Jonathan B. Wiener Duke University, RFF, EHESS & CIRED IDDRI, Paris 31 January 2006 The Institutional Origins of Transatlantic Discord on Climate Change.

Jonathan B. WienerDuke University, RFF, EHESS & CIRED

IDDRI, Paris31 January 2006

The Institutional Origins of Transatlantic Discord on Climate Change

Why the US-Europe Discord on Climate Policy?

1. National Net Benefits (perceived)?

2. Design of the Climate Treaties?

3. Ideology/culture – against climate, against precaution?

4. Domestic Political Institutions?

Global Net Benefits

National Net Benefits

National B > C

National B > C

Domestic Institutions:• Executive• Legislative

• Judicial• Other

Institutions… Institutions…

Actors: Firms, NGOs, Individuals, Parties …

Actors… Actors…

Disaggregating Decisions: a Multi-level Game

1. Role of National Net Benefits in the “Tragedy of the Climate Commons”

• Atmosphere = open-access disposal site for GHGs.

• Control is costly to each emitter; but Benefits of control would be shared widely. = Incentives for overuse.

• Uncertainties? Yes, but “is it real or a hoax?” = wrong question.– Neither all “true” nor all “false”: probabilistic risk scenarios.

– Rate of change (not just ultimate level) matters. Gradual/anticipated may = benign; Faster/Abrupt/unanticipated = more damage. Varies by regional resilience. Even with uncertainty, expected value of damages > 0.

– Yet even if very “real,” solutions are not simple. Diagnosis vs. remedy.

• It’s worth limiting access to the commons, where B > C for the collective group (Kaldor-Hicks).

• International law of treaties: participation requires consent, so requires B > C for each individual party (Pareto-improving).

National Net Benefits? A Very Rough BCA for the US

Benefits Costs(not incl. abrupt change)

• KP, CO2 only, no trading 0.1-0.3 % GDP 1.0-3.0 %• CO2, Annex B trading 0.1-0.3 % 0.5-1.5 %• Multigas, Annex B trading 0.1-0.3 % + 0.2-0.6 %• Multigas, Full Trading 0.1-0.3 % ++ 0.1-1.0 %

with global participation

• Sinks + biodiversity lower• Include China, DCs ++ lower• Optimal path targets lower

See Stewart & Wiener, Reconstructing Climate Policy (2003), pp. 45-46.

National Net Benefits (perceived) ?• Recall that the US joined the Montreal Protocol in 1987 in part based on a

BCA done by EPA and Council of Economic Advisers, showing B > C.• Does the KP yield net benefits to the EU ?• Not clear whether KP yields national net benefits to the US.

– EU initial opposition to flexibility mechanisms (trading) = raise costs = less incentive for US to join.

– Irony: since 2001, the EU is using trading (ETS) – originally urged by the US – while the US is using government technology funding. The Market and the State have switched sides of the Atlantic!

• Russia and China may perceive benefits to global warming (agriculture).– Need to reduce costs, increase benefits, offer side payments to attract their

participation. – Russia’s demands to join KP: extra allowances to sell, more sink credits, and

favorable treatment re WTO & natural gas.

• Opposition to, or neglect of, engaging China & India = US fear of leakage (competitiveness losses, plus undermines environmental effectiveness) = US reluctant to join. EU should have engaged China & India to engage the US. Just cajoling the US won’t work.

Varying Impacts of Climate Change: Losers, Winners ? Tol (2001)

-2

-1

0

1

2

3

4

2000 2020 2040 2060 2080 2100 2120 2140 2160 2180 2200

year

per

cent

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nal

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2000 2020 2040 2060 2080 2100 2120 2140 2160 2180 2200

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Source: Richard S.J. Tol, “Estimates of the damage costs of climate change, Part II. Dynamic estimates,” working paper, Hamburg University / Vrije University / Carnegie Mellon University, May 2001, Figure 13, p.38. In lower panel, impacts for CEE&FSU are on left axis, all others on right axis.

From R. Mendelsohn, W. Morrison, M. Schlesinger and N. Adronova. "Country-Specific Market Impacts from Climate Change”, Climatic Change 45 (2000) 553-569.

Varying Impacts: Mendelsohn et al. (2000)

Does greater use of BCA in the US explain US opposition? But: convergence on BCA?

