Introduction
Global warming is an environmental damage of international proportions caused by greenhouse effect. Greenhouse effect refers to the heat-trapping effect of the rising concentrations of carbon dioxide and other gases emitted by burning fossil fuels, deforestation and other human activity into the atmosphere creating a barrier that traps the sun’s heat inside the earth. The result is immeasurable overall damage to society that pervades every individual’s social, economic and political life. The most important implication of global warming is its non-discrimination against culture, gender or economic status and no state no matter how advanced is spared from its effects.
The benefit-cost analysis (Cline 5) conducted based on conditions in the early 1990s showed that the cost of global warming already amounted to trillion. Imagine the increase in cost after more than a decade of continues intensified emissions of heat-trapping greenhouse gases into the atmosphere. The agricultural losses due to drought and heat stress amounted to a yearly cost of billion. Global warming caused glacial ice to melt increasing the sea water level affecting the frequency of floods contributed an annual cost of billion. Warmer weather also increases the consumption of electricity for fans and air conditioning amounting to an annual cost of billion. Deforestation not only results to the non-absorption of greenhouse gasses by trees and plants but also greater run-off curtailing water from dropping into water basins resulting to billion in annual cost. Increase in urban pollution due to warmer weather amounts to billion. Deaths due to heat waves amount to a conservative billion annually when the cost of a life is calculated through lost earnings. The loss of the long-term value of forests amounted to billion annually. Warmer weather melts snowcaps of mountains amounting to a loss of $ 1½ billion annually.
Due to the international effect of the phenomenon, there is the realization that minimizing its effect needs international cooperation. In 1997, the Kyoto Protocol developed during the United Nations Convention on Climate Change. The Kyoto Protocol is the result of the agreement of 160 developed and developing countries during the third session of the convention. The purpose of the protocol is the promotion of policy change on phasing out incentives, tax exemptions and subsidies to industries attributed with majority of greenhouse gas emissions and giving these incentives to environment friendly industries. However, the nature of global warming and climate change covered by the Kyoto Protocol exacts voluntary compliance (Wiener 680). The Kyoto Protocol takes effect only after it is ratified by 55 countries including the countries attributed with 55% of greenhouse gas emissions worldwide and states determine the amount of cutback in emissions to be achieved in 2012. It was only if February 2005 that the required ratifications was achieved. The Kyoto Protocol had weaknesses since it does not impose a ceiling or a minimum level of compliance to be able to achieve significant results (Gardiner 25) and it does not expect compliance from developing countries that ratified the protocol. Nevertheless, it is a necessary solution to global warming.
Despite the reality of climate change and the corresponding need to decrease greenhouse gas emissions, the ratification of the Kyoto Protocol was met by protests from industries that will be affected by policy changes and the use of environment friendly gasses. Policy changes on the oil industry was also challenged by the United States when it did not ratify the Kyoto Protocol on the ground that the commitment of cutting back greenhouse gas consumption will result to economic loss of 0 billion affecting 149 million jobs.
Rationale of US Actions on Global Warming
Despite the effectivity of the Kyoto Protocol in 2005, the United States maintains its decision not to ratify the agreement. Some of the reasons given are political and legal such as the failure of the negotiations spearheaded by the United States to include developing countries in the agreement, but most of the reasons given were economic centering on the effects of compliance with policy changes in the oil industry. The basis of the economic justification is the Byrd-Hagel resolution passed on July 25, 1997 by the senate with a unanimous vote. The significant parts of the resolution are as follows:
(1) the United States should not be a signatory to any protocol to, or other agreement regarding, the United Nations Framework Convention on Climate Change of 1992, at negotiations in Kyoto in December 1997, or thereafter, which would— (A) mandate new commitments to limit or reduce greenhouse gas emissions for the Annex I Parties, unless the protocol or other agreement also mandates new specific scheduled commitments to limit or reduce greenhouse gas emissions for Developing Country Parties within the same compliance period, or (B) would result in serious harm to the economy of the United States; and
(2) any such protocol or other agreement which would require the advice and consent of the Senate to ratification should be accompanied by a detailed explanation of any legislation or regulatory actions that may be required to implement the protocol or other agreement and should also be accompanied by an analysis of the detailed financial costs and other impacts on the economy of the United States which would be incurred by the implementation of the protocol or other agreement.
