Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10566 8-2008

ELRNEWS&ANALYSIS

Of Montreal and Kyoto: A Tale of Two Protocols by Cass R. Sunstein

Editors’Summary: Prof. Cass Sunstein compares the relative ease with which the United States adopted the Montreal Protocol against its rejection of the Kyoto Protocol to conclude that the perceived costs versus perceived benefits of climate change action will have to significantly improve before the United States adopts an international climate change treaty. Daniel Magraw suggests that the comparison between the problems of ozone depletion and climate change down- plays the significant differences between the two problems and criticizes the use of cost-benefit analysis as a reliable analytical method. In addition, he writes that actual governmental decisions about climate may be motivated by consider- ations beyond relative costs and benefits. Peter Orszag and Terry Dinan, on the other hand, note that Professor Sunstein’srecommendations to increase the ben- efits of an international climate change treaty would be unlikely to motivate the United States to enter into such an agreement because his approaches would serve to increase domestic costs while doing little to change perceptions of do- mestic benefits, that the difficulties in implementing a global system to address climate change are understated, and that an insurance perspective against cata- strophic consequences of climate change may be more likely to spur U.S. action.

I. Introduction ment, originally signed in Montreal and designed to control ozone-depleting chemicals, has been ratified by almost all na- Of the world’s environmental challenges, the two most sig- tions in the world (including the United States, where ratifica- nificant may well be stratospheric ozone depletion and cli- tion was unanimous).2 Nations are complying with their obli- mate change. At first glance, the problems appear to be gations; global emissions of ozone-depleting chemicals have closely related. In fact, ozone depletion and climate change been reduced by over 95%; and atmospheric concentrations of are so similar that many Americans are unable to distinguish such chemicals have been declining since 1994.3 By 2050, the between them.1 Both involve global risks created by diverse ozone layer is expected to return to its natural level.4 The Mon- nations, and both seem to be best handled through international treal Protocol, the foundation for this process, thus stands as an agreements. In addition, both raise serious issues of intergenera- extraordinary and even spectacular success story. Its success tional and international equity. Future generations stand to lose owes a great deal to the actions not only of the United States a great deal, whereas the costs of restrictions would be borne in government, which played an exceedingly aggressive role in the first instance by the current generation; and while wealthy producing the Montreal Protocol, but to American companies nations are largely responsible for the current situation, poorer as well, which stood in the forefront of technical innovation nations are anticipated to be quite vulnerable in the future. leading to substitutes for ozone-depleting chemicals.5 Notwithstanding these similarities, there is one obvious With climate change, the situation is altogether different. difference between the two problems. An international agree- To be sure, an international agreement, produced in Kyoto in 1997, did go into force in 2005 when Russia ratified it.6 Prof. Cass Sunstein is the Karl N. Llewellyn Distinguished Service Profes- 7 sor of Jurisprudence in the Law School and Department of Political Sci- The Kyoto Protocol has now been ratified by 180 nations, ence at the University of Chicago. He is grateful to Daniel Abebe, Eliza- but numerous nations are not likely to comply with their ob- beth Emens, Jack Goldsmith, Robert Hahn, Douglas Lichtman, Jonathan Masur, Eric Posner, and Adrian Vermeulefor valuable comments on a pre- 2. Montreal Protocol on Substances That Deplete the Ozone Layer, Sept. 16, 1987, 1522 U.N.T.S. 3 [hereinafter Montreal Protocol]. vious draft; a work-in-progress workshop at the University of Chicago Scott Barrett, Environment and Statecraft Law School was a great help. He is also grateful to Rachael Dizzard and 3. 239 (2005). Matthew Tokson for superb research assistance, and to Frank Ackerman 4. Id. for excellent suggestions about the economic literature on climate change. 5. See Edward Parson, Protecting the Ozone Layer 252-53 (2003). A version of this Article was originally published at 31 Harv. Envtl. L. 6. Dessler & Parson, supra note 1, at 129. Rev. 1 (2007), and is reprinted with permission. 7. United Nations Framework Convention on Climate Change 1. See Andrew Dessler & Edward Parson, The Science and (UNFCCC), Kyoto Protocol, http://unfccc.int/kyoto_protocol/items/ Politics of Global Climate Change 10-11 (2006). 2830.php (last visited May 22, 2008). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10567 ligations under the Kyoto Protocol.8 Some of the ratifying Molina wrote only two years after the loss of ozone had been nations, including China, have no obligations under the linked with skin cancer.13 Hence the finding by Rowland Kyoto Protocol at all, despite their significant emissions of and Molina indicated that significant health risks might well greenhouse gases (GHGs). The United States firmly rejects be created by emissions of CFCs. the agreement, with unanimous bipartisan opposition to its In the immediately following years, depletion of the ozone ratification. Far from leading technical innovation, Ameri- layer received widespread attention in the United States, can companies have sharply opposed efforts to regulate which was the world’s leading contributor to the problem, ac- GHG emissions, and have insisted that the costs of regula- counting for nearly 50% of global CFC use.14 The intense tion are likely to be prohibitive.9 media coverage of the problem greatly affected consumer be- My goal in this Article is to understand why the Montreal havior. In a brief period, American consumers responded to Protocol has been so much more successful than the Kyoto warnings by cutting their demand for aerosol sprays by more Protocol, and in the process to shed some light on the pros- than one-half, thus dramatically affecting the market.15 pects for other international agreements, including those de- By the time the international community met in Montreal signed to control the problem of climate change. The remain- on September 8, 1987, to finalize a new protocol for interna- der of this Article comes in three parts. Part II explores the tional regulation of CFCs, the United States had adopted an Montreal Protocol and the role of scientific evidence, Euro- aggressive posture with respect to international CFC con- pean caution, American enthusiasm, and cost-benefit analy- trols. In contrast, the European Community, led above all by sis in producing it. Part III examines the Kyoto Protocol and France, Italy, and the United Kingdom, urged caution and a American reservations, with special emphasis on the possi- strategy of “wait and learn.”16 Concerned about the eco- bility that the agreement would deliver low benefits for the nomic position of Imperial Chemical Industries, the United world and impose significant costs—with particularly high Kingdom rejected an aggressive approach.17 costs and low benefits expected for the United States. Part IV The American position was based in part on increasingly explores the lessons and implications of the two tales. alarming scientific data that suggested immediate action would be desirable.18 The position of industry within the II. Ozone and the Montreal Protocol United States began to shift in 1986, apparently as a result of significant progress in producing safe substitutes for 19 The idea that chlorofluorocarbons (CFCs) posed a threat to CFCs. Most importantly, an ongoing disagreement within the ozone layer was initially suggested in an academic paper the Reagan Administration between the Office of Manage- in 1974, written by Sherwood Rowland and Mario Molina.10 ment and Budget, skeptical of aggressive controls, and the According to Rowland and Molina, CFCs—chemicals U.S. Environmental Protection Agency (EPA), favorably with widespread commercial and military uses producing disposed to such controls, was resolved after a careful cost- billions of dollars in revenues11—would migrate slowly benefit analysis from the President’s Council of Economic Advisers suggested that the costs of controls would be far through the upper atmosphere, where they would release 20 chlorine atoms that could endanger the ozone layer, which lower than anticipated, and the benefits far higher. This protects the earth from sunlight.12 The potential conse- conclusion was generally in line with the EPA’s own analy- 21 quences for human health were clear, for Rowland and sis of the problem, which yielded the following data : Figure 1: Costs and Benefits of Montreal Protocol to the United States (in billions of 1985 dollars)

