From: Alister Doyle, Reuters
Published July 1, 2005 12:00 AM

Kyoto Protocol: Waste of Cash or Green Lifeline?

BONN, Germany — A waste of more than $1,300 a year for every American, undermining economic growth and jobs? Or a lifeline for the planet costing just an annual $20 for each European?


The U.N.'s Kyoto protocol on curbing global warming looks utterly different when viewed from Washington, which opposes the 150-nation pact, or from its main backers in the European Union, Japan or Canada.


So who is right?


Experts say there is no sign that investors are shifting to favor the United States out of worry that Kyoto's supporters are shackling their economies with vast costs to curb emissions of heat-trapping gases from power plants, factories and cars.


"I think the United States was wrong" to say that Kyoto was too expensive, said Artur Runge-Metzger, head of the European Commission's Climate, Ozone and Energy unit. "This is a huge opportunity to get on a path towards clean energy."


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U.S. President George W. Bush will meet the main backers of Kyoto at a July 6-8 Group of Eight summit in Scotland, where British Prime Minister Tony Blair hopes radical action will be agreed to combat global warming.


But given Washington's reaction to Kyoto, hopes that further concrete measures can be agreed upon look slim.


The United States says the EU got off lightly in its targets for cutting use of fossil fuels and shifting to cleaner energies such as solar and wind power under Kyoto.


"The reductions (in greenhouse gases) the EU have to make were modest compared to what might be required by the United States," said U.S. Senior Climate Negotiator Harlan Watson.


Supporters of Kyoto, which entered into force on Feb. 16, see it as a tiny first step to avert what could be far higher costs of more storms, droughts, heat waves and rising sea levels that could drive thousands of species to extinction by 2100.


THREAT TO GROWTH


The EU Commission reckons Kyoto will cut the EU's annual gross domestic product (GDP) by 0.06 percent by 2010 when it has full effect, Runge-Metzger said. That would work out roughly at $20 for each EU citizen in 2010 alone.


"We think this is affordable, in fact it disappears in the noise of the statistics," Runge-Metzger said. Japan and Canada also see costs as manageable.


In the past, U.S. officials have estimated Kyoto could mean a brake in U.S. economic output of up to $400 billion by 2010 in the worst case, or 4.2 percent of GDP. That would mean more than $1,300 for each American that year.


Bush pulled the United States, the world's biggest polluter, out of Kyoto in 2001, branding it too costly and unfair because it omits developing nations from a first round of cuts until 2012.


Kyoto obliges participants to cut emissions of carbon dioxide -- the main greenhouse gas -- by 5.2 percent below 1990 levels by 2008-12.


"The costs for the EU probably work out at the cost of a light lunch for each citizen," said Alexander Ochs of the German Institute for International and Security Affairs. "Views about Kyoto's effects are more at the level of belief than fact."


Some investors might be attracted to companies that stress environmentalism by promising to respect Kyoto, he said. Others may prefer to invest in firms that stress profit over what might turn out to be unreliable climate science.


Watson said the United States would have faced a bigger burden under Kyoto than its main allies, partly because of U.S. heavy reliance on domestic coal for generating electricity. Coal emits more carbon dioxide than gas or oil when burned.


"Europe's overall reduction from business as usual is 4 to 5 percent," he said. For the United States "we would estimate in the order of 30 to 35 percent reduction versus business as usual."


And east European EU members are far below target because of a collapse of Soviet-era smokestack industries, he said.


CHINA


Watson also said it was hard to assess the impact of Kyoto on investment flows since there were so many other factors at play. "A lot of heavy industry is going to China. Clearly that's happening in any event."


China, along with all other developing nations, has no targets for limiting emissions under Kyoto's first period to 2012, though lower costs, rather that its exemption from the environment pact, are driving the shift.


"There are much more important factors like tax rates, wage rates for deciding investments," said Runge-Metzger, noting a shift in EU investments to lower-cost members in east Europe.


After quitting Kyoto's caps on emissions, Washington has stressed research in clean technologies like hydrogen.


Kristian Tangen, managing director of Oslo-based Point Carbon analysis group, said most models estimated that Kyoto's first period will cost its backers 0.1-0.3 percent of GDP.


He said the EU's flagship Emissions Trading Scheme (ETS), creating a market for carbon dioxide emissions quotas, would have little impact for an investor deciding whether to buy shares in, for instance, a German or a U.S. steelmaker.


EU sectors exposed to international competition, like steel or cement makers, had generally been given more allowances than they were likely to need, he said. By contrast, many companies in need of buying allowances were in the power sector, often shielded from international competition.


Top emitters of carbon dioxide under the ETS include German energy groups RWE AG and E.ON, Swedish power company Vattenfall, Spanish utility Endesa, Anglo-Dutch steel and aluminum company Corus Group and energy firm Royal Dutch/Shell.


Source: Reuters


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