The Rationale for this Book
This book is an outgrowth of my attempt, over 25 years in senior positions in government and business, to create and use environmental markets to reduce emissions of conventional air pollutants and GHGs that cause climate change. My goal is to draw on this experience to contribute to the continuing efforts to develop effective, enduring responses to the critical issue of global climate change. I attempt to do this by describing the key policies, analyzing their results, and using these lessons to propose a path forward. A brief word on what the book is not. It is not meant to be an exhaustive review of every climate decision and policy from the last 25 years or to focus on issues such as adaptation. Others are better equipped to do that.
Those who have dedicated their careers to creating policy responses to climate change and participating in the markets understand how challenging the effort has been. There have been many successes and failures. However, given the increases in both emissions and concentrations of GHGs in the atmosphere and the resultant impacts and climate-related risks,1 it is fair to say that in the first generation of climate change policy-making, which I generally refer to as âclimate change 1.0â, failures outweigh successes. Climate change 1.0 ended with the defeat of GHG cap-and-trade legislation in the US and generally with the initiation of negotiations for a successor treaty to the KP2 at the international level.
The new era of policy-making, âclimate change 2.0â, overlapped with 1.0 in 2009 with the advent of President Obamaâs policies including the first proposed regulation in the US designed to reduce GHG emissions from the transportation sector3 and the attempt to negotiate a new international treaty4 at the international level. It was expedited in 2013 in the US with the release of President Obamaâs Climate Action Plan5 and internationally with an agreement reached at the Conference of the Parties (COP) 176 meeting to conclude a successor agreement to the KP in 2015. My references to international-level policy throughout the book are to the United Nations Framework Convention on Climate Change (UNFCCC),7 the KP8 and its market-based mechanisms, the recently concluded Paris Agreement9 and many of the key decisions taken in the negotiations conducted under the authority of the United Nations.
My thesis is simple. The primary policy responses in climate change 1.0 failed because they were overly ambitious, complex, inflexible, and, in part, top-down in nature. This is particularly the case given that these were the first attempts to address climate change, which is a century scale issue. In addition, the KP and its mechanisms were administered by the UN bureaucracy as overseen by nearly 200 countries. Decision-making in this process is cumbersome at best, making it extremely difficult to learn and adapt to new information. This is critical to successfully addressing any public policy issue and climate change in particular, because of its multiple dimensions and continually increased understanding of its causes.
Much has been learned from these missteps. The failures in 1.0 have significantly influenced emerging policy-making in 2.0. For the most part, the new efforts underway in the US to achieve GHG emission reduction targets are more bottom-up and targeted in nature and consist of less ambitious measures10 than a broad-based tax or an economy-wide cap-and-trade program as proposed in 1.0.11 Similarly, the international agreement recently concluded in Paris12 at the twenty-first COP is in total contrast to the KP. The approach to reducing GHG emissions to achieve climate policy objectives is bottom-up in nature, flexible and supported by top-down elements. Hopefully, it will work better in slowing global GHG emissions.
Although US and international climate change policies in 2.0 will not be as ambitious as the ones that were considered and adopted in 1.0, they will likely be more successful. The book reviews the policies proposed in the US and adopted at the international level in 1.0, assesses why they failed, and describes how they influenced ongoing policy development. It reviews emerging trends in the new era of policy-making and propose a series of âmodestâ, targeted policies that I believe can be effective in reducing GHG emissions and controlling costs. Success is essential to building public confidence and creating the political conditions necessary to develop more ambitious actions that will be required in the future, something that is imperative in todayâs fractured and often dysfunctional political environment. To borrow an analogy from baseball, it is time to play a small ball. Policy-makers should attempt to hit a lot of singles and doubles in trying to achieve large-scale reductions in GHG emissions. Singles and doubles, in this context, modest initiatives, put a lot of runs on the board. We need to avoid the temptation to swing for the fences and hit home runs in 2.0. The overreach in 1.0 was a primary cause of its failure.
