International Climate Change Strategies 

Notes from an EESI Briefing with Professor Michael Grubb
Tuesday, November 19, 2002
Longworth House Office Building

 Introduction

Professor Michael Grubb began his presentation by noting that he would not be saying anything about the science of climate change because, in Europe, the fundamental debate on the science is settled.  Enough is known to be very concerned.  He argued that two events in the last few years have cemented European opinion.  First, Bush’s rejection of the Kyoto Protocol had the effect of putting Europe on the spot to prove that it was serious about global climate change.  Second, a number of extreme weather events, such as the recent central European floods, have been linked to climate change in the public’s mind, whether truly linked or not. 

Grubb works for the UK Carbon Trust, which is a government-backed non-profit company with a diverse board, 50 staff (primarily from the private sector), and an annual budget of US $300 million. 

Technologies

Grubb pointed out that Europeans see tackling climate change as a substantial business opportunity, albeit with some short-term costs.  A wide range of low-carbon technologies are being developed and deployed.  But research and development is not enough; what really matters is responsiveness to the market.  Of these low-carbon technologies, renewables and energy efficiency have distinct advantages.  Putting aside the controversies over nuclear and sequestration technologies, these technological approaches are very costly and have equally large financial risks.  Energy efficiency and renewables have an enormous potential and represent the preferable long-term solutions, but are moving into the market incrementally. 

Emissions Trading Instruments

Grubb explained that trading systems are in the works in Europe, with two already operating.  None have direct links to an international system yet, but most in Europe are aligning with or awaiting completion of the European Emissions Trading Directive. 

International System and Architecture for Climate Protection

Grubb believes that there are four criteria that a successful climate control system must have the following four criteria.

1)      Effective – resulting in actual, verifiable reductions in greenhouse gas emissions

2)      Enabling – providing flexibility in domestic implementation

3)      Evolutionary – supporting gradual implementation because it is not possible to get a global architecture with full participation of everyone at the same time

4)      Efficient – which, he believes, means the adoption of an international cap and trade system  [Grubb stated that one of the results of the Bush rejection of the Kyoto Protocol was the chance to see if there were any better ideas out there.  He has not heard of any.] 

International Context

Grubb showed a graph of emissions per capita vs. population and explained that success in the long term will require inclusion of developing countries.  For any prospect of engaging developing countries, developed countries must deliver on the Kyoto Protocol targets.  There is no realistic political reason for developing countries to negotiate a cap without developed country action. 

The “political software” conditions that must be met include:

1)      The European system must deliver and do so efficiently – which it looks like it will.

2)      The international mechanisms in the Kyoto Protocol, such as the Clean Development Mechanism, must deliver real projects/investments for developing countries.

3)      Required capacity building, including building local knowledge on the ability to commit to emission reductions. 

Given this, developing countries might join, at best, some ten years after the United States returns to the agreement.  Recognizing that this is a century-scale problem, Grubb believes that if the United States comes in at the 2^nd Commitment Period (CP2), then during CP3, some smaller developing countries may join, and the rest in CP4.  While slow, Grubb explained, this is “a lot better than nothing.” 

Present Kyoto Protocol System:

Collectively, Annex I (developed countries) already met the 1990 level target in 1998. This is because Eastern Europe’s emission levels dropped dramatically as a result of their economic collapse after 1990.  These reductions, commonly referred to as “hot air,” will make up for the increase in emissions in Europe and elsewhere.  Eastern Europe emissions are also growing, but the increase in their emissions still keeps them at a level below their initial drop from 1990 levels.  Therefore, it is clear that the surplus of “hot air” credits in Eastern Europe will remain in 2010; and without U.S. demand for those surplus credits (because the United States is not participating in the Kyoto Protocol), there will be an enormous overhang of potential supply.  Grubb believes that the developed countries in the Kyoto Protocol will attempt to achieve much of their required reductions domestically, with the Kyoto Protocol mechanisms as a backup. Russia is engaged in this debate as well, because they are interested in maintaining the price of their excess credits and want to see real change and investment in their energy sector. Grubb also pointed out that where there is international trading, the buyers, who are sovereign states, will want to know what happens with the money as they consider their complex political and strategic interests.

