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Monday, Jan. 9, 2006

Post-Kyoto wind picking up

The 11th Conference of Parties to the U.N. Framework Convention on Climate Change was held in Montreal from Nov. 28 to Dec. 9, more than a year after Russia ratified the 1997 Kyoto Protocol, thus enabling it to take effect last Feb. 16.

Russian ratification was necessary because the United States, which accounts for 35 percent of the developed world's greenhouse-gas emissions, had withdrawn from the protocol. Although the landmark document was ratified by 158 of the 189 countries that attended the Kyoto climate-change conference, its implementation required ratification by "Annex-1" developed countries accounting for more than 55 percent of total emissions from all the countries.

On the final day of the Montreal meeting, former U.S. President Bill Clinton, speaking at the informal invitation of the Canadian government, sharply criticized U.S. President George W. Bush. Clinton's speech received broad applause.

Bush argues that cuts in greenhouse-gas emissions would harm the U.S. economy. He is flat wrong. Serious efforts to develop energy-saving technologies should strengthen, not weaken, the U.S. economy. Climate change because of global warming is an immediate reality, and it is accelerating. There is no doubt that increasing emissions of carbon dioxide (CO2 are due to human activity. Although no one knows when or whether climate change will reach unmanageable proportions, it is wrong to rule out early countermeasures.

Signatory nations openly rebuked Bush's stiff rejection of the Kyoto Protocol. The U.S. is also opposed to creating a new framework for the protocol following the end of the first "commitment period" (2008-2012). A majority of delegates argued that discussion of a post-Kyoto agreement should begin even without U.S. participation. Clinton said it is the Bush administration, not the American people, that is opposed to the Kyoto Protocol. The speech, the highlight of the conference, greatly encouraged nations trying to develop a new framework without the United States.

The U.S. delegation must have been displeased with Clinton, but outwardly at least it reacted positively. In a brief statement, chief U.S. delegate Paula Dobriansky said the speech provided a useful opportunity to hear various views on global climate change.

Creating a post-Kyoto framework is the biggest challenge for participants at the Montreal conference. The Kyoto Protocol states that talks on second-phase reduction rates should begin seven years before 2012. Before Annex-1 developed countries start such talks, though, the question of whether to include the U.S. and developing nations -- which account for 24 percent of global emissions -- must be addressed (China and India are the world's second- and fifth-largest emitters). Developing countries maintain that the second phase, also, should involve only developed nations.

In my view, there is virtually no possibility of a U.S. concession under the Bush administration. In the final analysis, whether the U.S. participates or not seems to depend on the outcome of the 2008 presidential election.

As for developing countries, the question is what incentives should be provided for their participation. Give and take should apply. Trading in the emissions market requires that participants "cap," reduce or restrict, their emissions. Few people would argue, though, for imposing obligatory cuts on the developing nations. Given their right to pursue economic development, they should be required to control, not reduce, their output of greenhouse gases.

More specifically, let us assume that the base year for emissions control is set at 2000, and that developing countries will be required to limit their average annual emissions sometime during the second phase (2013-17) by less than X percent from 2000 levels. If the X value is reasonably large, they will have incentives to participate in emissions trading, and they can become sellers in the market through energy-saving efforts, thus earning hard currency.

The "joint implementation" scheme, which applies only to participating countries, will also provide incentives for developing-country participation. Under this arrangement, developing countries can attract developed-country investment for cutting their CO2emissions in exchange for transferring their protocol-specified emission allowances to developed countries.

If developing countries as well as the U.S. refuse to participate in the second phase, one likely alternative is the "clean development mechanism" (CDM), which allows developed-country governments or corporations to count their emissions-cutting investments in developing countries as their own emission cuts.

In general, higher prices in the emissions market serve as a CDM incentive. To raise prices, higher reduction targets must be set for developed countries.

Discussions in Montreal followed a parallel course. On the final day the conference agreed to establish an ad hoc committee, including the U.S. and developing countries, on the assumption that developed countries will commit themselves to setting second-phase targets. In view of the positions maintained by the U.S. and developing countries, the committee will engage in dialogue, not negotiation. Much of the Japanese media has put a positive spin on the agreement, saying a forum for second-phase talks has been created. Still, the accord falls short of expectations.

Meanwhile, U.S. opinion polls show Bush's approval ratings in decline. Americans have grown increasingly angry with his handling of the war in Iraq, and they appear to be unhappy with his perceived indifference to climate change. They ought to criticize him more openly on this score, for every American citizen must be aware of the unusual weather patterns in recent years, such as average global temperature rises and the increasing intensity of hurricanes like Katrina.

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

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