administration has set a goal of reducing the ratio of U.S. greenhouse gas emissions to U.S. Gross Domestic Product ("emissions intensity") by 18% by 2012. In other words, the program will aim at reducing the quantity of greenhouse gas emissions associated with each unit of economic output. Watson explained that, absent the administration's program, intensity would decline by only 14% during that period. The 18% target is the equivalent of taking a third of U.S. cars off the road, Watson asserted.

Watson acknowledged that achieving a reduction in emissions intensity would not necessarily mean achieving a reduction in total emissions. Nevertheless, he argued that the intensity approach is a short-term policy that is consistent with the 1992 United Nations Framework Convention on Climate Change (UNFCCC), to which the United States is a party. The long-term objective of the UNFCCC is to achieve stabilization of atmospheric concentrations of greenhouse gases at a level that will prevent dangerous impacts on humans; the treaty provides that the objective should be met in a manner consistent with economic growth. Watson asserted that the administration's intensity-based program is a good first step in achieving the stabilization objective of the UNFCCC. Watson argued that economic growth is part of the solution to climate change, particularly in so far as it leads to the development of more energy-efficient technologies.

Watson also noted that the intensity approach of the U.S. program has been of interest to developing countries, such as India, China and Brazil. Developing countries will account for nearly 80% of the growth in greenhouse gas emissions, but these countries have resisted hard emissions targets. Watson said that, in recent meetings, officials from India and China have expressed interest in the intensity approach because it accommodates economic growth better than an absolute cap on emissions.

Watson described the tools the administration's program will use to meet its intensity target. First, the administration's fiscal year 2003 (FY2003) budget includes $4.5 billion for climate change related programs, such as tax credits and technology incentives. In ten years, climate change funding will rise to $7.1 billion.

The administration's plan also calls for an "Enhanced Registry for Voluntary Reductions." The registry will allow companies to record their reductions and receive transferable credits for them. The registry also will provide "baseline protection" for those companies that register, ensuring them that their reductions will be taken into account in any future regulatory program.

EPA has organized a "Climate Leaders" program under which companies can adopt public emissions reduction targets and receive technical assistance in meeting those targets [editor's note: see the article in this issue on EPA's Climate Leaders program]. To date, Alcan, BP, Bethlehem Steel and General Motors are among the participants. In addition, the administration is organizing "challenge" programs aimed at particular industries, such as the semi-conductor industry. The industry challenges will encourage participating companies to sign on to voluntary goals. In the transportation sector, Watson noted the "Freedom Car" initiative, which is aimed at fuel cell cars. He also cited the new conservation programs in the farm bill that will encourage farmers to set aside lands to sequester carbon. Watson explained that the program will be revisited in 2012 to determine its adequacy.

William Fang followed Watson. His organization, the Edison Electric Institute (EEI), is the primary trade association for U.S. investor-owned electric utilities. Fang said that EEI is generally supportive of the approach adopted by the administration, finding it vastly preferable to the Kyoto Protocol or the carbon dioxide regulatory caps proposed by Democrats in Congress. He explained that EEI is opposed to sectoral reduction targets. Instead, the administration should "let a thousand flowers bloom" and encourage experimentation with incentives and flexibility and reforms to programs that register voluntary reductions. Fang lauded the intensity metric of the administration's program because it accommodates economic growth.

Fang explained that the power sector is exploring a partnership with the Department of Energy, "Power Partners," which would involve voluntary goals and funding for research and development. Fang indicated that, for participating electric power companies, baseline protection and credit for early action are key concerns. They need assurances that their emission reduction "good deeds" will not be "punished" if and when more significant emissions reduction targets are imposed under a future program. Fang noted that the industry expects to rely heavily on purchases of low-cost emission reductions from other countries. (Watson stated that the administration believes that the Kyoto Protocol does not prohibit U.S. companies from participating in international emissions trading as buyers).

Fang said that his industry is watching Congressional activities closely, particularly the provisions in the Senate Energy bill (S.517) that could lead to a mandatory emissions reporting program. (As of April 26, 2002, the Senate Energy bill passed with a voluntary emissions reporting program that will become mandatory in five years if not more than 60% of U.S. emissions are being reported.) The electric power industry is also very concerned about multi-pollutant legislation in Congress, particularly the Jeffords bill (S.556), which would impose mandatory carbon dioxide reduction obligations on electric power plants in addition to new reduction targets for nitrogen oxides, sulfur dioxide, and mercury. The industry prefers something like the Bush administration's "Clear Skies" proposal, which would establish targets for nitrogen oxides, sulfur dioxide, and mercury, but would address carbon dioxide through the administration's climate change program.

Goffman was highly critical of the administration's climate change policies. He provided graphs showing that the administration's intensity target provides practically no change from what is projected in the "business-as-usual" scenario. More importantly, he demonstrated that the administration's policy does nothing to prevent a substantial increase in total U.S. emissions. Goffman asserted that allowing U.S. emissions to continue to increase at a significant rate runs counter to the stabilization obligations of the United States under the UNFCCC. He noted the Third Assessment Report of the Intergovernmental Panel on Climate Change, which projects substantial risks of human and natural harm resulting from the continued increase of greenhouse gas emissions. In light of these findings, Goffman asserted, the world can ill afford to have the United States, which currently is responsible for over 20% of the world's total emissions, adopt a kind of do-nothing approach.

Goffman also explained that the approach of the Bush administration is entirely inconsistent with the president's repeated emphasis on the virtues of "cap-and-trade" approaches to addressing environmental problems. The predicate of a cap-and-trade program, Goffman observed, is the establishment of a cap, a transparent and absolute limit of emissions. The Bush climate program, by contrast, relies entirely on opaque and uncertain policies, which might or might not contribute to a moderation of emissions. Goffman noted that the public has been asked to invest rather substantially - in the form of tax breaks and incentives - in a climate change program that has no real benchmark for success and no clear measures of progress.

Goffman also called into question Watson's assertion that the voluntary registry program could provide assurances of credit for early action and baseline. Goffman said that the possibility of credit lies with the future Congress that will establish a real regulatory program, and that Congress will decide to credit voluntary reductions under a registry only if they are, in fact, "credible" and real. Accordingly, if companies want credit they should takes steps to ensure that the registry has the most rigorous standards for reductions. Goffman also observed companies are likely to undertake significant voluntary reductions only if they believe they face a regulatory program in the not too distant future. Therefore, the Bush program reflects an unworkable paradox: the administration wants to induce voluntary action, yet also wants to assure companies they will not be subject to regulation any time in the next ten years.

Kyle Danish is an associate at Van Ness Feldman and a co-chair of the Climate Change and Sustainable Development Committee.