No Controls Montreal Protocol Unilateral Implementation of Montreal Protocol by the United States Benefits — 3,575 1,373 Costs — 21 21 Net Benefits — 3,554 1,352

8. See UNFCCC, Key GHG Data: Greenhouse Gas Emissions Data for 1990-2003 Submitted to the UNFCCC 16-17 (2005), available at http://unfccc.int/files/essential_background/background_publications_htmlpdf/application/pdf/key_ghg.pdf. 9. See George Pring, The U.S. Perspective, in Kyoto: From Principles to Practice 185, 195-97 (Peter Cameron & Donald Zillman eds., 2001). 10. Mario J. Molina & F.S. Rowland, Stratospheric Sink for Chlorofluoromethanes: Chlorine Atom-Catalysed Destruction of Ozone, 249 Nature 810 (1974). 11. Parson, supra note 5, at 21-22. 12. Molina & Rowland, supra note 10. 13. Parson, supra note 5, at 68. 14. See Richard E. Benedick, Ozone Diplomacy: New Directions in Safeguarding the Planet 26 (enlarged ed. 1998). 15. Id. at 27-28, 31. 16. Id. at 68. 17. See James H. Maxwell & Sanford L. Weiner, Green Consciousness or Dollar Diplomacy? The British Response to the Threat of Ozone Depletion,5 Int’l Envtl. Aff. 19, 27 (1993). 18. Benedick, supra note 14, at 43. 19. See Parson, supra note 5, at 126. 20. For detailed descriptions of the interagency conflicts and the role of cost-benefit analysis, see Benedick, supra note 14, at 62-65; Parson, supra note 5, at 135-36. 21. Barrett, supra note 3, at 228; see also Office of Air & Radiation, U.S. EPA, Regulatory Impact Analysis: Protection of Strato- spheric Ozone 5, ES-2 (1988). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10568 ENVIRONMENTAL LAW REPORTER 8-2008

