New approaches to cutting emissions
BY TEJAS SATJIAN AND DANIEL WALLACH

The Kyoto Protocol has been at the forefront of the global warming debate since its inception in 1997. Five years before its pre-negotiated expiration in 2012, the discussion of the post-Kyoto landscape has become a new priority for policymakers. Most experts agree that the Protocol must either be completely rebuilt or scrapped if the world is to make any significant progress in combating global warming. Regardless of how the international community proceeds after Kyoto, the success of future efforts to mitigate climate change will rely on an international framework that allows the successful coordination of domestic mechanisms that limit carbon emissions.

Leaving Kyoto Behind
Kyoto is “yesterday’s news,” in the words of Robert Stavins of Harvard’s Kennedy School of Government, and will play a minimal role in current and future debates on climate change. In an interview with the HPR, Harvard economist Richard Cooper claimed that, by being the central focus of international climate discussions, yet including no mechanism for developing countries like China or India to sign on to the agreement, “Kyoto has set us back ten years.” Another significant objection to the Kyoto Protocol involves the politicized choice of 1990 as a base year for emissions targets, since the Protocol was negotiated among countries with different rates of growth in the 1990s. Given the wild ranges in required cuts of emissions from, neither the United States nor Australia signed the protocol because of the difficulty of returning to 1990 levels. Thus, regulating less than one third of the world’s emissions, and acting with wildly varying degrees of stringency on that remaining third, the agreement has done very little to change the course of the global climate.

Nevertheless, an international framework would still be required to encourage and coordinate the reduction of emissions globally. One proposed architecture involves a reconstituted Kyoto system, with emission targets for countries to achieve. Many doubt the feasibility of a treaty that contains no binding penalty for failing to reach the proposed targets. In a May 2007 Financial Times column, Former Treasury Secretary Lawrence Summers compared the Kyoto Protocol to the League of Nations, arguing that the Protocol was “idealistic and visionary yet impractical,” and lacked a well-defined commitment to emissions reduction.

Regardless of the next international structure that is developed to deal with global warming, individual nations will almost certainly have to devise novel mechanisms for achieving lower emissions targets. As Professor Stavins explained in an interview with the HPR, “Kyoto was an international arrangement to get countries to cooperate and share responsibilities; however, it is still up to individual countries to find ways of achieving their own targets.” Indeed, any international arrangement for reducing carbon emissions, institutional or otherwise, must be accompanied by realistic mechanisms for achieving the desired emission targets, while ensuring that the distribution of reduction costs is shared fairly across borders. The key element of this challenge will be to integrate the developing countries, particularly China, which is overtaking the United States as the world’s largest emitter of carbon dioxide, into the framework of policy discussion.

Making Cents of Regulation
Increasingly, economists and policy makers are looking to a carbon tax as a concrete alternative to the idealism embodied in the Protocol. In an interview with the HPR, Harvard economist Gregory Mankiw, a leading defender of carbon taxation, said, “A carbon tax is, economically, the least invasive way to correct the problem of global warming” since it uses markets to compensate for an economically inefficient market outcome. A study by Yale economist William Nordhaus estimates the optimal initial rate for such a tax at $41.90 per ton of carbon.

The most pressing difficulty in making a carbon tax work lies in coordinating it globally. If the United States imposed a tax on emissions but developing nations did not, companies would merely shift their carbon-emitting activities abroad. Mankiw argues this “could be worse than having no carbon tax at all.” Stavins told the HPR that the best way to surmount this difficulty would be for individual nations to harmonize their carbon taxes so that “rates in each country would be set at the same level.” He questioned the feasibility of such a universally harmonized tax, however, arguing that India and China would be reluctant to set taxes at the same rate as Europe and the United States. Still, Cooper said that major developing countries would readily implement the carbon tax within the context of an appropriate international agreement, as it provides a convenient source of revenue to governments.

Though reaching a compromise on the appropriate rate of carbon taxation would require difficult international negotiations, its leading alternative, a cap-and-trade system, may encounter even worse obstacles to international coordination. Since cap-and-trade mechanisms rely on a strict legal limit as well as an allocation of permits that allow companies to pollute at levels below the cap, it would be up to individual governments to properly distribute permits and enforce emissions laws. Such policies are no easier to agree upon than the optimal rate for a carbon tax, and they encourage widespread corruption in distribution methods. And, Mankiw argues, cap-and-trade regimes are inferior to carbon taxes because they generate less revenue for national governments.

Nevertheless, Mankiw and Stavins agree that such an option has huge political momentum in the United States, and Stavins told the HPR that “a domestic cap-and-trade system is coming, and the next US president, whether Republican or Democrat, will play a huge role in negotiating it internationally.”

Looking ahead, it seems clear that the Kyoto framework will be considered a historical failure. But even though the Protocol has not achieved its stated aims, it has succeeded in bringing the issues of climate change to the fore of international debate in the past decade. Indeed, the climate change treaty of the future will not likely resemble the Kyoto Protocol, but it will definitely incorporate the Protocol’s lessons.¨