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Tuesday, May 8, 2001

Bush could kill Kyoto treaty

Japan must work to bring the U.S. back into the fold

U.S. President George W. Bush announced in late March that his administration did not support the Kyoto Protocol, an international agreement that requires industrialized countries to cut emissions of carbon dioxide and other greenhouse gases as a way to prevent global warming.

That was not altogether unexpected, considering that the Republican Party has traditionally believed that the market is the final judge and has therefore taken a somewhat detached attitude toward environmental issues. In other words, the Republicans are more concerned about economic growth than about environmental protection.

The Bush announcement brings to mind a press conference given by his predecessor, President Bill Clinton, in November 1997, at which he proposed a zero-percent target for CO2 emissions in 2010. Clinton was speaking ahead of the Kyoto meeting, which is officially known as the Third Conference of Parties to the U.N. Framework Convention on Climate Change, or COP3. At that time, the European Union was calling for a 15-percent uniform cut. Growth-conscious Japanese industries threw their weight behind the U.S. proposal, while environmental groups expressed disappointment and anger.

Many people here and abroad expected then that the United States would set the pace for the Kyoto meeting. As it turned out, the Kyoto Protocol committed the industrialized countries to reducing their total greenhouse-gas emissions by an average of at least 5 percent from 1990 levels by 2010. It also required Japan, the U.S. and Europe to cut their emissions by 6 percent, 7 percent and 8 percent respectively. With hindsight, the European plan for a 15-percent cut set the stage for diplomatic horse-trading among Japan, the U.S. and the EU. With the U.S. rejecting any reductions, a numerical compromise was necessary to hammer out a three-way agreement along these lines.

At the last climate-change conference (COP6), held in the Hague in November 2000, Jan Pronk, the environment minister of the Netherlands and the chair of the meeting, produced a personal proposal in an effort to forge a consensus. His proposal, which was clearly tilted toward the U.S., was designed to save the Kyoto treaty. At the time, a Bush victory in the U.S. presidential race was considered almost certain, so there was a strong possibility that a consensus at the Hague meeting favoring the EU position would be rejected by the Republican-controlled U.S. Congress.

Pronk's proposal was not immediately acceptable to the U.S., still less to the EU, since each side's reputation was at stake both domestically and internationally. The meeting decided to hold another session -- COP 6.5 -- half a year later, in Bonn, from July 16-27, 2001. Now, however, the U.S. rejection of the Kyoto Protocol is casting a shadow over the Bonn meeting.

Many people in the EU, as well as in environmental nongovernment organizations, say the protocol should be put into effect even without U.S. participation. It must be remembered, however, that U.S. withdrawal from that agreement could take the teeth out of it, so to speak. Before I explain why, let me list the key points of this milestone treaty.

1. Average emissions of heat-trapping gases (carbon dioxide, methane, dinitrogen oxide, substitute CFCs and sulfur hexafloride) in the industrialized countries and emerging market economies (Annex 1 countries) in the five years from 2008 to 2012 will be reduced by at least 5 percent from 1990 levels.

2. Reduction targets will be "differentiated" on a country-by-country basis.

3. Developing countries (non-Annex 1 countries) will not have to reduce emissions for the time being.

4. "Kyoto mechanisms" -- emission trading, joint implementation and a clean development mechanism -- will be established to help individual countries reduce emissions at the lowest possible cost.

5. Carbon dioxide absorbed by forests will be counted as "negative" emissions.

From 1990 to 1998, total CO2 emissions in the Annex 1 countries dropped 3.2 percent. However, emissions in the U.S. increased 12 percent while those in other countries decreased 11 percent on average. Total CO2 output in the OECD's European member states remained almost unchanged; it fell 34 percent in the former Soviet Union and East European countries; and combined output in Japan, Canada, Australia and New Zealand expanded 11 percent. In 1998, the U.S. accounted for 42 percent of all carbon dioxide emitted by Annex 1 countries.

If emissions in the U.S. and non-European Annex 1 countries keep rising as they did and if emissions in Europe stabilize at their 1998 level, then total emissions in the Annex 1 countries in 2010 will have increased 8 percent.

However, if the U.S. is excluded, total emissions will have decreased 5 percent or more. Thus, the Kyoto Protocol will impose virtually no extra restrictions if the U.S. withdraws. In other words, the U.S. boycott will make the protocol's overall reduction requirement for the industrialized countries no more than that required by "business as usual," i.e., attainable without any significant effort.

If country-by-country differentiation is left intact, Japan, Canada, Australia and New Zealand will have to purchase emission rights from Russia, Ukraine and Eastern European countries in order to meet their targets. These former Soviet-bloc countries will have chunks of their emission quotas left unused -- so-called hot air -- as long as their economies continue to stagnate. Since these countries are subject to lenient requirements, they can supply a huge amount of emission rights to the market at little or no cost. So the market price will drop to an extremely low level.

This will have undesirable effects, however. First, very low prices for emission rights will reduce incentives for efforts by industrialized countries to reduce their emissions. Second, it will become unnecessary to use the clean-development mechanism, which allows an industrialized country investing in reductions in a developing country to count those reductions as its own. As a result, this support mechanism for limiting emissions in developing countries will not function as it should.

Thus, if the Kyoto Protocol takes effect without U.S. participation, not only will efforts to prevent global warming be set back, but the protocol itself could become ineffective. In order to avoid its "emasculation," the overall reduction target of at least 5 percent for industrialized countries will have to be elevated. Additionally, severe restrictions will have to be imposed on the use of the Kyoto mechanisms. In other words, U.S. withdrawal will make drastic changes in the protocol unavoidable.

As an economist, I rate the Kyoto Protocol highly, since it is economically rational. A U.S. pullout, however, could lead to its collapse. With the U.S. and the EU facing off, the Japanese government has a very large role to play as a "third force" in bringing the U.S. government back into the fold.

Takamitsu Sawa, professor of economics at Kyoto University, is also the director of the university's Economic Research Institute.

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