These figures were generated by a projection of over five lion—were transferred to poor countries.30 These provi- million skin cancer deaths by 2165, together with over 25 sions have been criticized as unduly vague, essentially a million cataract cases by that year—figures that would be way of deferring key questions.31 But they provided an ini- cut to 200,000 and two million, respectively, by a 50% CFC tial framework that has since worked out exceedingly well. reduction.22 Of course it is possible to question these num- bers; the science does not allow uncontroversial point esti- III. Climate Change and the Kyoto Protocol mates here, and perhaps EPAhad an interest in showing that the agreement was desirable. What matters, however, is the Concern about GHGs has arisen in the same general period perception of domestic costs and benefits, and in the late as concern about ozone-depleting chemicals. But there is an 1980s, no systematic analysis suggested that the Montreal initial puzzle: in the two contexts, many of the major actors Protocol was not in the interest of the United States. It should have reversed their positions. The best example is the United be clear that on these numbers, even unilateral action was States, both the most important agent behind the Montreal well-justified for the United States, because the health bene- Protocol and among the chief obstacles to an international fits of American action would create substantial gains for the agreement to govern GHGs.32 For their part, European na- American public. But if the world joined the Montreal Proto- tions were significant obstacles to international regulation of col, the benefits for the United States would be nearly tripled, ozone-depleting chemicals, favoring an approach of “wait because it would prevent 245 million cancers by 2165, in- and learn”; on climate change, they have been favorably dis- cluding more than five million cancer deaths.23 At the same posed toward regulatory controls, with the United Kingdom time, the relatively low expected cost of the Montreal Proto- in the forefront.33 The reversal of positions suggests that it is col—a mere $21 billion—dampened both public and pri- inadequate to portray the United States as skeptical of global vate resistance; and the cost turned out to be even lower than solutions to environmental problems or to see the European anticipated because of technological innovation.24 Union (EU) as more committed to environmental goals. Nor The key part of the resulting Montreal Protocol was not is it adequate to portray the American position on GHGs as merely a freeze on CFCs, but a dramatic 50% cut by 1998, ac- entirely a function of Republican leadership. The difference companied by a freeze on the three major halons, beginning in depends instead on assessments of national interest, public 1992.25 The most important factor behind this aggressive step opinion, and the role of powerful private actors.34 “was the promotion by an activist faction of U.S. officials of an The American position on the Kyoto Protocol was heavily extreme negotiating position and its maintenance through sev- influenced by the unanimously adopted 1997 Senate Resolu- eral months of increasingly intense domestic and international tion 98, which asked President William J. Clinton not to agree opposition.”26 The 50% figure operated as a compromise be- to limits on GHG emissions if the agreement would injure the tween the American proposal for 95% reductions and the Eu- economic interests of the United States or if it would not ropean suggestion of a freeze; it was also supported by scien- “mandate new specific scheduled commitments to limit or re- tific evidence suggesting that minimal ozone depletion would duce greenhouse gas emissions for Developing Country follow if the 50% reduction were implemented.27 Parties within the same compliance period” as for the United A knotty question during the negotiations involved the States.35 Because such commitments from developing coun- treatment of developing countries. While CFC consumption tries were highly unlikely—indeed, no commitments “within was low in those countries, their domestic requirements the same compliance period” had been made even for the Mon- were increasing,28 and a badly designed agreement could treal Protocol36—this vote was essentially a suggestion that the merely shift the production and use of CFCs from wealthy United States should accept no commitments at all. The nations to poorer ones, leaving the global problem largely Clinton Administration took an equivocal approach to this unaffected. On the other hand, developing nations reason- resolution and indeed to the Kyoto Protocol negotiations in ably contended that they should not be held to the same con- general. In the complex negotiations in December 1997, the trols as wealthier nations, which were responsible for the United States did support regulatory limits, although rela- problem in the first place. Under Article 5 of the Montreal tively modest ones, arguing against reductions in emissions Protocol, developing countries are authorized to meet “ba- levels and instead for stabilizing current levels.37 The United sic domestic needs” by increasing to a specified level for 10 States also urged several other steps: inclusion of the devel- years, after which they are subject to a 50% reduction for the oping countries in the treaty, through their acceptance of next 10 years.29 In addition, a funding mechanism was cre- some kind of quantitative limits; a rejection of early dead- ated by which substantial resources—initially $240 mil- lines in favor of a 10-year delay; and a base year of 1995 rather than 1990, making quantitative limits less stringent.38 22. See Stephen J. DeCanio, Economic Analysis, Environmental Policy, and Intergenerational Justice in the Reagan Administration: The Int’l Envtl. Agreements: 30. Robert V. Percival et al., Environmental Regulation: Case of the Montreal Protocol,3 Law, Science, and Policy Pol’y, L. & Econ. 299, 302-11 (2003) (providing more information 1054 (5th ed. 2006); see also Rene Bowser, History of the Montreal Protocol’s Ozone Fund,14Int’l on how these harms were turned into monetary equivalents and dis- Envtl. L. Rep. cussing the choice of a low discount rate). 636 (1991). Parson 23. Barrett, supra note 3, at 228. 31. , supra note 5, at 146. 32. See generally Pring, supra note 9. 24. Id. at 228, tbl. 8.1. 33. See Tony Blair, Foreword, in Avoiding Dangerous Climate 25. Parson, supra note 5, at 228. Change (Hans Joachim Schellnhuber et al. eds., 2006). 26. Id. at 143. 34. See Pring, supra note 9, at 201-05. 27. See James Hammitt, Stratospheric-Ozone Depletion, in Economic 35. S. Res. 98, 105th Cong. (1997). Analyses at EPA 131, 155-56 (Richard Morgenstern ed., 1997). 36. See supra text accompanying notes 29-30. 28. Benedick, supra note 14, at 93. 37. Pring, supra note 9, at 198. 29. Montreal Protocol, supra note 2, art. 5, ¶ 1. 38. Id. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

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Many of the key American positions were rejected during Under intense international pressure, the United States the negotiations. Ultimately, most of the major developed na- signed the Kyoto Protocol on September 12, 1998.43 But it is tions, including the United States, agreed to the Kyoto Proto- an understatement to say that the signing was not well-re- col, which sets forth firm quantitative limits on GHG emis- ceived in Congress, which added a proviso to the 1999 EPA sions. Specified reductions were listed for, and limited to, the Appropriations Act banning the Agency from using appro- “Annex 1” nations—those bound by the Kyoto Protocol.39 priations “to propose or issue rules, regulations, decrees or The list was designed to ensure that taken as a whole, the na- orders for the purpose of implementation, or in preparation tions would show a reduction of 5% over 1990 levels—a re- for implementation” of the Kyoto Protocol.44 At this point, duction that must be met in the period between 2008 and Vice President Albert Gore himself indicated that the Kyoto 2012.40 For example, the United States was required to reduce Protocol would not be submitted for ratification without emissions by 7%; Japan by 6%; the EU by 8%. Some nations meaningful participation by developing nations.45 Indeed were permitted to have increased emissions; these included the whole process had an air of unreality to it, because “ev- Australia, Iceland, and Norway.41 Developing nations made eryone on both sides of the Atlantic already knew in 1997 no commitments at all, though they were permitted to engage that the U.S. could never join the Protocol as drafted.”46 in emissions trading with Annex 1 nations. For the United States, the perceived value of the Kyoto It is worth asking why, exactly, these particular targets Protocol presented a very different picture from the Montreal were chosen. The simplest answer is that national self-inter- Protocol. According to prominent projections, the most seri- est played a key role.42 Contrary to a widespread perception, ous damage from climate change is not likely to be felt in the it is simply not true that most of the world’s nations were United States, even if the United States is at significant risk.47 willing to sacrifice greatly in order to deal with climate On some estimates, American agriculture will actually be a change, while the United States ultimately refused to do so. net winner as a result of climate change.48 On other estimates, The point is most obviously true for developing nations, Americans will be net losers, but not nearly to the same extent none of whom are controlled by the Kyoto Protocol. Indeed, as other nations.49 In this light, we can offer a projection of the many of the nations that accepted specified reductions actu- costs and benefits of the Kyoto Protocol for the United States ally promised to do little or nothing beyond what had al- alone. This projection is not designed to offer anything like an ready been done as a result of economic developments. The unimpeachable point estimate, but instead to describe what largest loser, in terms of the actual costs of mandatory cuts, prominent analysts projected when the United States was 50 was the United States. making its key decisions :

