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Bonn Voyage

Last month's international greenhouse gas reduction plan--negotiated without U.S. participation--is full of hot air.

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Last month in Bonn, 178 countries, led by environmental ministers from European nations, supposedly proved that they didn't need the United States to strike a blow against global warming. The New York Times editorial page groused that the Bush administration was "Clueless on Global Warming," first by refusing to sanction the Kyoto Protocol and then by sitting on the "sidelines" as the world made real progress in the former German capital. In a curious turn of headline, the Washington Post averred that Bonn's "Climate Agreement Leaves U.S. Out in the Cold." Out in the cold? Isn't that the best place to be in a world superheated by greenhouse gases? Never mind. The Washington Post further noted that the "environmental ministers hailed their achievement as a major breakthrough in the battle against global warming."

A major breakthrough? Hold on a minute—it turns out that the new treaty being heralded as a breakthrough is being oversold. When one looks at the fine print of the Bonn agreement, the signatories have agreed to cut emissions of carbon dioxide and other greenhouse gases from cars, power plants, and factories by only 1.8 percent below 1990 levels by 2012. The goal originally set in Kyoto was a whopping 5.2 percent.

In fact, the signatories have made things even easier on themselves. The Europeans have at last agreed to international trade in carbon-emission permits. In such a program, producers of targeted gases are given permits to emit so much of a substance; they can then trade the permits in a market, buying more from other permit-holders if they are going to exceed their caps, or selling excess permits to other producers. Over time, the total amount of emissions is ratcheted down, thereby reducing gas production.

The permit issue was one of the major disputes between the United States and Europe, and contributed mightily to the breakdown of climate-change talks held last November at the Hague. The U.S. has long supported permit schemes, while Euros have demurred. But now that the U.S. is out, carbon emissions trading is suddenly in favor. What's going on here?

"Have you heard of Russian hot air?," asks John Reilly, an economist who is the associate director for MIT's Joint Program on the Science and Policy of Global Change. Russian "hot air" is the result of the Kyoto Protocol, in which Russia and other Eastern European countries agreed to "reduce" their greenhouse gas emissions by 2010 to the level that they emitted in 1990. They made it easy on themselves: The collapse of their economies has meant that those countries' emissions of greenhouse gases are way down, leaving them a surplus of emissions credits that they can sell to countries that are exceeding their reduction targets.

By contrast, had the U.S. signed on to Kyoto, it would have been required to cut its emissions 7 percent below its 1990 emissions levels by 2010. Even that relatively large figure underestimates the hurt put on the robust American economy. Today, the U.S. emits about 13 percent more carbon dioxide than it did in 1990. To meet its Kyoto targets, the U.S. would have had to cut its emissions by around 25 percent from what they would otherwise be. These steep cuts, plus the great scientific uncertainties about how serious a problem global warming is likely to be, are what prompted President Bush to nix the Kyoto Protocol.

Such proposed cuts are worth keeping in mind when puzzling over the "breakthrough" in Bonn. Without U.S. participation in the climate treaty, all of the other signatories–all of Europe, Russia, Japan, Canada, and Australia–emitted 3.8 gigatons of greenhouse gases in 1990. To meet their Kyoto Protocol baseline reductions, they would have had to reduce their emissions to 3.6 gigatons of greenhouse gases by 2010. Then came the collapse of the Soviet and Eastern European economies. "Russia's emissions have fallen more than half, and European emissions were down a couple of hundred million tons because they took on East Germany," explains Reilly, who notes that the United Kingdom has increased its use of natural gas and basically gotten rid of coal. The net result: By 1995, the actual total emissions of these countries had fallen to 2.5 gigatons annually.

Reilly's MIT group projects that the European Union, Canada, Australia and Japan, all of which signed onto the new Bonn agreements in July, will see their emissions of carbon dioxide increase to about 4 gigatons annually by 2010. So, in order to meet their goal of reducing greenhouse gas emissions to 3.6 gigatons, they would still have to either cut back or offset their emissions by 0.4 gigatons. This is where Russian and Eastern European "hot air" comes to the rescue.

The "hot air" is the difference between the level of greenhouse gases emitted by Russia, Ukraine, and Eastern Europe in 1990 and what they are expected to emit in 2010. This difference provides them with emissions credits that they can sell to other countries. One low estimate is that Russia will have 324 million tons in greenhouse credits to sell, while Eastern Europe will have about 50 million tons on offer, for a total of 374 million tons. That's just 26 million tons shy of the 400 million tons that the Bonn signatories need to cut to meet their Kyoto targets. A higher estimate projects that Russia itself may have as much as 574 million tons of credits to sell.

"Russian emission credits almost cover the projected increases in greenhouse gas emissions for Europe, Japan, Australia, and Canada,' says Reilly. "They have to do virtually nothing domestically to fulfill their Kyoto Protocol obligations."

Virtually nothing? "Yes, our estimate is that, with international carbon trading and without U.S. participation, it will cost Europe about an extra $2 per ton of carbon to meet their abatement goals," says Reilly. How much does that come to at the gas pump? Reilly and his colleagues at MIT figure that charging $100 extra per ton of carbon emissions would raise the price of a gallon of gasoline by 25 cents. $2 per ton "is almost nothing. It would not even be noticed," says Reilly. If the United States had joined the Bonn agreement, Reilly projects that that would have raised the price to $27 per ton for carbon emissions permits.

So by buying Russian "hot air" at rock bottom prices, it turns out that the European Union, Japan, Canada, and Australia will likely not have to forego emitting a single ton of carbon dioxide that they otherwise would have emitted without the Bonn agreements. They may well not have to stop construction of a single power plant, raise automobile fuel efficiency, or conserve even a watt of electricity.

To whatever extent global warming may be a problem, the Bonn agreement will do essentially nothing toward solving it.