by the Congressional Budget Office

“ Developed countries have contributed the majority of historical emissions, but countries that are now in the early stages of development will account for the bulk of emissions over the next century. Even so, on a per capita basis, developing countries will continue to have much lower income and levels of emissions than developed countries will have, and they appear to be more vulnerable to damage from climate change. As a consequence, policymakers in many developing countries favor significant action to reduce global emissions—but only by developed nations. ”

“ Under a loose set of rules that permitted Annex B countries to pay for large emissions reductions in non-Annex B countries and allowed extensive credit for the net absorption of carbon dioxide by forests, the United States would have been able to meet its targets at almost no cost and with little effect on its economy. ”

“ Although nations have found it relatively easy to agree to expand, coordinate, and report climate-related scientific and technological research, they have found it very hard to agree about whether and how much to restrict the growth of greenhouse gas emissions. ”

“ To many observers, binding treaties with penalties seem more likely than nonbinding ones to ensure compliance, and experience shows that nearly all countries do, in fact, fulfill their binding commitments. However, given the uncertainty of politics and markets, governments cannot invariably ensure that they will be able to meet such commitments. They generally do so, not because they would face penalties for noncompliance but because they would not have agreed in the first place to commitments that they were unlikely to fulfill. ”

“ For simplicity’s sake, the proposal ignores emissions from non-fossil-energy sources and exempts countries with low per capita income for distributional reasons. The system would yield an estimated two-thirds of the net benefits that could be realized by an ideal system covering only emissions from fossil energy use. Furthermore, nearly all regions would share in the system’s beneficial effects on the climate. ”

“ For instance, if only developed countries controlled emissions, they would consume less oil. International oil prices would fall in response, and developing countries would be able to increase their oil consumption. Similarly, corporations in emissions-intensive industries could simply reduce their investments in countries with stricter controls and increase their investments in countries with less strict or no controls, gradually transferring their production to them. That potential leakage effect would raise the cost and reduce the effectiveness of more-restrictive countries’ commitments. ”

“ As a result, problems in one country would generally not affect markets for permits and endowments in others. The system would be flexible enough to adapt both to changing political and economic circumstances and to shifts in the rate of climate change. Permit prices could be rapidly adjusted in response to new information, and endowment prices would adjust accordingly. Countries could enter the system simply by agreeing to an internationally negotiated emissions endowment and permit price, allocating their endowments domestically, and enforcing the fixed-price permit system. ”

“ Relatively little scientific research is dedicated to understanding the potential effects of climate change on society, the area that studies suggest would yield the largest economic benefits. According to the National Science and Technology Council (2001) , the U.S. Global Change Research Program allocated over 80 percent of its $1.6 billion budget for fiscal year 2002 to basic climate science and less than 20 percent to research on the human and ecosystem dimensions of climate change. ”

“ Each approach represents a distinct interpretation of the available evidence about the likely benefits and costs of climate change, the uncertainty surrounding it, and practical concerns about how climate policy would affect domestic economies and the world economic system. Many of the approaches offer novel ways to address the simultaneous problems of limiting emissions and distributing the burden of regulation. ”

“ A long-term emissions endowment, which would be valid in only one country, would give its owner a permanent right to receive annual emissions permits. A limited number of endowments would be allocated to each country on the basis of the Kyoto targets for domestic distribution. Each government could also sell an unlimited number of permits every year at a price that would be fixed each decade by international agreement. There would be no international trading of emissions allowances or credits. ”

“ Uniform international incentives are likely to be more cost-effective than country-specific regulations because every country has at least some low-cost opportunities to reduce emissions, whereas the incremental cost of controlling emissions in any given country is likely to rise steeply with increasingly tight restrictions. Developing countries have particularly extensive low-cost opportunities, for several reasons: many of the costs of production there tend to be relatively low; energy use is rarely taxed and often subsidized ”

