Carbon Emissions Regulation Clear Winner for International Relations of the United States

As a followup to ncristea's initial post about the Obama Administration's decision to declare carbon emissions "dangerous pollutants" via the Environmental Protection Agency, it would be interesting to think up the policy implications that follow.

According to BusinessGreen:

The decision, which also covered five other gases, ruled that climate change poses an "enormous problem" in both "magnitude and probability", and that the " greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act".

"This finding confirms that greenhouse gas pollution is a serious problem now and for future generations," said EPA Administrator Lisa P. Jackson in a statement.

The ruling, known as an "endangerment finding", now enters a 60-day public review period, following which the EPA will be able to use the existing Clean Air Act to impose limits on heavy polluters of carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

The Obama administration has repeatedly signalled that it would prefer to regulate greenhouse gas emissions through a new climate bill based on a nationwide carbon cap-and-trade scheme – a position the EPA supports.

Beyond all stimulus funding and controversies about opening up drilling in offshore areas or in the Alaska National Wildlife Reserve, this is aiming to be the biggest change in U.S. energy policy domestically and internationally. Besides for the domestic effects on U.S. manufacturing and the housing sector (by incurring previously outsourced externalities, polluting industries and companies will see costs rise in terms of cleaning up their act or by changing their business models; this will also be a boon to industries and companies ahead of the curve or who can take advantage of future regulations by identifying and exploiting new business opportunities), this will have clear international implications.

The international effect is that of bringing the United States in line with Kyoto Protocols:

The Kyoto Protocol establishes legally binding commitments for the reduction of four greenhouse gases (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride), and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by "Annex I" (industrialized) nations. ... Kyoto includes defined "flexible mechanisms" such as Emissions Trading, the Clean Development Mechanism and Joint Implementation to allow Annex I economies to meet their greenhouse gas (GHG) emission limitations by purchasing GHG emission reductions credits from elsewhere, through financial exchanges, projects that reduce emissions in non-Annex I economies, from other Annex I countries, or from Annex I countries with excess allowances.

President Bush pulled the United States from the Kyoto Protocols (though it was signed during the administration of President Clinton, it was never ratified by the U.S. Senate) as an impediment to the U.S. economy. As every other country in the world has signed and ratified the Kyoto Protocols, the decision considerably reduced the credibility and soft power of the United States on environmental and most every other issue. 

In foreign affairs, there are three ways to get other countries to do what you (as a country) want: coerce them, bribe them, or inspire them. The last one is "soft power" and what is being generated by President Obama and this decision. If the United States gets behind something that others wanted from the outset, then the United States can use that momentum to get its way on other issues. 

If you think this is made up, think of the failure the U.S. had in convincing such international heavyweights as Angola, Chile, Guinea, and Cameroon to support U.N. approval for the invasion of Iraq in 2003. I'm not saying there is a causal link between Kyoto and Iraq, but the United States had clearly thumbed its nose at the international community just two years previous on something very important, and found out that other countries were much harder to persuade on an issue very dear to the United States.

We can discuss the technical and engineering requirements, as well as economic and commerical implications of moving towards harmonization with Kyoto Protocols, but in terms of international relations, this decision is a clear winner. 

Lessons from Europe's Carbon Cutting

The Economist (week of Jan19th) in an article called 'Get the Price Right' cautions America to learn from Europe's early mistakes in trying to constrain carbon emissions.

Europe's main tool for cutting emissions is its Emissions Trading Scheme (ETS) in which firms in the 'dirtiest' industries are issued permits to emit carbon dioxide. Simply enough, if these firms want to emit more, they must buy more permits.

These permits, from the start, were given away free instead of being auctioned. As a result, firms in non-trades sectors (especially energy) have simply passed on the cost of carbon to customers; thus failing to increase the incentive to cut emissions.

Other mistaked compounding the problem result from countries over-estimating emissions outputs and subsequently issuing too many permits. Additionally, large portions of industry were left out of the sceme.

As a result, carbon prices crashed, controls failed, and it appears that most European countries will not meet their Kyoto protocol commitments.