Figure 2: Costs and Benefits of Kyoto Protocol for the United States (in billions of 1990 dollars)

No Controls Kyoto Protocol Unilateral Action to Comply With Kyoto Protocol Benefits — 12 051 Costs — 325 325 Net Benefits — -313 -325

39. Kyoto Protocol to the United Nations Framework Convention on Climate Change art. 3, Dec. 10, 1997, 37 I.L.M. 22 (1998), available at http://unfccc.int/essential_background/kyoto_protocol/items/1678.php [hereinafter Kyoto Protocol]. 40. Id. art. 3, ¶ 1. 41. Id. Annex B. 42. See Richard E. Benedick, Morals and Myths: A Commentary on Global Climate Policy, WZB-Mitteilungen, Sept. 2005, at 15 [hereinafter Benedick, Morals and Myths]. 43. Pring, supra note 9, at 206. 44. Id. 45. Id. at 206-07. 46. Benedick, Morals and Myths, supra note 42, at 16. 47. For illuminating discussions on the disputable nature of any calculation of the costs and benefits of climate change, see William Nordhaus & Jo- seph Boyer, Warming the World: Economic Models of Global Warming (2000); William Cline, Climate Change, in Global Crises, Global Solutions 13 (Bjorn Lomborg ed., 2004); Frank Ackerman & Ian J. Finlayson, The Economics of Inaction on Climate Change: A Sensitiv- ity Analysis (Global Dev. & Env’t Inst., Working Paper No. 06-07, 2006), available at http://ase.tufts.edu/gdae/Pubs/wp/06-07EconomicsInaction.pdf. 48. See Olivier Deschenes & Michael Greenstone, The Economic Impacts of Climate Change: Evidence From Agricultural Output and Random Fluctuations of Weather (2006), available at http://www.aei-brookings.org/admin/authorpdfs/page.php?id=1237. Cf. Nordhaus & Boyer, supra note 47, at 97 (suggesting that “the economic impact of gradual climate change, i.e. omitting catastrophic outcomes, is close to zero for moderate (2.5 °C) global warming.”). Note that this conclusion does not come to terms with the economic effects on the United States that would come from the very fact of serious economic harms in other nations. 49. See Nordhaus & Boyer, supra note 47, at 96-97; Nicholas Stern, The Economics of Climate Change: The Stern Review 130 (2007) (not- ing possible effects ranging from a loss of 1.2% gross domestic product (GDP) to a gain of 1% GDP from 3 °C warming and emphasizing that this as- sessment does not take full account of the effects of extreme weather events such as hurricanes). 50. See Nordhaus & Boyer, supra note 47, at 157-67. 51. This estimate is of course rough. It is based on the assumption that unilateral action would have no significant effect in reducing the harms associated with climate change for the United States and that any such effect might be counteracted by benefits. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10570 ENVIRONMENTAL LAW REPORTER 8-2008

