On Aug. 4, 1997, Kenneth L. Lay, the chairman of Enron Corp., met with Bill Clinton, Al Gore and Treasury Secretary Bob Rubin to discuss the global-warming conference coming up in Kyoto. Mr. Lay was an enthusiastic advocate of the Kyoto climate-change treaty — for two reasons.
First, it would set up a “cap-and-trade” system that could prove highly profitable to Enron. The treaty would restrict the greenhouse gases (mainly carbon dioxide, a product of burning fossil fuels in car engines, power plants and the like) that each country could emit. But nations and businesses could buy and sell emissions rights on an open market, and Enron, which was transforming itself into a trading company, could run that market.
Second, Kyoto favored natural gas over coal, America’s most abundant energy resource, and Enron owned 25,000 miles of natural-gas transmission pipelines plus nine natural-gas power plants. Demand for gas would rise, and prices would soar.
According to the Washington Post, an Enron official said in an internal memo that if implemented, Kyoto “would do more to promote Enron’s business than almost any other regulatory initiative.”
Over the objections of 95 senators, Mr. Gore signed the Kyoto Protocol in late 1997, but last year, Mr. Lay’s good friend, President George W. Bush, courageously withdrew U.S. support, calling the treaty “fatally flawed.” The science was still far too uncertain to take the steps that Mr. Clinton’s own Energy Department estimated would reduce U.S. output by 4%, or $400 billion a year.
Now, incredibly, Kyoto is making a comeback — too late to help Ken Lay but perhaps in time to damage a recovering U.S. economy. Mr. Bush announced what White House spokesman Ari Fleischer called “a new approach, new policy, to reduce greenhouse gas emissions throughout the world, led by the United States.”
The cornerstone of the proposal is a cap-and-trade scheme like the one advanced by Enron five years ago. What’s still unclear is whether how much of the system will be voluntary or mandatory. Most likely, the administration will take what Glenn Hubbard, the chairman of the president’s Council of Economic Advisors, calls a “gradualist” approach — with soft carbon dioxide targets that could expand or contract. But even if the program is voluntary, it won’t stay that way for long.
Why the change in policy? Mr. Bush has been under pressure to offer an alternative means of fighting global warming, and officials at the White House have spent a year looking for something — anything — to assuage environmentalists. The administration’s 2003 budget commits $4.5 billion to climate-related programs, an increase of $700 million and a total greater than any other nation’s. That’s the right approach — more research and technology assistance to developing countries that use dirty, inefficient fuels. It’s a strong, sensible policy, and Mr. Bush should not be ashamed of it.
Greens in Europe and Japan, along with administration officials led by Christine Todd Whitman, who heads the Environmental Protection Agency, don’t believe it’s enough. That may be par for the course. But it’s pointless to try to pacify intractable opponents with a voluntary cap-and-trade system. They’ll laugh it off the stage: If global warming is so terrible, why should fixing it be optional?
The infatuation with emissions trading has a more insidious source as well: Economists are head-over-heels in love with the elegance of the cap-and-trade. In fact, it’s appropriate that the president is announced the new proposal on Valentine’s Day. Think I’m kidding? Chapter 6 of the new “Economic Report of the President” is titled “Building Institutions for a Better Environment.” It’s a tender 34-page letter of longing for “flexible approaches” to environmental regulation — “permit trading,” “tradable performance standards,” and other concoctions of free-market engineers.
Now, don’t get me wrong. If the goal is to limit the emission of carbon dioxide, trading permits is a far better approach than command-and-control decrees from Washington. But either approach is a method of rationing energy and, as the Congressional Budget Office has pointed out, “a tax on emissions.”
Starry-eyed over the beauty of trading, the administration’s economists have lost sight of the justification for the mechanisms in the first place. Carbon dioxide emissions are supposed to be increasing temperatures on earth. But the research — as the administration understands — has never found a conclusive link between human activity and global warming. Satellite observations over the past quarter-century show no increase in heating just above the earth’s surface, and observations going back thousands of years show natural cycles of warming and cooling long before the invention of SUVs and air-conditioning.
The truth is that, right now, we just don’t know enough — which is why it’s smart to commit billions of dollars more to research. In the future, we may find that warming is real and that a cost-benefit analysis shows it is worth fixing. The worst-case scenarios show we will still have lots of time to mitigate. To set up even a voluntary system is to concede that CO2, the stuff that we exhale and that helps plants grow, is dangerous. That’s a very slippery slope.
Meanwhile, the world’s most pernicious problem is poverty, which breeds disease and misery. The way to fight poverty is through economic growth, and hobbling the U.S. economy by forcing cuts in carbon dioxide emissions will only keep developing countries poor. As Bjorn Lomborg writes in “The Skeptical Environmentalist,” “Is it not curious… that the typical reporting on global warming tells us all the bad things that could happen from CO2 emissions, but few or none of the bad things that could come from overly zealous regulation of such emissions?”
The worst of those bad things is prolonging poverty. But there are political costs as well. President Bush has established a reputation for taking firm stands based on principles and facts. But his new position on global warming is clearly a disingenuous attempt to appear concerned about the environment — for the sake of empty plaudits from domestic and foreign audiences. It hurts his credibility, and, frankly, it won’t work because the opposition won’t buy it. Eileen Claussen of the Pew Center on Global Climate Change is already saying, “I don’t think the things the administration can propose give much comfort.”
And what kind of comfort will voters in critical coal states like West Virginia, Kentucky, Pennsylvania and Ohio draw from the president’s Valentine’s Day proposal? Not much. One person who will undoubtedly find a little solace from the resurrection of Kyoto is Mr. Lay. The cap-and-trade system was his dream, and, unless the administration comes to its senses soon, it may become reality.
A version of this article first appeared in the Wall Street Journal. Copyright
James K Glassman
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