What Makes Greenhouse Sense?

Thomas C. Schelling

From Foreign Affairs, May/June 2002

Summary:  The Kyoto Protocol need not be a partisan issue. Climate change needs to be addressed, but the 1997 pact was never going to pass the Senate. By abandoning it, Bush at least avoided hypocrisy. It might take a century to reach a consensus on solving the greenhouse gas problem, but that is no excuse for wasting time getting started.

Thomas C. Schelling is Distinguished University Professor of Economics and Public Affairs at the University of Maryland.

NATO went through the same process a year later (1951-52) in its "burden-sharing exercise." This time, it involved U.S. aid and included targets for national military participation, conscription of soldiers, investments in equipment, contributions to military infrastructure and real estate, and so on. Again, the process was one of reciprocal scrutiny and cross-examination, with high-level officials spending months negotiating. Again, they did not quite reach final agreement. But this time, three officials fashioned a proposal that was accepted. After one more year, NATO proceeded without U.S. aid -- except for the contribution of U.S. military forces to NATO itself.

With the possible exception of the reciprocal-trade negotiations that ultimately created the World Trade Organization (WTO), the Marshall Plan and NATO experiences are the only non-wartime precedents in which so many countries cooperated over such high economic stakes. They were not aesthetically satisfying processes: no formulae were developed, just a civilized procedure of argument. Those examples are a model for what might succeed the Kyoto Protocol if it fails or evolves into something else. Their procedure is one that the main developed nations might pursue prior to any attempt to include developing nations. NATO has been an enormous success; member nations made large contributions in money, troops, and real estate. They did it all voluntarily; there were no penalties for shortfalls in performance. And, without explicit trading, they practiced the theory of comparative advantage (in geographical location, for instance, or demographics, or industrial structure). It was an example of highly motivated partnership, involving resources on a scale commensurate with what a greenhouse regime might eventually require.

The WTO experience is also instructive. It involves a much broader array of nations than NATO does, and it has its own system of sanctions: the enforcement of commitments. Because it is essentially a system of detailed reciprocal undertakings, and because most infractions tend to be bilateral and specific as to commodities, offended parties can undertake retaliation and make the penalty fit the crime (thus exercising the principle of reciprocity). A judicial system can evaluate offenses on their merits to authorize or approve the retaliatory measure. Fulfilling or failing WTO commitments is piecemeal, not holistic. There is no overall "target" to which a WTO member is committed. In contrast, if a greenhouse-regime nation fails to meet its target, there is no particular offended partner to take the initiative and penalize the offender -- and if there were, it might be difficult to identify an appropriate "reciprocal" retaliatory measure.

PROMISES, PROMISES

One striking contrast between NATO and the Kyoto Protocol deserves emphasis: the difference between "inputs" and "outputs," or actions and results. NATO nations argued about what they should do, and commitments were made to actions. What countries actually did -- raise and train troops; procure equipment, ammunition, and supplies; and deploy these assets geographically -- could be observed, estimated, and compared. But results -- such as how much each NATO nation's actions contributed to deterring the Warsaw Pact -- could not be remotely approximated.

Like NATO, commitments under the WTO's auspices are also made to what nations will do, or will abstain from doing; there are no commitments to specific consequences. No nation is committed to imports of any sort from anywhere; it is committed only to its actions -- such as tariffs and other restrictions, subsidies, and tax preferences.

With the Kyoto Protocol, commitments were made not to actions but to results that were to be measured after a decade or more. This approach has disadvantages. An obvious one is that no one can tell, until close to the target date, which nations are on course to meet their goals. More important, nations undertaking result-based commitments are unlikely to have any reliable way of knowing what actions will be required -- that is, what quantitative results will occur on what timetable for various policies. The Kyoto approach implied without evident justification that governments actually knew how to reach 10- or 15-year emissions goals. (The energy crisis of the 1970s did not last long enough to reveal, for example, the long-run elasticity of demand for motor fuel, electricity, industrial heat, and so on.) A government that commits to actions at least knows what it is committed to, and its partners also know and can observe compliance. In contrast, a government that commits to the consequences of various actions on emissions can only hope that its estimates, or guesses, are on target, and so can its partners.

SPREADING THE WEALTH

Eventually, to bring in the developing nations and achieve emissions reductions most economically, the proper approach is not a trading system but financial contributions from the rich countries to an institution that would help finance energy-efficient and decarbonized technologies in the developing world. Examples might be funding a pipeline to bring Siberian natural gas to northern China to help replace carbon-intensive coal, or financing the imported components of nuclear-power reactors, which emit no greenhouse gases.

Such a regime will suffer the appearance of "foreign aid." But that is the form it will necessarily take. The recipients will benefit and should be required to assume commitments to emissions-reducing actions. Meanwhile, the burden on the rich countries will undoubtedly be more political than economic. Large-scale aid for reducing carbon dioxide emissions in China is economically bearable but enormously difficult to justify to the American public, or to agree on with Japan and the European Union.