It should be immediately clear that if these numbers are Kyoto Protocol would have served, and might still serve, as correct, the Kyoto Protocol is not a good bargain for the a start toward a broader and more inclusive agreement. But United States. It is difficult to doubt the proposition that the on the numbers that confronted the United States at the perti- Kyoto Protocol would be worthwhile if it would eliminate nent times, the argument for ratification of the Kyoto Proto- the total cost of climate change. But according to a promi- col was certainly unclear—far more so than the argument nent estimate by William Nordhaus and Joseph Boyer, the for ratification of the Montreal Protocol. agreement would actually have a meager effect, reducing anticipated warming by a mere 0.03 degrees Celsius (°C) by IV. Lessons and Implications 2100.52 The reason for this low estimate is that climate change is a function of aggregate emissions of GHGs, and What follows from an understanding of the extraordinary the Kyoto Protocol would have only a small effect on success of the Montreal Protocol and far more mixed picture those aggregate emissions. And whether or not this parti- of the Kyoto Protocol? With respect to the United States, the cular estimate is right, there is no question that the Kyoto lesson of the Montreal Protocol can be captured in a single Protocol would have only a small effect in reducing antic- sentence: Where the domestic assessment strongly favors ipated warming. unilateral action, and where the same assessment suggests There are three points here. First, emissions from China, that a nation is likely to gain a great deal from an interna- India, and other developing countries—whose substantial tional agreement, that nation will favor such an agree- contributions to climate change are expected to grow much ment—unless, perhaps, well-organized private groups are larger in the near future—are not regulated by the agreement able to persuade it not to do so. For the Kyoto Protocol, the at all. Second, past emissions of GHGs will contribute to lesson is equally simple: Where the domestic assessment warming; it follows that even a substantial reduction in fu- suggests that unilateral action makes little sense, and where ture emissions would not eliminate the problem. Third, the the same assessment suggests that a nation will lose a great Kyoto Protocol requires the Parties not to make substantial deal from an international agreement, that nation is unlikely cuts in emissions, but merely to return to a point slightly be- to favor such an agreement—unless, perhaps, the public is low emissions levels in 1990. It is for these reasons that its willing to demand that it do so. contribution to the problems caused by climate change are In light of these simple lessons, both the Montreal Proto- anticipated to be small. col and the Kyoto Protocol present polar cases, and actually For the world as a whole, the picture is better, but not par- fairly easy ones. A still more general lesson is that many in- ticularly good, and not nearly as good as that for the Mon- ternational agreements for global environmental problems treal Protocol53: will be ineffective without the participation of the United States. It is true that the United States accounts for only about one-fifth of global GHG emissions—a stunning per capita figure, but one that is not high enough to derail inter- Figure 3: Costs and Benefits of Kyoto Protocol national action if other nations are willing to go forward for the World (in billions of 1990 dollars) without the United States. If the world were able to make significant cuts in what is 80% of total emissions, it could do No Controls Kyoto Protocol a great deal about climate change. The problem is that if the Benefits — 96 United States stands to one side, it is almost certain that co- — 338 or 217 (if we include, as ordinated, aggressive action will be impossible. At Kyoto, Costs offsetting benefits, 112 in permits China and India showed an unwillingness to commit to cuts for Eastern Europe) even when the United States suggested that it would partici- Net Benefits — -242 or -119 pate. Those nations, and other developing countries, will likely be reluctant to confer benefits on industrialized na- tions, including the United States, unless there is a degree of reciprocity, and perhaps significant side payments as well (as in the Montreal Protocol).56 These numbers are rough estimates, and they depend on China is now the world’s largest contributor of GHGs, contentious assumptions about the degree of emissions trad- and it would be surprising if China showed a willingness to ing, about technological innovation, about discount rates, make significant cuts without the participation of the United about the likelihood of abrupt or catastrophic warming, and States.57 The only possibility is if China, in the future, finds about the valuation of life and health. With a lower discount itself in something like the same position with respect to cli- rate, and modest changes in underlying assumptions, the 54 mate change as the United States occupied with respect to benefits of GHG reductions can grow dramatically. Rea- the ozone layer—gravely threatened by the very emissions sonable people might expect the costs to be significantly from which it profits. If China perceives itself as seriously lower or offer a significantly higher estimate of the bene- 55 endangered by climate change, it might well be willing to fits. There is an even more important point. Perhaps the scale back its emissions for its own domestic self-interest. But the picture here is complicated. Let us now see why. 52. Nordhaus & Boyer, supra note 47, at 152. 53. These figures were calculated on the basis of Nordhaus & Boyer, supra note 47, at 145-64. 56. On side payments in general, see Barrett, supra note 3, at 335-54. 54. See Ackerman & Finlayson, supra note 47. 57. Press Release, Netherlands Environmental Assessment Agency, China Now No. 1 in CO2 Emissions; USA in Second Position (June 55. Cline, supra note 47, at 31 (suggesting that the Kyoto Protocol 19, 2007), available at http://www.mnp.nl/en/service/pressreleases/ would deliver worldwide benefits in excess of costs, but that it ac- 2007/20070619Chinanowno1inCO2emissionsUSAinsecondposition. complishes relatively little in reducing warming). html. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