USA• Congress requires BCA: TSCA (1975), Paperwork Reduc. Act (1980), UMRA

(1995), SDWA amdts. (1996). But also often forbids BCA (e.g. CAA 109).• Every President since Jimmy Carter has required BCA of new regulations

– Carter EO 12044 (1978): economic impact– Reagan EO 12291 (1981): Bs must “outweigh” Cs, else OMB “return letter”– Clinton EO 12866 (1993): “justify”; R-R, qualitative, distributional effects

• 2001- : still using Clinton EO. More “Return” letters. Plus new “Prompt letters”: also using BCA to say Yes (e.g. trans-fat labels, defibrillators).

• New RIA Guidelines (2003): more CEAs; lower discount rates (3% as well as 7%); probabilistic scenarios if >$1b; BCA of homeland security regs.

Europe• “Proportionality principle” = BCA• “Communication on PP” (Feb. 2000): PP requires BCA• Member States’ implementation of PP: cost, proportionality criteria added.• Better Regulation initiative: Impact Assessment guidelines (2002, 2005): BCA• But: institutional gap: no OMB/OIRA to supervise BCA.

2. Design of the Climate Treaties

• Goals• EU initial position ~1989: taxes; then targets & timetables• US ~1989: unclear, then ‘no’; 1993-97 ‘yes’; 2001 ‘no’ …

• Scope (coverage of gases, sectors, sinks)• EU ~1989: energy sector CO2 only, no sinks• US ~1989: a framework treaty, then a protocol on each gas

• Instrument choice• EU ~1989: taxes, or national caps with no trading• US ~1989: trading, but no caps

• Participation of major emitters• EU ~1989: unaddressed, or industrialized countries act first• US ~1989: unaddressed

Selection criteria:• Effectiveness• Cost max(B-C)• Dynamic innovation• Fairness

Comprehensive scope: Advantages

• EU position ~1989: CO2 only, energy only, no sinks• US proposal late 1989: “comprehensive approach”: all GHGs,

sources & sinks

• Environmental advantages– Prevents perverse cross-gas shifts from regulating one gas

alone (e.g. CO2 to CH4; or CO2 to N2O)– Encourages conservation of forest sinks (biodiversity)

• Economic advantages– Different countries have different emissions portfolios: some

more energy CO2, others more Land Use & Forestry, more CH4, etc.

– Lowers cost of abatement: 60% or more

Scope:Index of Global Warming Potential (GWP)

Gas

AtmosphericLifetime(years)

GWP over years20 100 500

CO2 50-200 1 1 1

CH4 12 56 21 6.5

N2O 120 280 310 170

(Source: D. Schimel et al. in IPCC, Climate Change 1995: The Science of Climate Change 65-131 (1996))

Comprehensive coverageprevents perverse Cross-Gas Shifts

(Cambridge MA: Harvard University Press, 1995)

Comprehensive scope = solution to “Risk-Risk Tradeoffs”

Comprehensive scope also reduces Costs

Comprehensive: FCCC, Kyoto

Not (energy CO2 only): EU ETS, RGGI, …

Comprehensive scope: Disadvantages

• Negotiation costs -- increase or decrease ?

• Administrative practicality ?

– GHG index

• need some index; can’t avoid comparing

• imperfect index value is better than zero

• can improve index over time

– Monitoring emissions

• can monitor diverse GHGs

• can improve monitoring, via incentives

• “precautionary paradox”: uncertainty & inaction

Comprehensiveness in Kyoto: GHGs

FCCC Article 4(2)(b): covers “emissions of carbon dioxide and other greenhouse gases not controlled by the Montreal Protocol.” 4(2)(c): “Calculations … should take into account the best available scientific knowledge, including of the effective capacity of sinks and the respective contributions of such gases to climate change.”

Kyoto Protocol, Article 3(1): covers “aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A” Annex A: 6 sets of greenhouse gases:

carbon dioxide (CO2) But:methane (CH4) Black carbon (soot) ?nitrous oxide (N2O) Sulfate aerosols ?hydroflourocarbons (HFCs)perflourocarbons (PFCs)sulfur hexaflouride (SF6)

Comprehensiveness in Kyoto: Sinks

• Kyoto Protocol– Allows credit for sinks– Restricts credit to new sinks; neglects conservation of existing

sinks (biodiversity)– Restricts credit for sinks in CDM

• The Hague (Dec. 2000): EU sought limits on sinks

• Bonn / Marrakech (2001):– Put quantitative limits on sink credits (though not as tight as

sought at The Hague)– Russia got extra sink credits

Instrument ChoiceSelection criteria:

