We can argue for years about whether the earth is warming (or cooling) as a result of industrialization or just going through a natural cycle along some geologic timeframe that defies our human understanding. Still, the evidence is mounting that continued reliance on combustion of fossil fuels at an unbridled pace presents both immediate and long-term hazards to health and economic wellbeing here in the U.S. and around the world.

Reports from the United Nations' conference on climate change, held this past week in Buenos Aires, called 2004 the fourth warmest year on record, during a 15-year period in which the ten hottest years have occurred. Even disregarding the direst forecasts of future environmental impacts, there is evidence of adverse consequences here and now. According to one U.N. report, climate change caused over $90 billion in economic losses worldwide during the first ten months of this year, and such costs are projected to rise even more in the future.

"We don't need more evidence," said Thomas Loster, director of climate change and natural disaster research for Munich Re, at the conference. "We need to start acting now."

It’s been seven years since U.N. members negotiated the Kyoto Protocol, a program of mandatory reductions of carbon dioxide and other greenhouse gases along with an emissions credit trading market. The goal of Kyoto—to cut worldwide emissions of GHG to about 92 percent of 1990 levels by 2012, is variously seen as properly aggressive, draconian, or not nearly enough to stem the tide, depending on who is making the analysis.

While 39 countries have adopted the Kyoto accord as policy—including Russia as the “tipping point” ratifier that will allow the program to take effect in February 2005—the U.S. government has completely backed away from support. President George Bush instead espouses voluntary programs and more research spending.

The dichotomy of approaches has led to withering criticism of the Bush administration and Congress by Kyoto ratifiers in Europe and Asia. Meanwhile, the administration reportedly has been trying to gather allies in an effort to prevent future negotiations on a post-Kyoto period agreement that might impose even more strict limits. And the late news from Buenos Aires indicates that Italy may terminate its support for Kyoto limits.

The controversy over Kyoto is just part of the context for the NCEP’s recommendation for a modified “cap and trade” system that begins in 2010, with a goal of reducing the density of target emissions by 2.4 percent per year for a decade. That would slow the increases in GHG emissions from 1.5 percent per year to 0.5 percent annually. After 2020, the program would increase the reductions target to 2.8 percent per year, “effectively halting expected emissions growth,” noted the NCEP’s report. After that, emissions would drop.

Ralph Cavanagh, senior attorney for the Natural Resources Defense Council (NRDC) and a member of the Commission, admits that the modest goals will rile many in the environmental community. “It will not satisfy many of my colleagues who want more aggressive timetables for first stabilizing and then reducing emissions,” he told me. “But it is a step in the direction of creating the international markets for reducing emissions reductions that I think almost everybody now acknowledges are needed.”

Is there any chance that the current administration or Congress will buy into any program, however modest, that requires emissions limits? “The administration’s objectives for reducing carbon intensity will not be met by business-as-usual,” Cavanagh said. What the Commission has proposed, “is a cap and trade system that I’m hoping will look to the administration like a reasonable extension of proposals the administration has already made,” he added. To try to gain broad support, the NCEP more frequently refers to the market-based system for reducing sulfur emissions that was enacted under the 1990 Clean Air Act than it raises the Kyoto principles or the European offset market that will begin next year.

NCEP also leaves many of the sticky political issues to Congress, Cavanagh noted. “The trading system, as with the sulfur system, is administered by the federal government. The question is who gets allowances initially, obviously, and how many of the allowances that are available initially are in effect sold off by the government to add revenue for the government as opposed to simply given to emitters,” he said. “And we have not tried in detail to propose how to allocate those, that is a classically political question. The Congress will want to resolve it.”

The Commission recommends allocating 95 percent of the allowances to the entities currently responsible for the target emissions, which, according to Cavanagh, will minimize the economic strains that they will face initially. Although applied across the industrial and economic spectrum to all GHG emitters, any mandatory system would have a disproportionate impact on electric generating facilities (notably coal-fired plants), which account for more than 80 percent of domestic carbon releases.