“ And maintaining strictly uniform taxes on emissions would be difficult in the face of fluctuating exchange rates. Moreover, in negotiating a uniform price mechanism, countries might want to consider the extensive variation in their existing energy taxes: even in the absence of price- or quantity-based controls, the effective price of carbon from fossil fuels differs significantly among countries and across fuels. Gasoline prices in western European countries, for example, are about three times higher, on average, than in the United States, largely because of taxes. ”

“ International Policy Considerations In addition to considering the nature of the climate change problem and the distribution of interests, policymakers who seek to foster effective international coordination may draw from a wide range of past experience in the design and implementation of international environmental and other treaties, and of domestic regulatory systems as well. ”

“ By allowing different permit prices in different regions, possibly for an extended period, the proposed system would trade away some cost-effectiveness to accommodate distributional concerns. Governments could also address domestic distributional concerns through their allocations of emissions endowments. At the same time, the system would build a constituency of endowment owners in both developed and developing countries who would hold property rights for emissions—and who would therefore benefit from a rise in permit prices. ”

“ Restrictions on greenhouse gases vary in the ease with which emissions can be monitored and the limits on them enforced. Under binding agreements, carbon dioxide emissions from the use of fossil fuels would be relatively easy to monitor, although in countries that had serious problems with law enforcement and tax evasion, compliance with the established limits could be difficult to achieve. ”

“ The United States has also continued a variety of longstanding programs that tend to discourage emissions or encourage the removal of greenhouse gases from the atmosphere—but that were originally intended to achieve other goals, such as pollution reduction, energy independence, and the limitation of soil erosion. ”

“ Given the complexities that policymakers face in securing domestic political agreement about implementation, the more ambitious the commitments, the more varied the implementations are likely to be.
Countries with relatively large absolute or per capita emissions, or with large fossil-fuel industries, are likely to insist on some degree of cost-effectiveness before committing themselves to restrictions on emissions—although political and distributional considerations may lead nations to ignore cost-effectiveness. ”

“ As Victor and others (1998) have noted, agreements are more likely to succeed if they involve commitments that are relatively straightforward to apply and enforce. Nations may find it easier to commit to undertake research programs than to adopt uniform technologies, complex regulatory policies, or specific targets for emissions. Targets may be particularly difficult to decide on or achieve in the face of uncertainty about implementation costs. ”

“ To enter into force, the Kyoto Protocol must be accepted, approved, acceded to, or ratified by at least 55 signatories to the convention, including countries that together in 1990 accounted for at least 55 percent of total carbon dioxide emissions from Annex I countries. In effect, the provision means that the protocol must be ratified or approved by either the United States or Russia, which together accounted for over 50 percent of emissions from Annex I countries in that year. ”

“ Recent decisions by the WTO have allowed nations to enforce environmental rules by penalizing imports on the basis of the processes used in their production (Victor, 2001, pp. 87-89) . But some experts worry that entangling the WTO in complex environmental issues could endanger the international trade system. ”

“ Give countries incentives to continue to participate even if other countries refuse to; Allow new countries to enter with relatively little effect on the system; and Distribute the cost of the response in a way that is acceptable to participating countries. Regulatory Approaches To regulate the global growth of emissions, international negotiators can draw on essentially the same set of options as domestic policymakers can: command-and-control regulations, emissions taxes or permits, or a hybrid system. ”

“ The upshot of these developments—assuming ratification and implementation by the remaining parties and full use of the treaty’s many flexibility provisions—is that the protocol will result in relatively few commitments to undertake research, a complex set of emissions caps for a limited set of developed countries for the 2008-2012 period, financial transfers among the parties amounting to several billion dollars per year for the purchase of emissions allowances, unlimited emissions rights for most countries, and a very limited reduction in the growth of global greenhouse gas emissions. ”

“ That lack of agreement may stem in part from uncertainty, but it also reflects nations’ differing circumstances and conflicting interests. Policymakers in countries vulnerable to potential changes in climate favor dramatic action to avert warming, while policymakers whose countries appear to be less vulnerable are correspondingly less concerned. ”