• Effectiveness• Cost• Dynamic innovation• Fairness

Conduct: • technology standards• policy efforts

Quantity:• fixed emissions caps• cap & trade (Kyoto, EU ETS, McCain-Lieberman, …)

Price: • emissions taxes• civil tort liability• subsidies for emissions abatement, technology R&D

Information:• disclosure of emissions, liabilities

Trading reduces Cost (OECD Model Results for 2020)

Source: Barrett (1992)

Instruments in Kyoto: Emissions Trading

Kyoto Protocol, Article 17: “The conference of the Parties shall define the relevant principles, modalities, rules and guidelines, in particular for verification, reporting and accountability for emissions trading. The Parties included in Annex B may participate in emissions trading for the purposes of fulfilling their commitments under Article 3. Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article.”

1990s: US advocated, EU opposed emissions trading

The Hague (Dec. 2000): EU sought quantitative limit on trading, via “supplementarity”

Bonn / Marrakech (2001): EU agreed that no quantitative limit on trading is implied by “supplemental.” But added: seller’s reserve requirement.

2005: EU launches its own “Emissions Trading System.” CO2 sources only.

Instruments in Kyoto: JI and CDM

FCCC Article 4(2)(a): “... These [Annex I] Parties may implement such policies and measures jointly with other Parties”

Kyoto Protocol Article 6: “(1) For the purpose of meeting its commitments under Article 3, any Party included in Annex I may transfer to, or acquire from, any other such Party emission reduction units …, provided that:(a) Any such project has the approval of the Parties involved;(b) Any such project provides a reduction in emissions by sources, or an enhancement of removals by sinks, that is additional to any that would otherwise occur; ...(d) The acquisition of emission reduction units shall be supplemental to domestic actions for the purposes of meeting commitments under Article 3. …”

Kyoto Protocol Article 12: “(1) A clean development mechanism is hereby defined.… (3) Under the clean development mechanism:(a) Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and(b) Parties included in Annex I may use the certified emission reductions accruing from such project activities to contribute to compliance . . .”

But: Small Effect of Kyoto Protocolon Global Emissions, Concentrations

Effect of the Kyoto Protocol (shown in blue) on (1) the projected total, worldwide emission of CO2; and on (2), the resulting

concentration of the gas in the atmosphere (in parts per million by volume, ppmv), if Kyoto caps applied through the year 2100. Emissions are in units of petagrams (1015 grams) of carbon, or equivalently, billions (109) of metric (2,200 lb) tons per year. In each figure the black reference line (labeled IPCC) is the projected scenario, called IS92a, developed by the Intergovernmental Panel on Climate Change. Shown for reference in the second figure is the pre-industrial CO2 concentration of roughly 275 ppmv. (From Jae

Edmonds, “Beyond Kyoto: Toward A Technology Greenhouse Strategy,” Consequences, vol. 5 no. 1 (1999), Figure 1, pp. 17-28, at http://www.gcrio.org/CONSEQUENCES/vol5no1/beyond.html .) Assumes US joins, and zero leakage to non-Annex I countries.

(Washington DC: AEI Press, 2003)

Engaging Participation: Importance of Developing Countries

Source: Council of Economic Advisers (CEA),Economic Report of the President (1998) p171

Institutions Matter:Voting Rules for Adopting Law

Fiat:Rule by 1

Majority:Rule by N/2 + 1

Unanimity:Rule by N

See Buchanan & Tullock, The Calculus of Consent (1962)

Institutions Matter:Voting Rules for Adopting Law

Fiat:Rule by 1

Majority:Rule by N/2 + 1

Unanimity:Rule by N

Coercion. Consent.Costs to dissenters, Costs of free riding,e.g. rents extracted e.g. slow to act

Collective Net Benefits Individual Net Benefits(Kaldor-Hicks) (Pareto-improving)Polluters Pay Beneficiaries pay

Assumed in National Internationalmany analyses law law

Problem: Cooperation among Countries with Heterogeneous Interests

Both Source & Victim(both costs and benefits)

e.g.: most countries.Some free riders.

Source only (bear costs of

policy)e.g.: Russia,

China?“Coop. losers”?

