Repudiation and Regret: Is the United States Sitting out the Kyoto Protocol to Its Economic Detriment?

Article excerpt

I.   INTRODUCTION
II.  THE KYOTO PROTOCOL: BACKGROUND AND THE U.S. RESPONSE
III. RENEWABLE ENERGY TECHNOLOGIES AND ENERGY EFFICIENCY
IV.  EMISSIONS TRADING
V.   THE CLEAN DEVELOPMENT MECHANISM
VI.  CONCLUSION

I. INTRODUCTION

In early 2001, the Bush Administration withdrew from the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) (1) by removing the United States' signature from the agreement. (2) The government's stated rationale was that the global warming treaty would hamstring the American economy by causing an unacceptable loss of jobs and money. (3) While that rationale has been challenged, (4) with the protocol's entry into force in 2005 another possibility is becoming increasingly salient: The United States may actually end up suffering economically and otherwise by having rejected the treaty.

First, the U.S. government's position on the issue of climate change has translated into a lack of incentives for businesses and state and local governments to invest in technologies that improve efficiency and reduce emissions, both for domestic use and export. Second, only Kyoto Protocol Parties may use the new carbon trading markets to offset their emissions of greenhouse gases (GHGs). Consequently, American companies have less incentive than firms in states that have ratified the Kyoto Protocol to engage in what is shaping up to be a potentially profitable system that also encourages efficiency, innovation, and competitiveness. Finally, only entities from Parties to the Kyoto Protocol may fully participate in the Clean Development Mechanism (CDM), under which the carbon emissions of entities in developed countries may be offset by investments in emission abatement projects in developing countries. U.S. companies may participate, but they may not use the resulting emissions credits to their gain under the Protocol. The CDM may thus give foreign companies the upper hand in seeking contracts for CDM projects in developing countries.

In September 2004, the largest solar power plant in the world opened in Germany. (5) Built using technology from Shell Solar, a Dutch company, and Siemens, a German firm, the plant can provide electricity for approximately 1,800 European homes. (6) In addition, the facility will reduce global annual carbon dioxide emissions by about 3,700 tons. (7) Two months earlier in China, German Foreign Minister Joschka Fischer inaugurated what is ostensibly the largest solar collector manufacturing facility in the world. (8) For Fischer, the Sino-German joint venture was proof of the business opportunities available to those with expertise and a willingness to participate in the renewable energy sector. (9) Meanwhile, 7,000 miles away, AstroPower, the second largest solar cell manufacturer in the United States, closed its doors for the last time, driven into bankruptcy by poor sales and crushing debt. (10) "It's almost embarrassing," said renewable energy consultant Christopher Reed, discussing the situation in the American solar industry. (11) "The photovoltaic technology came out of Bell Labs in the U.S. We should be the world leaders." (12)

The successes of the German solar industry are directly related to government policies favoring technologies that enable the country to work towards meeting its Kyoto obligations. (13) Similarly, early (and gradually tapering) government subsidies led to the installation of 144,000 residential photovoltaic systems in Japan by 2002. (14) But in the United States, production of solar cells dropped fourteen percent in 2003 alone (in part due to the bankruptcy of AstroPower). (15) While subsidies and other incentives in Germany and Japan have encouraged production and lowered the price of renewable energy technologies, allowing companies from those countries to become involved in far-flung projects such as the plant in China, U.S. policy has been "piecemeal and erratic," discouraging investment. …