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A. Contributors and Victims fore expect that China and the United States would be un- likely to be particularly interested in massive reductions in To understand the prospects for some kind of parallel to the GHG emissions, at least on these figures; and as we have Montreal Protocol, it is necessary to determine who has the seen, their behavior is consistent with that prediction. most to lose, and who has the most to gain from reductions in As I have said, these numbers are highly speculative. The GHGs. Here as elsewhere, any particular figures must be world’s economy is also interdependent, and if many na- taken as mere estimates and inevitably controversial esti- tions suffer serious adverse effects, China and the United mates at that. But in order to begin discussion, one must first States will be affected. But the central point is clear. The his- examine a prominent estimate of anticipated losses58: torically largest contributor, the United States, ranks toward the bottom in terms of anticipated losses. The largest present and future contributor, China, ranks even lower. Figure 4: Damages Resulting From a 2.5 ºC Warming as a But how much do nations stand to lose from reductions? Percentage of GDP We have seen that the costs of the Kyoto Protocol would be especially high for the United States. To understand why, Country Percent Loss of GDP consider that in 2000 the United States contributed 20.6% of global GHG emissions, compared to 14.7% from China and India 4.93 14.0% from the EU (excluding Romania and Bulgaria, who Africa 3.91 had not yet joined).62 The existing data suggests that the OECD Europe 2.83 largest contributors are likely to continue to qualify as such, High Income OPEC 1.95 but that there will be significant shifts among contribu- tors—above all with emissions growth in China and India Eastern Europe 0.71 and emissions reductions in Germany and Russia.63 Based Japan 0.50 on trends shown from 1990 to 2002, we can project changes 64 United States 0.45 by 2025. At that time, the developing world is expected to show an 84% increase in total emissions, accounting for China 0.22 55% of the world’s total.65 The United States is expected to Russia -0.65 be well below China, which, as noted, has already become the world’s leading emitter. We can now see a real obstacle to an international agree- ment to control GHGs. China and the United States are the Although these figures are very speculative, they assume largest emitters, and according to prominent projections, a 2.5 °C warming; with a higher number, the damages would they also stand to lose relatively less from climate change. undoubtedly be greater. And even on the specified assump- In terms of their own domestic self-interest, these projec- tion, higher damages are possible. But whether or not these tions weaken the argument for stringent controls. The na- particular numbers are right, it is readily apparent that some tions of Africa stand to lose a great deal, but they are trivial nations are far more vulnerable than others.59 Strikingly, GHG emitters.66 India is even more vulnerable, and its con- Russia stands to be a net gainer, with substantial benefits to tribution, while not exactly trivial, is modest.67 agriculture. India is particularly vulnerable as it is expected The analysis has an additional complexity. Some nations, to have devastating losses in terms of both health and agri- above all China and India, might reasonably object that their culture. Nations in Africa also stand to lose a great deal; own contribution is smaller than these figures suggest. In as- there the major problem involves health, with a massive an- sessing relative contributions, we might be interested in cu- ticipated increase in climate-related diseases.60 mulative emissions rather than annual emissions.68 The In light of these figures, we might therefore expect that overall stock might matter, not the current flow. Data for the Russia would not be especially enthusiastic about controls period from 1850 to 2002 show that the EU (again excluding of GHG emissions, except, perhaps, if an emissions trading Bulgaria and Romania) and the United States are collec- system ensured that Russia would gain a great deal of money tively responsible for 55.8% of cumulative world GHG from those controls (as the Kyoto system in fact does). emissions (29.3% and 26.5%, respectively), compared to a Compared to many other nations, the United States faces limited threats to agriculture and health. Like Russia, China 62. Kevin Baumert et al., World Resources Inst., Navigating is projected to benefit in terms of agriculture, and while it the Numbers: Greenhouse Gas Data and International will suffer health losses, they are relatively modest, far be- Climate Policy 12, fig. 2.1 (2005). low those expected in Africa and India.61 We might there- 63. Id. 64. Id. at 15. 58. Nordhaus & Boyer, supra note 47, at 91, tbl. 4.10 (noting that pos- itive numbers represent damages, while negative numbers repre- 65. Id. at 17-18. sent benefits). 66. See Energy Info. Admin., U.S. Dep’t of Energy, Interna- 59. Cline, supra note 47, at 18-19; Ackerman & Finlayson, supra note tional Energy Outlook 2006, at 93, tbl. A10 (2006) (DOE/EIA- 47 (offering a picture of more serious monetized damage from cli- 0484), available at http://www.eia.doe.gov/oiaf/archive/ieo06/pdf/ mate change). Note, however, that Nordhaus and Boyer find that 0484(2006).pdf. China and the United States are about equally vulnerable to cata- 67. Id. strophic climate change, with an expected GDP loss of 22.1% for both nations. Nordhaus & Boyer, supra note 47, at 90. A compre- 68. See Jiahua Pan, Common But Differentiated Commitments: A Prac- hensive treatment can be found in Stern, supra note 49, at 104-06, tical Approach to Engaging Large Developing Emitters Under L20, 128-29. at 3 (Sept. 20-21, 2004) (commissioned briefing notes for the Center Nordhaus & Boyer for International Governance Innovation/Center for Global Studies 60. , supra note 47, at 91. L20 Project) (referring to cumulative emissions but emphasizing the 61. Id.; Stern, supra note 49, at 104, 106. time period, 1990-2000, when consequences were widely known). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10572 ENVIRONMENTAL LAW REPORTER 8-2008