Victim only(reap benefit from

policy)e.g.: small

island countries

“Free riders”: share benefits; prefer: Free ride > Both act > Neither acts > Act alone.“Cooperative losers”: lose from others’ acting (e.g., gain from global warming);

prefer: Neither acts > Free ride > Both act > Act alone. = Raises side payment needed to attract participation.

Disadvantages ofPartial, local action

(e.g. by EU only, or US only, or RGGI, California)• Emissions growth not limited in unregulated areas• “Leakage” of emissions to unregulated places

– Undermines effectiveness– Raises costs– Political fear of leakage = unwilling to adopt policy

• Higher abatement cost (lost trading opportunities)• Market power by fewer permit sellers• Patchwork of different rules• Constitutional constraints on action by US states

Examples of Side Payments to attract Participation

in International Environmental Regimes

Disadvantages of Side Payments

• Aid/cash: direct subsidies for abatement without caps (e.g. government aid, CDM payments)– Perverse incentive / moral hazard = increases MC but

reduces AC, may increase total emissions (Oates, Kohn)– CDM projects may induce domestic leakage (no caps)– CDM sales may undercut attraction of formal trading: why

agree to a cap, if CDM credits sell at the same price?– Government aid programs may be distorted by politics– Tax + pay = undermine incentive effect of tax

• Compare: Cap & Trade with “headroom” allowances as side payment (as in 1990 Clean Air Act, and Kyoto for Russia)– Cap avoids perverse incentive– Decentralized, competitive, private sector, innovation

• Or: linkage to other issues, e.g. WTO entry, health co-benefits

“Participation Efficiency”: Instrument Choice under Consent Voting Rule

Minimize sum of CNP + CP :

CNP = Costs of non-participation(uncontrolled sources,

“leakage” of emissions to unregulated countries, higher abatement cost,

market power)

+CP = Costs of securing participation, i.e. costs of making side payments

(out of pocket costs, perverse incentives)

Participation Efficiency of Alternative Instruments

Trading vs. Taxes: a broader comparisonUncertainty

• Taxes superior if MC’ > MB’ ; otherwise Trading superior (Weitzman 1974; Pizer)• Stock pollutant = flat MB ? But abrupt damages = steep MB ?

Dynamic adjustment• More difficult with quantity rules than with price rules? E.g., NY City taxicab medallions, vs. tax changes.

Engaging participation• Tax would not attract participation by key players• Who would administer?• Tax plus side payment = undermines incentive effect of tax?

“Fiscal cushioning” – principal/agent problems• Domestic tax/subsidy games to cushion key industries• Tax authority may maximize revenues, not tax externality• More costly to monitor true compliance with tax than with cap• Undermines environmental performance of taxes

Pros and Cons of Kyoto• Pros

– Scope: Comprehensive – all GHGs, sources and sinks– Instrument: Cap & trade (plus JI, CDM)– Participation:

• headroom allowances to engage Russia

• Cons– Scope: limits on use of sinks, & no credit for conserving forests– Instrument: limits on full trading– Participation:

• Failure to engage China, India, Brazil, etc.• As a result, failure to engage US, Australia

– Targets• 2012: too stringent; 15-30% below BAU = tighter than optimal path

(Hammitt: 3% below BAU); US would bear 50-80% of the total required reductions from BAU

• Post-2012: ??? (Hammitt: 5% below BAU by 2020, 20% by 2050)

– Compliance: ??

3. Ideology?Public Attitudes on Climate

• Americans…– Favor US action to limit GHGs if other G8 countries act: 86%

• Favor US doing as much or more to limit GHGs than average of G8: 98%• Assume US is already doing as much or more to limit GHGs than average of

G8: 68%

– US should join Kyoto Protocol: 73%• Assume Bush favors Kyoto Protocol: 43%• Assume Bush opposes Kyoto Protocol: 43%

– There is a consensus among scientists that global warming exists and could do significant damage:

• Republicans: Yes 41%, No 46%• Democrats: Yes 62%, No 33%

– Favor McCain-Lieberman bill: 83%. • Even if it costs $15/household/month: 68%.

From Program on International Policy Attitudes, poll conducted June 2005, data at:

http://www.pipa.org/OnlineReports/ClimateChange/ClimateChange05_Jul05/ClimateChange05_Jul05_rpt.pdf

Comparing Risk Regulation: More Precautionary Than Thou ?