To conclude his presentation, Grubb said that the United States should not underestimate the strength of the European commitment to the Kyoto Protocol and to preventing climate change.  Europe will implement the Kyoto Protocol and will do what is necessary to preserve the system.  At this point Europe does not see any credible alternatives. 

In the near future, decisive moves will be made by Canada and Russia.  Russia must ratify the Kyoto Protocol for it to enter into force and Canada may be a substantial buyer of credits, thereby affecting the market, and certainly influencing their long-term politics with the United States. 

Discussion/ Q & A

Question: Given the apparent cancellation of required reductions by “hot air,” shouldn’t we just see this as a success at achieving zero net across the board growth, not buy the right to pollute, and move on to stage two? 

Grubb: The zero net growth is only a result of the economic collapse of Eastern Europe.  Kyoto would be a failure if we only comply without doing anything.  But that is not what is happening. 

Question: With the accession of Eastern European countries to the European Union, what will happen to the surplus? 

Grubb: That is still an open question.  The countries joining the European Union will be required to translate the EU Directives into domestic law, so they will have to establish caps.  How those caps are distributed is not specified.  It is possible that Europe’s job may become easier.  They will probably become a smaller buyer outside their bubble than they would have been before. 

Question: What about Bush’s argument that it (the Kyoto Protocol) will harm the U.S. economy?  Is that not a concern in Europe?  Will Europe benefit economically from this or do they just see the long-term benefit? 

Grubb: I am amazed at the hyperbole in the U.S. economic debate.  Climate change is a big issue, but it will not wreck economies.  Where you are in the winners/losers balance matters, but…  There have been extensive studies on the cost of implementation in Europe and it will reduce economic growth overall by only 0.6 percent.  There is also agreement that in the long term we will benefit by being the leaders (e.g. first movers, technology development and transfer). 

Question: With regard to the differences between countries and the ability to meet their targets, what if the U.S. argument is that we are just more efficient than other countries and we will wait until we are on a more equal footing? 

Grubb: By any measure, the United States is a very inefficient economy. 

Question: Is that because of the transportation sector?  

Grubb: For the good portion of the gap, yes, but within each industrial sector there are still differences from other countries.  Before the Kyoto Protocol, economic studies showed that the United States could in fact reduce more that Europe, but politics went the opposite way.  Population growth is more significant in the United States. It probably has ended up being easier for Europe to reduce, but not by much.  Europeans find it intolerable that the United States says it cannot reduce. 

Question: The British and the Germans have made most of their reductions for non-climate related reasons.  Eventually it will have to catch up with them.  What is the sustainability of these cuts? 

Grubb: Yes, there have certainly been free gains. The United Kingdom had the good fortune that Mrs. Thatcher decided to liberalize the electricity market, causing the collapse of the coal industry.  That, plus the effect of German reunification, equals about 3 percent of Europe’s total emissions.  About half of the overall reductions are attributable to free gains.  But that nurtured the perception that it was not that hard—it broke the political deadlock.  As for when things get tougher, President Bush’s decision to pull out of the agreement helped.  Just when the free gains were running out, Bush rejected the Kyoto Protocol, in effect challenging Europe’s commitment.  Europe’s reaction, of course, was that they would not take that insult lying down.  Getting the Emissions Trading Directive through could have been much tougher otherwise.  Europe is starting to do the tougher things. 

Question: Specific to transportation, as developing countries start to produce cars at lower costs, could you foresee, in 20 or so years, the American auto industry actually pushing for carbon taxes to boost their sales over imports invading the market? 

Grubb: Yes.  Our only option is to make a robust system where the multinationals say, “we’re losing out.”  It is appalling, the complete inability to do anything serious—there has been no attempt on SUVs.  There is state action, but what is really scary is the Bush Administration’s attempt to stop California Zero Emissions Vehicles.  Stopping states from acting—that is a very serious problem. 

Since the writing of this briefing summary. . .

·        The House of Commons in Canada voted approval to ratify the Kyoto Protocol on climate change on December 10, 2002. The treaty, however, remains pending until sometime next spring when Russia's expected approval will give it enough support to come into legal force.

·        The European Emissions Trading Directive mentioned by Grubb was unanimously approved by the 15 environment ministers from the European Union on December 9, 2002, and is now subject to approval by the European Parliament.

Writer: Lee Hayes Byron, US Climate Action Network

Editor:  Beth Bleil, Environmental and Energy Study Institute