Son of Kyoto Returns — Again
A treaty’s many lives.

By Marlo Lewis Jr, National Review

April 15, 2002 - Bad policy ideas never die; they just get recycled. Like the monsters in old B horror films, big-government schemes keep coming back, remake after remake, with nary a change in plot line. Witness the recent re-return of the Son of Kyoto.

"Kyoto" is, of course, the Kyoto Protocol, the United Nations-sponsored climate treaty that would cost industrialized nations over $900 billion annually by the year 2050 — all to reduce global warming by a hypothetical and undetectable .07 degrees C. What then is the Son of Kyoto? Read on and find out.

The U.S. Senate preemptively rejected the Kyoto Protocol in July 1997, when it passed the Byrd-Hagel resolution by a vote of 95 to zero. Byrd-Hagel stipulated that the United States should not be a party to any climate treaty that exempts developing countries from binding limits on emissions of "greenhouse" gases, chiefly carbon dioxide (CO2) from energy use. Clinton-Gore negotiators repeatedly cajoled "key" developing countries like China to accept binding limits, only to find that poor countries have no desire to commit economic suicide by limiting their energy use.

Unable to finesse Byrd-Hagel diplomatically, Kyoto proponents devised a strategy to weaken Senate opposition by creating a pro-Kyoto business clientele. Known as "credit for early action," the basic idea was to award credits to companies that "voluntarily" reduce their CO2 emissions. The companies could later sell or use the credits to comply with future regulation. Without such credits, argued supporters, early reducers ("environmentally responsible companies") would have to pay twice, so to speak, under a future mandatory program.

Among advocacy groups, Environmental Defense was the strategy's chief architect and promoter. The Clinton-Gore administration began promoting the idea in October 1997. About a year later, in the 105th Congress, Senators Joe Lieberman (D., Conn.), John Chafee (R., R.I.), and Connie Mack (R., Fla.) introduced the "Credit for Voluntary Early Action Act." This was the first Son of Kyoto bill.

With ten internal references identifying the end of the "early action" period as the day before the start of the Kyoto compliance period (January 1, 2008), the bill was a transparent effort to jumpstart implementation of a non-ratified treaty. Accordingly, when Son of Kyoto returned in the 106th Congress, all references to the Kyoto compliance period were stripped out. Similarly, the bill was renamed the "Credit for Voluntary Reductions Act," deleting the word "early," which in the original bill visibly meant earlier-than-Kyoto.

In the 107th Congress, Sen. Lieberman, along with Senators Jon Corzine (D., NJ) and James Jeffords (I., Vt.), introduced the "National Greenhouse Gas Emissions Registry Act." Sen. Tom Daschle's (D., SD) mammoth "Energy Policy Act" incorporates Corzine-Jeffords-Lieberman's main provisions. Under Daschle's bill, all companies emitting over 1,000 metric tons of CO2 would have to track and report their emissions. How many companies would be affected? A whopping 86,182, according to a new study by the Pew Center on Global Climate Change. The bill would also impose fines up to $25,000 per day for failure to report or false reporting. This is an obvious attempt to install the monitoring and enforcement infrastructure for Kyoto-style energy rationing.

The Bush administration, hoping to fend off the Daschle plan, proposes instead to "improve" the Department of Energy's existing "registry" for recording companies' voluntary greenhouse gas reductions. How? Chiefly, by transforming the registry into an early-action-crediting system. The administration seeks to award "transferable credits to companies that can show real emission reductions," so that those companies "are not penalized" under a future climate treaty. The Son of Kyoto returns — again.

Which makes Daschle's bill the Bride of the Son of Kyoto, because the two proposals form a matched pair. Once companies are compelled to report greenhouse-gas emissions, they will surely demand credit for any reductions they make. Conversely, companies acquiring emission credits will surely demand a national reporting system to identify potential buyers for those credits.

Early-action crediting is a recipe for vast mischief. Credits awarded for early CO2 reductions are potentially worth billions of dollars — but only if they can later be used to offset the costs of complying with future regulation. Awarding CO2 reduction credits would thus give participating companies a powerful motive to lobby for regulation.

Worse, far from being "voluntary" and "win-win" (good for business, good for the environment), early-action crediting sets up a coercive zero-sum game. If an early-action program is to yield net reductions in CO2 emissions, then the credits awarded before an emissions cap is imposed must be subtracted from the pool available to companies after the cap is imposed. For every company that gains a credit in the early-action period, there must be another that loses a credit in the compliance period. Thus, non-participants are penalized-forced either to make deeper emission reductions or pay higher credit prices to comply with the cap.

Proponents view this squeeze play as a virtue, not a defect, because it guarantees that many companies will "volunteer" just to avoid getting stuck in the shallow end of the credit pool. The political effect is to grow the mass of companies holding Kyoto stock that derives its entire value from the threat or imposition of a cap.

What, though, of the claim that CO2 credits are needed to protect early reducers from having to do double duty under future regulation? This tirelessly repeated rationale does not survive inspection. A mandatory program that stiffed companies that have duly certified and reported their voluntary reductions to the Department of Energy would never pass. Besides, who exactly would comprise the legislative coalition for CO2 caps if not the very policymakers and companies pushing for CO2 credits? Those who demand CO2 credits as political risk insurance might as well plead, "We have met the enemy, and it is us."

Furthermore, it is a bizarre insurance policy that makes disaster more likely to strike. Yet that is what Son of Kyoto schemes do, because they grow the coalition for energy rationing.

In March 2001, President Bush honored his anti-Kyoto campaign pledge and rejected proposals to regulate CO2. As the energy debate in Washington builds to a climax, Mr. Bush again needs to act with courage and consistency. He should bury early-action crediting, not bring it back from the dead.

— Mr. Lewis is a senior fellow at the Competitive Enterprise Institute.

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