USEU

• Genetic Engineering, GMO foods / crops

• Hormones in Beef, including rBST

• Climate Change

• Toxic Chemicals

• Guns

• Antitrust

View espoused by:

• EU officials

• NGOs

• News media

• Scholars

E.g. Vogel et al. (2000, 2003), Kramer (2004): Reversal (“flip-flop”) in relative US/EU precaution over 1970-2000

“In the US they believe that if no risks have been proven about a product, it should be allowed. In the EU we believe something should not be authorized if there is a chance of risk.” -- Pascal Lamy, EU Trade Commissioner, 1999

“More and More, Europeans Find Fault with US: Wide Range of Events Viewed as Menacing” -- NY Times, 9 April 2000, p.A1

“Precaution is for Europeans” – NY Times, April 2003

“Europe is considered fairly risk-averse … America, on the other hand, is often seen as having a strong risk-taking culture” – The Economist, 24 January 2004

Comparing Precaution: Hypotheses about the Evolution of US and European Policies

• Convergence

• Divergence

• “Flip-Flop”

• “Hybridization”

• EU risk-averse, US risk-taking ? Or,

• US adversarial legalism, EU informal corporatist ?

• US more PP in 1970s, EU more PP since 1990s

• Globalization yields Harmonization

• Borrowing, learning

• Heterogeneity across & within regulatory systems

Flip-Flop: Evidence

USEU

• 1970s: Sweden; German “Vorsorgeprinzip”• 1980s: Marine treaties• 1990s: Rio treaties. Maastricht Treaty 130r (now 174) adopts PP. Member States adopt PP. ‘No’ to GMOs, beef.• 2000: Commission issues “Communication on the PP”

• 2001: ECJ on BSE. Late Lessons.• 2002: Action Plan - Better Regulation, Impact Assmts. (BCA)• ECFI case on antibiotics in feed• 2005: REACH

• Lead phaseout (Ethyl Corp. v. EPA, D.C. Cir. 1976)• Species (TVA v. Hill, S.Ct. 1978)

• Benzene (S.Ct. 1980) (OSHAct) (“show us your risk assessment” before you regulate). … Alar controversy.• Carter, Reagan, Clinton = Exec. orders requiring Cost-Benefit• 27 Questions re Communication• Revisions at Rio; Cartagena • WTO case on Beef Hormones• ‘No’ to Kyoto. Jo’burg WSSD.• Iraq War. WTO case on GM foods. San Francisco adopts PP.

• Default assumptions in RA

Comparing Precaution:Method 1: Case Studies

• “Narrow and deep” inquiry

• Not just GMOs, Climate …

• Fosters pragmatic dialogue, reduces acrimony over abstract rhetoric of “principle”

• Sheds light on real policies, consequences, choices

• Greater detail on institutional context and process history (Blomquist) - surrounding the PP, e.g. Implementation & Enforcement, Proportionality Principle, Impact Assessment, Tort law as a backup to ex ante regulation.

• But: sampling bias remains – “my cases vs. your cases”

“The Reality of Precaution” ProjectProject Objective: Move beyond abstract rhetoric to compare actual policies over a wide array of cases.

Four Transatlantic Dialogues:1. Bruges, January 20022. Airlie House, June 20023. Berlin, June 20034. Duke Univ. Sept. 2004

• Genetically Modified Foods• Mad Cow Disease (BSE)• Acrylamides in food• Chemicals (TSCA and REACH)• Phthalates

• Marine Environment

• Biodiversity

• Nuclear Energy• Automobile Fuels (Diesel)

• Ozone Depletion & Climate Change

• New Drug Approval

• Medical Errors, ADRs, Patient Safety

• Health Supplements

• Children’s Health

• Antibiotics in animal feed• Smoking• Cell phones• Youth violence• Terrorism & WMD• Information Disclosure Policies

CFCs and GHGs• Stratospheric Ozone Depletion: US acted first, favored targets

– Molina & Rowland paper 1974– Bans on CFCs in aerosols: Oregon 1975, all of US in 1978– US halts SST. Europe goes ahead with Concorde.– Europe adopts production cap that exceeds current production– “Ozone Hole” 1985– Montreal Protocol 1987, followed by London, Copenhagen: phaseout

• Climate Change: EU acted first, favored targets– Arrhenius 1896; rising CO2 concentration; hotter years 1988- .– Europe presses for treaty; US joins FCCC (Rio 1992) provided no targets

& timetables.– US signs Kyoto Protocol (1997) but Clinton Admin. never submits to

Senate for ratification. Bush Admin. withdraws (2001).– EU moves ahead with Kyoto targets, emissions trading.