7.8% contribution from China.69 Even as the world’s lead- tional calculus in favor of an agreement to control climate ing emitter, China might well insist that it should not bear change. But it should be clear that in order for such an agree- the same economic burden as a nation that is responsible for ment to be acceptable to the United States, a method must be a much larger percentage of cumulative emissions. Un- found to drive down the costs and to increase the benefits.73 doubtedly the purely domestic calculus of costs and benefits Such a method would make the relevant agreement far more will play a significant role in any nation’s decisions, but fair- attractive to the world as well—and hence increase the like- ness judgments, attending to cumulative contributions, are lihood of compliance by nations that are now showing unfa- unlikely to be entirely irrelevant.70 vorable trends. These are descriptive points, and none of them should be taken to suggest that the domestic cost-benefit analysis 1. Benefits and Structures ought to be decisive in principle. In fact, it should not be. If one nation imposes significant harms on citizens of another, Developing countries are projected to account for over one-- it should not continue to do so even if, or because, a purely half of total global emissions by 2020 at the latest.74 We have domestic analysis suggests that emissions reductions are seen that a broader agreement, including China and India not justified from the point of view of the nation that is im- in particular, would significantly increase the benefits of posing those harms. As I have suggested, the problems of GHG reduction and hence would make domestic controls ozone depletion and climate change stem disproportion- far more attractive to both the United States and the world.75 ately from the actions of wealthy nations, above all the The trick is to make such an agreement sufficiently attrac- United States—actions from which citizens of wealthy na- tive to developing nations to make it possible for them to tions, above all the United States, have disproportionately participate. If such nations participate, the overall benefits benefitted. Whether nations as such should be held respon- of the agreement, to the United States and the world, would sible and what such responsibility should specifically entail significantly increase. The initial step, then, is to ensure are complicated questions. But in view of the fact that their participation. Americans have gained so much from activities that impose A useful step would involve a clear distinction between risks on citizens of other nations, it seems clear that they stocks, or cumulative atmospheric concentrations, and have a special obligation to mitigate the harm or to provide flows, or annual emissions.76 To come to terms with past assistance to those who are likely to suffer. The assistance contributions, nations might participate in the creation of might take the form of financial or technological aid, mak- some kind of fund for climate change damages, with their ing it easier to meet emissions targets, or monetary amounts participation reflecting their contributions to the total exist- designed to ease adaptation to hotter climates. ing stock of emissions. China and India need not contribute There is an additional problem. The citizens of Africa and much to such a fund; Europe and the United States would be India, the most vulnerable regions, are also disproportion- required to contribute a great deal. A step of this kind would ately poor. The citizens of China, standing to lose a great be a sensible response to the fact that different nations have deal from significant restrictions on GHGs, are also rela- historically added dramatically different amounts to the cur- tively poor, and economic growth is contributing to signifi- rent situation. cant reductions in their poverty. It is certainly plausible to A separate step would involve the response to existing think that the issue of relative wealth and poverty should flows. Perhaps a polluter- pays principle could be made a play a role in distributing the costs of emissions reduc- part of an international agreement, so that nations would pay tions.71 These moral issues raise many questions, and they an amount to reflect their continuing contributions.77 In must be seriously engaged as part of both domestic discus- short, GHG emissions might be taxed, with the hope that the sions and international negotiations.72 The Montreal Proto- tax would lead to reductions. It would be easy to do some- col holds out some hope here; judgments about moral re- thing of this kind domestically, and an international agree- sponsibility, and capacity to pay, played a serious role in var- ment might form the basis for the imposition of GHG taxes. ious provisions. Alternatively, an understanding of past contributions and current emissions rates might be built into an international B. Future Prospects cap-and-trade system or a structure closer to that of the Montreal Protocol, helping to serve as the foundation for For both the Montreal Protocol and the Kyoto Protocol, the both reduction requirements and economic transfers. In par- overall assessment would have been far more difficult if the ticular, the transfers might be designed to compensate for relevant numbers had been perceived as closer—if the sci- past and future contributions to the problem. If high contri- entific and economic judgments, working together, sug- gested that reasonable people could differ. Even if the 73. I have touched only lightly on complex enforcement problems. It United States was a modest net loser, perhaps moral consid- may be that the Montreal Protocol is not a good model in this regard. For a discussion, see Barrett, supra note 3, at 391-98; David Vic- erations might have tipped, or might in the future tip, the na- tor, The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming 109-16 (2001). 69. Baumert et al., supra note 62, at 32, fig. 6.1. 74. See Robert N. Stavins & Sheila M. Olmstead, An International Pol- Am. Econ. Rev. Papers & 70. See generally Pan, supra note 68. icy Architecture for the Post-Kyoto Era, Proc., May 2006, at 35, 35-36. 71. See id. at 4 (“Countries with higher levels of national income... Nordhaus & Boyer Barrett would be expected to carry a higher burden of mitigation.”). 75. See , supra note 47, at 123-44; , supra note 3, at 379. 72. See Julia Driver, Ideal Decision Making and Green Virtues, in Per- spectives on Climate Change: Science, Economics, Politics, 76. See the excellent brief discussion in Jagdish Bhagwati, A Global Fin. Times Ethics 249 (Walker Sinnott-Armstrong & Richard B. Howarth eds., Warming Fund Could Succeed Where Kyoto Failed, , 2005); Stern, supra note 49, at 23-53; J. Timmons Roberts & Aug. 16, 2006, at 9, on which I draw here. Bradley C. Parks, A Climate of Injustice (2007). 77. See Baumert et al., supra note 62, at 32, fig. 6.1. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10573 butors make significant cuts, perhaps their transfers need pense of emissions reductions have been inflated. In 2006, not be so large. If they continue to be high contributors, their California enacted a statute that would, by 2020, stabilize transfers might be very high. If the goal is to ensure signifi- the state’s emissions at 1990 levels—a step that would call cant benefits, steps of this sort would be the place to start. for a 25% reduction from 2020 emissions under a “business It is also more than possible that the overall benefits of as usual” approach.84 This enactment raises many ques- GHG reductions are greater, domestically and for the world, tions. As a first approximation, the enactment will, by itself, than suggested by the most prominent analyses from several contribute nothing to reductions in climate change by 2050, years ago.78 If the perceived damage from climate change 2100, or any other date. At the same time, a 25% reduction increases, and if steps can be taken to reduce that damage, in GHGs would undoubtedly impose significant costs on the then the likelihood of a firm domestic response will of citizens of California. Hence there is a positive question: course increase. Attention to the risk of catastrophic harm why did California vote for a program that would appear to would certainly alter the calculation of likely benefits. produce no benefits while imposing real costs? There is also a normative objection, which is that California should not, 2. Costs in fact, impose real costs on its own citizens without also de- livering benefits to those citizens, or at least to the world. On the cost side, two steps would be highly desirable. The A plausible answer to both questions is that California’s first is to create an ambitious and reliable system for fully action might spur additional reductions, both domestically global emissions trading, which could make the cost-benefit and internationally, while also leading to technological ratio far more favorable for any agreement. The second is to changes that drive down the costs of emissions reductions. produce better targets and requirements in a way that allows Of course California is taking a gamble. But it might well be stringency to increase over time. expected that if low-cost substitutes do not emerge, the Consider emissions trading first. In the context of acid de- mandates in the statute will be relaxed. Hence it remains to position, the United States was able to reduce the cost of ag- be seen whether those mandates are as firm as they appear gressive regulation by billions of dollars through an ardent to be. trading system.79 For climate change, such a system would The California legislation thus provides a valuable chal- decrease the need for expensive regulation, by allowing lenge to my account here. In a sense, California is in the American companies to buy American emissions credits same position as was the United States with respect to the from GHG producers in other nations. For the Kyoto Proto- Kyoto Protocol—exploring an option that would apparently col, a system of global trading would reduce domestic costs produce small benefits at a significant cost. However, it from $325 billion to $91 billion—and it would reduce must be emphasized that California was willing to select worldwide costs from $217 billion to $59 billion.80 The like- that option. The particular electoral dynamics of California lihood that China would participate in an international undoubtedly played a key role. Of course the national con- agreement would certainly increase with an emissions trad- text is different, in part because the political dynamics are ing system. Perhaps China and India, and other poor nations, quite different, at least at the present time. But perhaps those could be subsidized with high allocations of trading rights, dynamics will change—at least if the California experiment so as to come to terms with their relatively low past contri- proves to be successful. butions, their general poverty, and their overall needs. We have seen that the reductions targets in the Kyoto Pro- V. Conclusion tocol were arbitrary from the standpoint of sensible policy. A better approach would include carbon taxes or emissions Notwithstanding the similarities between the problems of reduction requirements that grow over time as technology ozone depletion and climate change, the Montreal Protocol advances.81 For ozone-depleting chemicals, as for lead, the has proved a stunning success, and the Kyoto Protocol has United States followed a phase-down policy that allowed largely failed. The American posture, and hence the fate of time for the development and marketing of adequate substi- the two Protocols, was largely determined by perceived tutes.82 No one is proposing the complete elimination of benefits and costs. For those who are concerned about the GHGs. But increasing restrictions over time would make a risks of climate change, it is worth pointing out that the great deal of sense.83 United States has been a principal contributor to those risks, and that the nation’s economic self-interest does not exhaust 3. The Puzzle of California in 2006 its moral obligations. To the extent that the citizens of the United States have benefitted from activities that inflict sig- In terms of achieving cost reductions, there is also an argu- nificant harms on other nations, those citizens are properly ment for experiments in technology-forcing, which is de- asked to help—through reducing their own emissions, signed to promote innovation and to test whether the ex- through paying other nations to reduce theirs, and through payments to ease adaptation. In addition, political pressure, 78. See Stern, supra note 49, at i-xviii; Cline, supra note 47, at 18; including moral convictions, can play a role. Ackerman & Finlayson, supra note 47. But on the basis of tales of the Montreal Protocol and the 79. See A. Denny Ellerman et al., Markets for Clean Air Kyoto Protocols, it is best to assume that domestic self-in- (2000). terest will continue to be an important motivating force. The 80. Nordhaus & Boyer, supra note 47, at 159. position of the United States will not shift unless the per- 81. See id. ceived domestic benefits of emissions reductions increase 82. See Cass R. Sunstein, Risk and Reason (2002). 83. A counterargument is presented in Richard Posner, Catastro- phe (2004), on the ground that a sudden regulatory “shock” might be 84. See Felicity Barringer, California Taking Big Gamble, Tries to Curb necessary and desirable as a way of spurring innovation. Greenhouse Gases, N.Y. Times, Sept. 15, 2006, at A1. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10574 ENVIRONMENTAL LAW REPORTER 8-2008 or the perceived domestic costs drop, perhaps as a result of the Montreal Protocol in one critical respect: its signatories, technological innovation. It follows that for the future, the including the United States, have reason to believe that they task is to devise an international agreement that resembles will gain more than they will lose. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10575

