TCS Daily


A Better Way

By Margo Thorning - November 29, 2002 12:00 AM

WASHINGTON - Addressing the potential threat of climate change requires a different approach from the one chosen by policymakers in the European Union.

Our allies in the EU are moving toward implementation of the Kyoto Protocol at great peril to their economies. For example, a recent analysis by the well-respected climate policy modelers at DRI-WEFA, an econometric forecasting firm with offices around the globe, concludes that complying with Kyoto will reduce German GDP by 2.8 percent in 2010 and cut employment by 1 million jobs.

The United Kingdom, Netherlands and Spain will also suffer lower GDP and employment levels if they curb energy use by enough to meet the Kyoto targets for greenhouse gas emissions.

Many EU economies, especially that of Germany, are struggling with low economic growth, budget deficits and threats of sanctions from the European Commission because their budget deficits exceed the 3 percent of GDP allowed under the EU's "Stability Pact."

Despite this, the EU is committed to meeting Kyoto targets and the additional, much sharper carbon reductions being proposed by EU officials and some member governments - even if that chokes off economic growth with high energy taxes or "tradable permits."

This seems surprising given the fact that global concentrations of CO2 in the atmosphere will continue unabated because the growth in emissions from developing countries.

A Better Way

With the difficulty of the developed world in achieving the emission targets of the Kyoto Protocol in mind, U.S. policymakers have chosen a different strategy.

U.S. climate change policy is focused on accelerating the downward trend in U.S. greenhouse gas intensity. The Bush Administration seeks an 18 percent reduction in GHG intensity (emissions per dollar of GDP) over the next decade compared to the current baseline trend forecast of a 14 percent reduction. This approach allows continued U.S. economic growth while encouraging a slowing in the growth rate of CO2 emissions.

This alternative approach does however require a major commitment to a long-term research and development program for alternative energy sources for electricity and transportation.

Candidates include solar and wind energy, biomass, nuclear fission, nuclear fusion and fossil fuels from which carbon have been sequestered.

Efficiency improvements hydrogen production, super-conducting global electric grids and geo-engineering also hold great promise for reducing the growth in CO2 during the 21st century.

As a new report in November's Science Magazine makes clear, the commercially viable technologies needed to wean the world off of fossil fuels are still a long way off.

Achieving major new advances in energy technology will require both government and private sector commitments to R & D programs.

The Bush Administration's 2003 budget increases spending on energy technology substantially. A major new private sector research initiative directed by Stanford University in California and supported by a consortium of international companies including G.E., ExxonMobil, Schlumberger and German electric utility giant E.ON is an example of the type of partnership likely to produce the suite of new technologies needed to reduce CO2 emissions while maintaining strong economic growth. The Stanford research program on alternative energy sources is funded by yearly grants of $250 million from participating companies.

Given that the evidence suggests that the EU approach to tackling climate change will harm its economy, such a major investment in technologies that could offer a viable long-term energy alternative is a wise move for the United States.

A research program of this magnitude is a sign that major international companies recognize that they must take a leadership role in moving toward the energy technologies needed in the 21st century and beyond. Other companies and institutions around the globe must also take up the challenge.

Margo Thorning is the Managing Director of the International Council for Capital Formation (www.iccfglobal.org), a European think tank that focuses on public policies to promote saving and investment in the private sector.
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