Forget global warming — Kyoto is about trade

handshake

When the Kyoto Protocol was signed in 1997, the base year for calculating emissions was back-dated to 1990. They knew then that the ratification process would take many years (it was actually completed in 2005), so why did it hark back to the distant past?

EU

Two big European events occurred in 1991. As a result of the Soviet collapse, heavy industry had closed down in droves throughout the East. And North Sea gas came ashore in the West with a “dash to gas” displacing coal power in the UK, Netherlands, Germany and Denmark.

At the time of the Berlin COP in 1995, EU countries collectively had enough past credits from the 1991-94 period to cover all the obligations they later accepted under the Protocol. It was a no-brainer for them to demand that other developed countries match the EU misfortunes during “the First Commitment Period.”

The EU negotiated collectively on behalf of current and prospective members. EU members have an internal burden-sharing agreement, to spread the benefits of the 1991 ‘bubble’. Kyoto was to be the first treaty ever entered into by the EU as an entity, and played an important political role in establishing the Union as an international player.

Of course, all participants knew the 1990-based Kyoto draft was just a bid by EU countries to win a competitive advantage. But they had their own fish to fry.

USA

Pre-1997, there was a major disconnect between EU and USA politicians on the best way to capitalise on the greenhouse scare.

This was reflected in a disagreement between the world’s two most heavily-funded Green organisations. The Environmental Defense Fund, backed by Wall Street, sought the right to trade credits. Greenpeace, based in Amsterdam, wanted fixed caps. Neither the Americans nor the Europeans felt they could carry their respective populations without the active support of the environmental lobby.

On 25 July 1997, the Byrd-Hagel resolution was passed 95-0 in the US Senate stating that the US would not be a party to the Kyoto (or any) Protocol that limited emissions only from developed countries. The resolution also called for a detailed US cost-benefit analysis.

Despite this resolution, Vice-President Al Gore was a keen advocate of the draft Protocol. The day before he left for Kyoto, in early December 1997, his office called in 28 lobbyists for a major briefing. Chris Horner*, representing Enron, was present along with the EDF, BP, Shell, General Electric, the natural gas industry (but not coal), electric utilities and others.

The meeting strongly endorsed the Protocol, provided trading was permitted. Horner says it was agreed that Enron chairman Ken Lay, who was visiting President Bill Clinton the following day, would tell the President that carbon trading could be the largest market in history.

Three days later, Gore took the podium at Kyoto saying he’d received phoned authority from the President to instruct USA negotiators to make concessions. The EU would get the 1990 base year, and the USA would get carbon trading.

Ratification

The Protocol was to come into force when it was ratified by 55 UNFCC countries – including parties accounting for at least 55% of Annex 1 emissions in 1992. Annex 1 was a list of 41 countries, plus the EU, which were to become subject to binding emission caps during the First Commitment Period, 2008-12.

When the Protocol came into effect in 2005, the EU delivered 27 member countries (and itself) as Annex I parties.

Eight other European countries, including Russia, Ukraine and Norway, benefited from a 1990 base year for the same reasons as the EU. They had strong incentives to accept the USA deal as Annex 1 parties, and eventually did so.

The Protocol provided that 23 developed countries (Annex 2) were to pay the costs of developing countries. Some 150 countries outside Annex 1 saw only upside, and readily agreed to ratify.

This left OECD countries outside of Europe facing 100% of the downside – the USA, Japan, Canada, Australia and New Zealand. The Protocol could not come into force unless it was ratified by one or more of these parties.

Presidents Clinton and Bush did not even submit the Protocol to the obdurate US Senate, and there was never any realistic prospect of US ratification. Australia also declined on the grounds (said PM John Howard) that it was not in Australia’s economic interests.
Japan, Canada and New Zealand ratified – and were fitted with the only real obligations to save the planet.

Aftermath

The EU and its members had already enacted an ETS in 2004. Free credits exceeded emissions, so it was wholly ineffective. Some member states (such as the UK) adopted local measures to promote leadership of the renewable energy sector. The EU would extend Kyoto if others would.

Japan ratified, because it had long been a world leader in energy efficiency technology (“clean-tech”), and thought it saw trade opportunities arising from the Protocol. It mooted a national ETS and commenced a trial in Tokyo. But China has dominated the Protocol’s economic benefits and Japan may not meet its commitment. It has recently dropped the ETS, and has loudly refused any extension to Kyoto.

Canada’s reasons for ratifying were political and complex. A new Government has canned a proposed ETS and repudiated its Kyoto commitments. It will not agree to a Kyoto extension on any terms.

New Zealand was one of the first countries to ratify, because Pete Hodgson miscalculated its accrued forestry credits, and nobody else understood it (and Helen Clark sought environmental heroism). Alone, NZ has implemented a national ETS and says it would support a Kyoto extension.

Australia reversed course and ratified in March 2008. It proposed, but subsequently dropped, a national ETS. A carbon tax is now being debated. Australia will not agree to a Kyoto extension unless all others do.

Those countries which do not meet their commitments are unlikely to face financial penalties. Their shortfall will likely be carried forward as a debit against any future commitments.

Environmental considerations have played very little role during the COP3 to COP16 deliberations.

*Chris is still a Washington lobbyist, now a senior fellow and counsel at the Competitive Enterprise Institute. He has written three best-selling books about climate policy.

One Thought on “Forget global warming — Kyoto is about trade

  1. Clarence on September 20, 2011 at 7:06 pm said:

    If Kyoto is just a European scam, aided by US manipulation, why did Australia want to scramble on board at the last moment (actually, after the game had begun)?

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