Diesel Emissions

• EU: promotes Diesel– to reduce CO2– > 20% of passenger vehicle fleet

• US: restricts Diesel– to reduce fine Particulate Matter (PM)

• PM reductions = majority of net benefits of all US federal regulation, 1980-2004

– < 3% of passenger vehicle fleet

• Simultaneous precaution, but vs. conflicting risks

BSE/vCJD PoliciesUK EU USA

Cases of BSE ~ 200,000 ~ 2,000 ~ 2(1986-) (1990-) (deer/elk

2001-?Canada 2003)

Ban on UK Beef No Temporary Yes(1996-99) (1989-)

Ban on MBM in feed Yes Yes Yes(1988) (1994) (1997)

Ban on eating SRM Yes Yes No(1989) (1997)

Ban on beef > 30 months old Yes No No(1996)

Testing at slaughter No Yes No(2000)

Ban on UK, EU Blood Donors No No Yes(leukodepletion) (1999-)

(Source: Wiener & Rogers, 2002; George Gray, Harvard School of Public Health, 2002)

Comparing Precautionary Cases: More

Precautionary Than Thou ?

USEU

1970s – 80s: • Marine environment• Guns

1990s - present:• Hormones in Beef, rBST • GM foods / crops• Climate• Toxic Chemicals• Diesel - more (CO2)

1970s – 80s:• New drug approval• CFCs• Nuclear power• Endangered species• Lead (Pb) in gas/petrol

1990s - present:• BSE in Beef, Blood• Smoking• Diesel - less (PM)• Youth violence• Terrorism & WMD

Comparing Precaution: Method 2: Aggregate Quantitative Data

• Larger database: all risks mentioned in risk literature (254 references) in US and EU, 1970-2004. – 2878 risks. Broad, but shallow.

• Unbiased sampling: random & stratified randomBut: • True universe of risks? • Random vs. Representative sampling • Less information regarding foreign law, member state law ?• Variation within each system & over time

– Policies by member states within US, EU– Rise of EU & its competence over E/H/S issues, since late 1980s– Change in EU membership over 1970-2004

• Scoring ambiguities: e.g., ambient vs. emissions standards• Scoring measures standards, not implementation & enforcement• Scoring counts earliness & stringency, not degree of uncertainty

11,086 “verbatim” risks from 254 sources in literature on risk perceptions, ranking, and classification, 1960-2003, in US and Europe

Universe of all risks

3,000 “unique” risks (recom-bining essentially identical “verbatim” risks)

In 19 categories and 95 sub-categories

2,878 “unique” risks

In 18 categories and 92 sub-categories

(dropping 122 unique risks, 1 category, and 3 subcategories)

100 in random sample;

92 in stratified random sample

Constructing a Larger Sample

Table I. Risks by TypePercentage in:

Code Category Matrix Sample1 Crime and violence 1.8 32 Alcohol, tobacco, and other drugs 3.0 33 Medication and medical treatment 6.8 84 Transportation 8.2 135 Accidents not elsewhere classified 2.4 26 Recreation 5.5 87 War, security, and terrorism 1.5 38 Toxic substances 9.8 89 Food and agriculture 9.5 910 Pollution 7.5 811 Energy production 5.0 312 Political, social, and financial 3.4 113 Ecogeological 4.0 214 Global 2.2 115 Human disease/health 9.7 916 Occupational 15.0 1717 Consumer products 3.4 218 Construction 1.4 0Total percentage 100 100Total number 2,878 100

Testing Hypotheses: Evidence from the Random Sample

• Convergence

• Divergence

• “Flip-Flop”

• “Hybridization”

Scoring method:

• Drew 100 risks at random

• Scored each risk in each year, 1970-2003:

+1 if greater EU stringency 0 if tie-1 if greater US stringency

Figure 1. Trends in relative precaution (all risks)

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1970 1980 1990 2000

Year

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From: Hammitt, Wiener, Swedlow, Kall & Zhou (2005).

