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U.S. begins to count cost of global warming

Cap-and-trade system, carbon tax likely first steps in cutting CO 2 emissions

by Takashi Kitazume

The momentum to take action against global warming is finally rising in the United States, although the nation still has a long way to go before a political consensus is reached on specific domestic measures — much less making an international commitment for cuts in its emission of greenhouse gases, U.S. think tank experts told a recent symposium in Tokyo.

The U.S. action will likely center on a market mechanism to put a price on the emission of carbon dioxide — either through a cap-and-trade system or a carbon tax — that will let companies and individuals, rather than the government, figure out ways to reduce emissions in the most cost-efficient ways, the experts said.

Five researchers from Washington-based think tanks were joined by Japanese experts at the Feb. 1 symposium organized by Keizai Koho Center under the theme, “U.S. policy on climate change and energy issues.” The climate change policy of the United States, which pulled out of the 1997 Kyoto Protocol, is being closely watched as nations around the world discuss a post-Kyoto international framework to address global warming.

Sarah Ladislaw, an Energy and National Security Program fellow at the Center for Strategic and International Studies, said one of the key factors that promoted climate change debate in the U.S. was rising oil prices and growing energy security concerns. With the steep increase in gasoline prices and rising oil imports in the past few years, “we have seen energy and climate change policies emerge at many different levels,” she said.

Various actions have been taken and proposals made by states, companies and lawmakers, and leading candidates for the presidential election in November — Democrats in particular — have put forward aggressive climate policies, Ladislaw said. “No matter who wins the next election, climate and energy policy will be a priority, and the policies of tomorrow will very likely be different from the policies of today.”

Public opinion is changing, and some polls suggest that energy security and global warming have become top priorities among voters, although it is not clear how much the American public is willing to pay to address these issues, she noted.

“There is still a great deal of work to be done to reach consensus on the path forward. It is not clear that everyone understands how much climate policies will cost, and it may take giving some policies a try to find out how much we can achieve — and what the cost will be to the American public,” she said.

Jason Bordoff, policy director of the Hamilton Project at the Brookings Institution, also said high energy costs are behind the growing awareness of climate change. With the U.S. facing a serious risk of recession, consumers “are increasingly feeling the pinch of rising energy prices,” he said.

Bordoff noted that the American public often lumps the issues of climate change and energy security together, and assumes that these policy goals overlap. “In many ways they do . . . Oil is responsible for 44 percent of U.S. energy consumption, so lowering oil use helps on multiple fronts — mitigating climate change, improving energy security and mitigating our vulnerability to oil price shocks,” he said.

However, the two issues are distinct and some policies contradict one another, he pointed out. “While climate change is a long-range problem, energy security and price shocks are much more immediate,” he said. Effective climate policies will not necessarily curb the use of oil relative to coal, and these measures will increase — not reduce — energy prices, he added.

The cornerstone of any effective climate policy in the U.S., Bordoff said, will likely be a market mechanism “to put a price on the emission of greenhouse gases.”

One such mechanism will be a carbon tax, under which the government sets the price for emission of carbon dioxide, and another option is a cap-and-trade system whereby the government sets a target on the quantity of the overall carbon dioxide emissions, and then lets the market decide the price for emitting a certain amount through trading of emission permits, he noted. Both methods will raise the cost of carbon-intensive forms of energy and allow companies and individuals to figure out ways to deal with it, he added.

A market mechanism is the most likely option because the U.S., once it sets an emissions reduction target, will try to achieve that goal “by using up the least percentage of the gross domestic product” as possible, he said.

Ladislaw agreed the cost of achieving the goal will hold the key to a consensus. “Politically, it will be extremely difficult for us to do anything that is costly to the American public,” she said.