The reason why President Bush did not present the Kyoto Protocol to the senate is the lack of justification for doing so especially since studies show the economic cost of changing policy in the oil industry in order to encourage the cutback of fuel consumption by households and businesses is greater than the cost of continuing the present status of the oil industry. There would also be an inconsistency in the policy of the President especially since his administration encourages the economic growth in the oil industry.
Since countries ratifying the Kyoto Protocol, have to limit their greenhouse gas consumption, the mechanism of ensuring the decrease is through the imposition of emission permits. Emission permits are like taxes on carbon, where importers of greenhouse gas producing products are given a limit that they can purchase in the world market. The limit may change periodically. In the event of exceeding the limit, there would be financial consequences against the importer. The trading permit is like obtaining the permission to produce a certain amount of greenhouse gas. The purpose is to lessen the consumption of greenhouse gas emitting substances and encourage alternative sources of energy. Higher limits on emission result to greater economic effects. Permits may be traded making it an important business product but subject to limitations under the Kyoto Protocol.
Implementing the policy of emission permits entails different costs. First is the increase in the price of gasoline in the United States because the added cost of importing oil is passed on to the end consumers, the households and domestic businesses and the limited supply also necessarily affects price. The 2000 forecast showed that the increase in gasoline prices in America could reach 12 to 38 cents for every gallon due to the implementation of the emission permit policy with the increase relatively smaller if there was no limit in the trading of oil. The amount is based on the value of the dollar in 1997. This will be experienced by most households since according to the Energy Information Administration (1), “Motor vehicles are an integral part of the American way of life”. The additional price for a gallon of gasoline means a decrease in the amount to be used by households for other economic needs. Computing the total of the cost to households of the price increase due to emission permits would amount to billions.
Apart from the increase in the price of gasoline, the implementation of the emission permit policy had the United States ratified the agreement will result to the increase in the price of natural gases by as much as 13 to 42 percent by 2010. This is a significant increase especially since the United States doubled its importation of natural gas from 8 to 16 percent as compared to the previous decade. One reason for the importance of natural gas is that it its production is not concentrated in the Middle East, which means that the United States can negotiate a better deal with independent fragmented suppliers than with theOrganization of Petroleum Exporting Countries (OPEC). Another reason is that the use of natural gas is less a burden to the environment than fossil fuels. The United States is after all concerned with global warming caused by greenhouse gas emissions, which are greater with the use of fossil fuels. Still another reason is that natural gas is its potential in the development of new products such as automobiles and appliances run by natural gas. (Energy Information Administration 1-2) The maximum projected increase in natural gas prices by 42 percent in 2010, with the ratification of the Kyoto Protocol, is devastating to the United States economy and to households. President Bush is not committed to incurring these costs in the next 6 years.
Another product that is affected by the increase in price through the implementation of the emission permit policy under the Kyoto Protocol is electricity. According to projections, the price of electricity to households may increase by 13 to 36 percent in 2010. Taking the maximum expected increase of 36 percent, the increase is like 36 cents to a dollar, to a hundred dollars and 0 to a thousand dollars multiplied with the number of households in the United States by 2010. (Lasky 33) Of course, there are other considerations such as the increase in household income. Unless the expected increase in household income is greater than the increase in the price of electricity, the imposition of the policy that would increase price is not economically sound. Moreover, if the increase in income is equal to or less than the aggregate increase in the price of the different energy producing substances, then the average American household would be in the same economic state as it was 6 years ago or even in a worst condition.