Figure 4. Patterns of Relative Precaution

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Summary of Quantitative Sample• No significant trend over 1970 – 2004• Slight shift toward greater precaution in EU over 1990–2004

– But very slight: <10%, or equivalent to a switch toward greater EU precaution in only 3-6% of sample

• Much diversity across risks– Shift toward greater EU precaution: 21 risks– Shift toward greater US precaution: 14 risks– Always equal: 33 risks– EU always more precautionary: 11 risks– US always more precautionary: 9 risks

• “Precautionary Particularity” – risk selection. – Why? Perceptions? Institutions?

4. Domestic Political Institutions?

• The “2-Level Game”: national positions in negotiations are influenced by sub-national politics. (Robert Putnam, Frederick Mayer)

• Perceived national net benefits depend on domestic institutions for:– implementing policies– adopting policies– formulating ‘national’ preferences

• Key institutions– Executive: The Presidency– Legislative: The Congress– Judicial: The Courts– Federal-State relations

Institutions: The Presidency• Consistent skepticism of KP by US Presidents

– Pres. George W. Bush rejected the KP in March 2001, citing cost (assuming no trading, and CO2 only).

– In December 1997, Vice President Al Gore went to Kyoto to seal the deal on the KP, and Pres. Bill Clinton signed it. But Pres. Clinton announced the next day that he would not submit it to the Senate (until “meaningful participation “ by developing countries).

– The Clinton-Gore administration insisted on the same Treaty design elements as the first Bush administration: comprehensive (all gases, sources & sinks) and flexible (emissions trading).

– In 1989-92, Pres. GHW Bush favored FCCC but opposed targets.

• US treaty negotiators are appointed by the President, hence accountable to the President and in turn to the entire electorate.

• In parliamentary systems, treaty negotiators are often members who represent local constituencies, or pro-environment 3rd parties such as the Environment Minister elected by the Green Party.

Institutions: The Congress• In parliamentary systems in Europe, the government negotiating the treaty

also controls the legislature. • But a US President signing a treaty is often facing a hostile or at least

independent Senate. – Under US Constitution (Art. II, sec. 2), joining a treaty requires 2/3 vote

of US Senate = 67 Senators.– The US Senate voted 95-0 against KP (incl. all Dems) in 1997. – In October 2003, 44 out of 100 Senators voted in favor of the McCain-

Lieberman cap & trade bill. In June 2005, only 38 voted yes. But 53 voted for a separate resolution (not a law) calling for “comprehensive mandatory market-based” federal regulation of GHGs.

– Voting in the Senate is not proportionate to population (2 Senators per state). = Influence of low-pop., high-coal & agriculture states in the West.

• US House: presumably even more opposed. Shift in US population & House members (& electoral votes) over last 20 years to West, Southwest & South.

• Referenda? Sometimes used in European member states (e.g. the European Constitution). Also used in some US states, but not for national lawmaking. Used to elect the US President (but not the EU President).

From http://www.nwf.org/globalwarming/climatestewardshipact9-05.cfm

US Senate Votes on McCain-Lieberman Climate Stewardship Act

October 2003 June 2005

Institutions: The Courts

• Asymmetric enforcement and problems of credible commitment – Widespread view that highly “adversarial” US legal system forces

tight compliance • government enforcement• independent “citizen suits” by NGOs in US courts

– whereas European legal systems are more relaxed, corporatist. E.g. Robert Kagan (Berkeley).

• EU sees KP as aspirational, US sees it as binding, and fears less aggressive implementation & enforcement in EU than in US (i.e. sees EU commitment as less credible).

• Hence, ex ante, US is reluctant to commit to costly rules (but ex post, more likely to implement them).

• Attempts by the EU to reassure the US backfire: “Don’t worry, it’s only aspirational” only exacerbates the fear.

Institutions: Rent-seeking?• More difficult at international level, where countries must consent, and hence can refuse to be

bound by rules that would extract rents – as opposed to majority vote or fiat, in which special interests can extract rents coercively

from dissenters. Wiener, 87 Georgetown L.J. 749 (1999).– Nonetheless: EU seeking to raise rivals’ costs by imposing CO2-only, no trading regime

on US, Japan? US seeking to avoid this?• At domestic level:

– In US, coal/oil industries opposing KP, esp. in US West? – In France, nuclear energy – favors controls on CO2 to raise rivals' costs, especially carbon

taxes to raise rivals' costs and generate revenue to pay for (French) nuclear energy in developing countries.

– EU industry seeking to raise rivals’ costs in US, Japan? EU Greens & industries in “Baptists & Bootleggers” coalition?