A review of the first generation of climate change policy and recommendations for 2.0 would be incomplete without a sober assessment of the performance of the carbon markets that were the cornerstone in 1.0. With great fanfare, the KP attempted to create a single, integrated global market to assist developed countries achieve GHG emissions reduction obligations at the lowest cost. Similarly, the EU Emissions Trading Scheme13 (EU ETS) was the primary element of its strategy to comply with its KP targets and was linked to the Kyoto market. It remains a cornerstone of EU climate policy to achieve long-term GHG emission reduction targets. The US failed in its attempt to create a carbon market by developing an economy-wide GHG cap-and-trade system in the first few years of the Obama Administration.
The carbon markets were and continue to be a significant source of controversy. In my view, advocates oversell marketsâ potential benefits while detractors minimize them. I have not found many dispassionate reviews of their actual performance. Therefore, one of the bookâs primary emphases is to undertake and provide such a review of the performance of the KP markets, with an emphasis of the CDM14 and the EU ETS. A clear look at their shortcomings and successes, and the reasons for such, is essential to understand what carbon markets can realistically deliver in the future. This is critical, given that approximately 60 trading systems or taxes have already been implemented or are under development at the national and subnational levels and a new mechanism was incorporated in the Paris Agreement.15 , 16 As such, markets will continue to be a prominent component of the climate policy portfolio in 2.0.
I was a strong believer that carbon markets provided the best hope of achieving climate policy objectives at the lowest cost. My support was based primarily on my experience with the US acid rain trading program (the worldâs first large-scale market created to solve an environmental problem) included in the Clean Air Act Amendments (CAAA) of 1990. However, it was strengthened by the characteristics of GHG emissions and economics. First, the nature of climate change is such that reductions achieved anywhere in the world would benefit the global climate equally. And second, the large disparities in reduction costs around the globe provided powerful cost-saving opportunities for trade. Designed correctly, carbon markets could help drive down the cost of achieving GHG emission reductions, provide incentives for additional reductions, and stimulate innovation. In the US, markets also provide the possibility of moving past the contentious and inevitable debate over the use of taxes to address climate change as they had with acid rain.
After stubbornly denying it for many years, I reluctantly concluded that the initial vision of carbon markets playing the central role in GHG emissions mitigation and mobilizing large volumes of capital necessary to combat climate change would not become a reality. This was a difficult conclusion for me to reach. Markets will continue to a play an important role in the effort to address climate change; however, other approaches will also play significant roles. Policy-makers and affected parties need to move past the contentious debates of trade versus taxes versus regulation. They all have a role to play and we need all of them. Each nation should implement policies based on their circumstances and policy-making traditions.
My conclusions regarding the role that markets have played in 1.0 and their best use in 2.0 result from my experiences in government as the Chief of Staff at the US DOE from 1993 to 1996 and in the private sector as the Managing Director and COO from 2000 to 2013 of Natsource, a leading company in the formative years of the carbon markets.
At DOE, I participated in the development of the first project-based market mechanism designed to reduce GHG emissions. The mechanism, the United States Initiative on Joint Implementation (USIJI), was a pilot program included in the first US climate change action plan (CCAP) developed in 1993.17 It was an outgrowth of the Joint Implementation (JI) concept that was included in the UNFCCC.18 USIJI, along with other pilot programs including activities implemented jointly (AIJ),19 which was created by the international community, were the forerunners of the CDM, included as Article 12 in the KP, which became an important and controversial component of the global carbon market. The USIJI was included in the CCAP in recognition of the global opportunities to reduce GHG emissions where they were the cheapest and for firms to gain experience investing in emission reduction projects outside of the US. It would be the first step in attempting to determine if such programs could work and in motivating the private sector to operationalize such mechanisms. Following my departure from government, and prior to joining Natsource, I worked with several large utilities and energy companies during the Kyoto negotiations and to formulate response strategies once it had been agreed.
In recognition of the Bush Administrationâs decision to avoid the issue of climate change, I departed the familiar...