The aggregate result of the increase in the prices of gasoline, natural gas and electricity would result to a decrease by 0.5 percent to 1.2 percent of real GDP in 2010 if the United States ratified the Kyoto Protocol. In terms of consumption, the aggregate value would decrease by 0.4 to 1.0 percent in 2010. Without going into the actual measurement of Gross Domestic Product, it is a fact that the computation shows the standard measure for aggregate economic activity. Economic growth is commonly measured through the percentage increase in GDP from the previous years. A percentage increase implies economic growth. Economic growth means that there is an increase in aggregate income of the United States. Economic growth in turn results to vibrancy of business operations, employment, increase in income and purchasing power and increased consumption. However, with the protocol the United States expects to experience a decrease in GDP in 2010 that could make the economy unstable.
The limited trading of emission permits under the Kyoto Protocol also affects the US economy. Another justification for non-ratification is the country’s defeat in its request to include developing countries in the protocol thus increasing the price for limited permit trading. According to studies, the losses in terms of Gross Domestic Product and consumption will be lesser if the reduction in carbon emission will be implemented without the international trade of emission permits. The projected loss in the trading of permits varies from 0.4 to 4.2 percent of the baseline GDP. Correspondingly, aggregate private and government consumption is projected to decrease 0.2 to 3.1 percent.
Limiting the international trading of emission permits discourages industries to cutback on their use of greenhouse gas emitting substances. The purpose of the trading of emission permit is to provide incentives for businesses to profit from decreasing their consumption of fossil fuels and other carbon based products by limiting their emission to a certain amount and selling their permit for the remaining allowable emission to other businesses. The cost of reducing greenhouse gas emissions should be offset, though not entirely, by the amount that the business firm or the state receives in selling their emission permits. If there is no trading of emission permits, then the cost incurred by private businesses and the US government is high. Since under the Kyoto Protocol, the trading of permit emission internationally is limited, there is no sufficient incentive for the United States to ratify the agreement.
However, if there is a trading of emission permits, the United States expects to decrease its projected decrease in GDP and consumption in 2010. The trading of permits allows the US to gain additional emission permits in other countries that offers a lower price. There are two benefits to the United States of economic trading. First is that unrestricted trading allows economic forces to work decreasing the price permits if there are alternative sellers in the global market. The United States can choose to purchase from a state that offers a competitive price. Moreover, competition tends to decrease price under normal circumstances. Second is that unlimited trading of emission permits with the inclusion of developing countries would provide the United States with a cheaper source of additional emission permits. The savings that would be derived by the United States in these conditions constitutes sufficient economic incentive for the country to ratify the agreement. In terms of GDP the United States, projects to cut in half the expected decrease without or with limited permit trading. Thus, with the conclusion of negotiations on the subject not in favor of the demands of the United States, the country did not ratify the agreement.
Conclusion
Global warming is an environmental damage of international scale that developed due to the aggregate contributions of states. However, no single state takes responsibility for their individual contributions and in addressing the problem collectively with the cooperation of all states. This may be because air and the atmosphere have always been considered as an unlimited resource. It is not owned by any state and every state has the right to utilize it. Because of the nature of out atmosphere, no state spends for its utilization and therefore there is no state that can exact payment for its use. In the same way, there is no state that can prevent another from exploiting or destroying the atmosphere. This is the reason why the Kyoto Protocol is voluntary. It cannot exact compliance because there is no basis for strictly enforcing the agreement to all states. States should voluntary assume the burden of addressing global warming.
Although the Kyoto Protocol became effective in 2005, the United States did not ratify the agreement by primarily citing economic reasons for not assuming the burden of global warming. The United States have two objections towards the Kyoto Protocol. First is the imposition of emission permits that limits the trading and consumption of greenhouse has emitting products. Limiting consumption increases the price of gasoline, natural gas and electricity that affects the productivity of the economy decreasing real gross domestic product and consumption. Second is limiting the trading of emission permits that prevents the United States from decreasing its expected cost when it is able to purchase emission permits from other states at a lower price. In this way, the expected decrease in GDP and consumption is lowered by half. These economic considerations were the reasons the United States did not ratify the agreement and President Bush did not even present the protocol to the senate. In weighing the economic cost of allowing global warming and the cost of reducing greenhouse emission, the latter is more economically sound in the case of the United States.
Credit:ivythesis.typepad.com
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