– EU Greens seeking climate policy for larger social engineering agenda – “watermelons” -- green on the outside, but red on the inside?

• Recall rent-seeking by US producers of CFCs and CFC-substitutes in mid-1980s (seeking “predation by regulation” via Montreal Protocol) (why did Europe go along? Baptists & Bootleggers?)

Summary: The Institutional Origins of Discord on Climate

• National Net Benefits– Use of BCA– Varying BCA by country– BCA for US depends on participation by China, India et al.

• Design of the Treaties– Cost: comprehensiveness, trading– Participation: failure to engage China, India et al.

• Ideology? Not a major difference• Domestic Institutions

– Presidency and appointed negotiators– Congress and rules of the Senate– Courts and asymmetric enforcement

Ways forward? What to do now?• New developments at COP 11 in Montreal, December 2005 ?

– Negotiation of post-2012 KP, without the US or China– Continuing discussion under FCCC without targets– Study “Compensated Reductions” in developing countries

• USG approach: technology R&D. But that’s only the supply side; also need a demand side incentive to foster diffusion/adoption. Hence, need to internalize cost of climate change into transactions on energy, agriculture, forests, etc. Taxes or allowance trading.

• Victor et al., bottom-up approaches -- misnamed “Madisonian” -- our reply letter in Science (20/1/2006) re gradual self-organizing norms vs. need for some top-down incentives with international transfers. Taxes or allowance trading. 

• Stewart & Wiener approach: Engaging China & India along with the US in a parallel regime (plus Australia, India, Brazil). How to manage side payments? Trading with headroom allowances. Merge with KP?

• Need to address domestic institutions, e.g. National Net Benefits, votes in US Senate, expected enforcement.

Next Steps?1) US stays out of Kyoto (forever)

– Carbon trade wars ?– EU Emissions Trading System. “Linking” by non-parties?– Shift to adaptation instead of mitigation?

2) US joins Kyoto now, or in 2nd Commitment Period (>2012)– Stick with KP as is.

• Costs to EU, Japan, Canada of US accession: increase allowance prices

• Still little effect on global emissions.– Renegotiate KP re: sinks, DC obligations, US target?

• Too late after Entry into Force (2/05) (but … competitiveness concerns in Europe?)

• High transaction costs of achieving universal accord.

Next Steps?3) Third path: New parallel international regime, in which the US

engages major developing countries -- China, India, Brazil, Mexico, et al. -- and perhaps Australia.• Comprehensive -- all GHGs, sinks

• Add black carbon (soot)• Add credit for conserving existing forests• No maximum limit on use of sinks

• Full international allowance trading• Whole-country CDM projects (reduces leakage)• “Compensated reductions” vs. national baseline• Full formal Emissions Trading

• Participation by major DCs• Headroom allowances to allow growth, sales

• Targets set on optimal path to maximize net benefits• Later, this regime could merge with Kyoto

Next Steps?4) Domestic US action?

• Private sector: businesses, Chicago Climate Exchange• R&D on energy technologies

• e.g. “FutureGen,” IGCC, nuclear, solar, wind …• State regulations ?

• Northeast RGGI (incl. Govs. Pataki, Romney)• California vehicles law on CO2• Patchwork … Leakage … Constitutional limits …

• Federal regulations ?• EPA list CO2 under CAA ? Secs. 108/109; 202. GC memos.• Clear Skies; voluntary intensity target; 3P or 4P (add CO2) ? …

5P (add CH4) ?• McCain-Lieberman bill: 44 votes in 2003, 38 in 2005. Others:

Carper, Collins, Hagel, Bingaman, Lugar, …• Multi gas; Sink credits; International credits? McC-L: 15% cap.• “Safety Valve” ? At what price ceiling?• Linked to / contingent on action by DCs (China) ?

Gains from New Parallel Regime• Gains to US:

– greater climate protection benefits, at lower abatement costs– commercial benefits (trading system design & leadership; avoid carbon

trade wars) – strategic benefits (e.g. linkage to antiterrorism efforts)

• Gains to China: – profits from allowance sales– reduction in co-pollutants; healthier, lower-GHG development path– China-US strategic partnership & world leadership

• Gains to Kyoto parties (EU, Japan, Canada, Russia): better allowance price stability if US & China et al. join together, rather than each joining separately

• Gains to all from Experimentation with plurilateral regime– Lower transaction costs to negotiate (than universal regime)– Learning over time