The 5 percent of allocations reserved for the government would be sold at an indexed price capped initially at $7/ton. That’s considered a necessary “safety net” that effectively caps the cost of compliance and brings flexibility to the trading system. The expected revenues from government offset sales—about $36 billion over 10 years—would be used to fund research and development of less-polluting technologies, according to the Commission.

Contrast this proposal to others that have been made recently. For instance, about two weeks prior to the release of the NCEP report, the environmental group Resources for the Future released its own proposals that called for controlling releases of U.S. greenhouse gases and a trading system, “even in the absence of an international agreement.” The Resources for the Future program, however, also called for a carbon tax—something that is seen as dead in the waters of the Potomac.

Similarly, when the Sustainable Energy Coalition in early October presented its “sustainable energy blueprint” for the country, it proposed a cap & trade system that would mimic Kyoto’s reduction goals over a somewhat longer timeframe ending in 2025. But this plan also called for eliminating all oil and gas imports beginning this year, doubling auto fuel efficiency requirements, and the eventual phasing out of all American nuclear plants—not to mention a proposed 25 percent requirement for renewable energy resources.

That’s not a program that stands much of a chance under current political circumstances.

Perception and timing are everything in Washington politics, observed Jack Riggs, executive director of the Aspen Institute’s program on energy, the environment and the economy. Two years ago, Riggs was part of a group that tried to develop and promote a non-partisan energy policy for consideration by Congress. However, the recommendations of the National Energy Policy Initiative group—which included a carbon cap & trade system—went nowhere on Capitol Hill.

A large part of the problem was that the Initiative group was headed by Amory Lovins of the Rocky Mountain Institute, someone perceived as an ardent environmental advocate. “I think the weakness of that was that there was a perception that it was kind of from the center to the left,” Riggs said. “I don’t think you had any of the ‘Let’s go drill an ANWR, let’s build more nuclear power plant types’ in the group. I think it came up with good recommendations for the most part, but it had two strikes against it. Some people may not have come who should have been there, and then as a result when the recommendations came out, even though they were fairly balanced, people looked at the list and said ‘This isn’t a balanced group.’ So that was an uphill battle to get those things accepted.”

More recently, the Aspen Institute sponsored a program on balancing the policies and politics of climate change proposals. The resulting report leaned heavily on analysis of mandatory GHG reductions and trading systems very similar to the one in the NCEP plan. According to the final report from Eileen Claussen of the Pew Center on Global Climate Change and Robert Fri, former president of Resources for the Future, “there was broad agreement that the paramount concern for a workable program is political acceptability. Indeed, without political acceptability, the most well-designed, theoretical program will never get off the ground.”

The Bottom Line: Whether you think the National Commission on Energy Policy’s recommendation for a cap & trade carbon reduction system appears too extreme or too timid, it was consciously designed as the foundation of an integrated set of recommendations that target the “sweet spot” of political acceptance. “This is no Kyoto,” said Bill Reilly, the former U.S. Environmental Protection Agency head, who co-chaired the NCEP effort.

That’s possibly the best argument the Commission can make as it attempts to get a fair hearing in Congress for its recommendations. And there is some indication that the timing may be ripe for consideration of more assertive carbon limits in the U.S.

Democratic Senator Joe Lieberman, who last term co-authored a “Climate Stewardship Act” with Arizona Republican Senator John McCain, claims there is a better chance for a carbon-limit bill now that Russia has ratified Kyoto. Lieberman believes that U.S. companies that operate globally will push for a consistent carbon reduction program. “Some of the large business entities, including power generators, will begin for reasons of business efficiency and predictability to press the administration and Congress to do something about climate change,” Lieberman said.

Arthur O’Donnell is Energy Central’s Editorial Director. The Business Electric is found exclusively on Energy Central.

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