In 2007, Gwyn Prins and Steve Rayner wrote that many of the problems with climate change policy today are the result of the fact that:
"Kyoto was constructed by quick borrowing from past practice with other treaty regimes dealing with ozone, sulphur emissions and nuclear bombs"
Basically, world leaders were in a hurry to do something, anything on climate change. But they didn't really know how to proceed. So they looked at what had worked to address other problems that seemed similar. Unfortunately, they didn't properly consider the unique place of CO2 in modern industrial economies, and how that would undo their attempts to cut greenhouse gas emissions.
Ambitious targets and timetables agreed around the negotiating table were thought to have worked to cut nuclear weapons. So we had ambitious targets for cuts like Britain's target of a 33 per cent cut by 2020 and an 80 per cent cut by 2050. But of course cuts in nuclear stockpiles save governments money, are directly within their power and only need to be agreed and enforced between a far smaller set of countries to be effective. By contrast the targets for cutting emissions meant enshrining aspirations to remake the economy, in a way no government knew how to achieve, in international treaties. That was and is a sure fire recipe for lots of grandstanding and very little consideration of the practicalities.
Regulations agreed between the major halocarbon producing countries phased out the production of chemicals like CFCs that created a hole in the ozone layer, but CFCs aren't anything like as fundamental to modern industrial economies as CO2, which is produced by the combustion process which has been instrumental to economic growth and prosperity since the Industrial Revolution. Attempting to agree a common set of regulations through the UN and adopting grandiose international treaties (the Montreal Protocol for CFCs, the Kyoto Protocol for CO2) was always likely to be difficult and often counterproductive.
Finally, SO2 cap and trade in the US was thought to have been a low cost way of cutting emissions of SO2, and the associated acid rain. Again though, a more careful look at the record of the SO2 trading programme and the different places of CO2 and SO2 in modern economies would have encouraged policymakers to be more cautious. An American Enterprise Institute essay in June 2007 made the following key points:
"First, SO2 trading was only applied to a single sector: initially, only 110 coal-fired power plants were included in the system, but it subsequently expanded to 445 plants. While coal-fired power plants account for roughly one third of U.S. carbon dioxide (CO2) emissions and will therefore be central to a GHG cap-and-trade program, a comprehensive GHG emissions-trading program will have to apply across many sectors beyond electric utilities, vastly complicating a trading system.
Second, SO2 and CO2 are not comparable targets for emissions reduction. Reducing SO2 emissions did not require any constraint on end-use energy production or consumption. Coal-fired power plants had many low-cost options to reduce SO2 emissions without reducing electricity production. Some switched to low-sulfur coal (abetted in large part by railroad deregulation in the 1980s, which made transport of Western low-sulfur coal more economical than previously). The cost of "scrubbers"--industrial devices which capture SO2 and sequester it--turned out to be lower than predicted. Other utilities emphasized more use of natural gas. The impact on ratepayers and consumers was modest."
The comparison is stark, the SO2 scheme covered 110 plants and expanded to 445. The EU Emissions Trading Scheme (ETS) covers around 11,500 installations. And a story in the Wall Street Journal yesterday provides more evidence that these schemes don't work:
"The acid-rain market has struggled for the past two years as utilities, states and investors waited for the Environmental Protection Agency to issue new rules. The rules, released last week, put tougher limits on emissions by power plants but rely less on trading. As a result, the allowances that utilities now trade to allow them to emit sulfur dioxide are expected to become worthless."
As the AEI essay I've quoted from above noted, the emissions price has been extremely volatile since the scheme was created. But now it is expected to fall effectively to zero. That volatility makes the scheme an incredibly inefficient way of encouraging investment to reduce emissions. It is an unpredictable addition to business costs that makes it harder for them to plan and discourages long term investments of all kinds. Advocates of the EU ETS and the various cap and trade bills constantly tell us that they can address the deficiencies in emissions trading, that a stable price is just around the corner. But the reality, as I set out in detail in a report for the TPA last year, is that the combination of a fixed supply for permits subject to ever changing demand and the market being politically fabricated is that these schemes will never work properly.
There are much better options open to us. But there is a sense that policy in this area is now driven by momentum, and a refusal of politicians to admit that things are fundamentally wrong. It's like biofuels, where the EU Commission told us in 2008 that you "can't change a political objective without risking a debate on all the other objectives". Caroline Spelman's plan for research into where the biofuels are coming from is a bit of a ridiculous stunt when there is no sign she would countenance challenging EU policy which sets the overall target. How exactly is she hoping to conjure biofuels that don't compete with food, increasing prices and starving the world's poor, or wilderness; are we going to farm them on the moon?
Our current set of climate change policies were formed in a hurry and are proving a disaster. There is a better way. If politicians really want to reduce emissions, and not just strike a pose for taxpayer funded environmentalists, then they'll acknowledge that we need to change course. Whether you think climate change is the greatest threat facing mankind or a huge hoax (I would suggest it's somewhere in the middle), cutting the cost of the policies it has inspired has to be the right way forward. With a fiscal crisis to contend with as well, British families can't stomach ever bigger doses of the current approach.