RESPONSE

The Worst of Times, or “It Wouldn’t Be Cool”

by Daniel Barstow Magraw

f Montreal and Kyoto: A Taleof Two Protocols (Tale)1 the two Protocols, however, Tale downplays several Oincludes several thought-provoking propositions and critical distinctions between the problems of climate conclusions. I will discuss four: (1) winners and losers in change and ozone depletion. climate change; (2) differences between the two Protocols; Tale virtually ignores the vastly greater uncertainty with (3) the use of cost-benefit analysis; and (4) what motivates respect to the phenomenon and effects of climate change. the United States (and other countries) regarding the Kyoto Although there was considerable scientific uncertainty at Protocol and other international issues. the time the Montreal Protocol was negotiated—as evi- denced by the then-recent discovery of the Antarctic ozone I. Winners and Losers hole and the perceived need for the Montreal Protocol’s non-consensus adjustment mechanism6—that uncertainty Tale makes the important and somewhat discomforting as- pales in comparison to the multiple manifold uncertainties sertion that there are winners and losers in climate change.2 I regarding the risks associated with climate change. Space learned this is an unpopular idea while helping organize a does not allow a full catalogue here, but climate change un- conference on that topic in Malta in 19903; parts of the U.S. certainties have included: the degree to which average government were not pleased that the conference focused on global temperature will increase7; the role of various sub- that topic. The idea is important because it reveals an equity stances in causing climate change (e.g., of so-called pre- aspect of climate change, demonstrates the need to assist de- cursors8 and of particular greenhouse gases (GHGs) such as 4 9 veloping countries (which tend to be losers), and suggests hydrochlorofluorocarbons (HCFC)22) ; the carbon storage why some countries (perhaps including the United States) potential of various sinks (e.g., the oceans); the extent and may be unwilling to make the effort that protecting human- even net effect of various feedback loops (e.g., water vapor kind and our planet apparently requires. It may be mislead- and clouds, which are created by global warming and which ing, however, because it masks the fact that some of the pos- also trap heat in the atmosphere but also reflect energy back sible effects of climate change, e.g., a major shift in ocean into space); the likelihood of reaching tipping points leading currents, are so cataclysmic that they would seriously harm to cataclysmic events (e.g., cessation of the Gulf Stream); all countries, overcoming any meaningful distinction be- and effects on a local scale (as distinguished from the global tween winners and losers. scale). Significant uncertainty also exists about mitigation and adaptation measures, for example, regarding the rates of II. Differences Between Ozone Depletion and Climate economic growth and of technological change regarding en- Change ergy production, eco-efficiency, and carbon sequestration. These uncertainties, many of which persist, are height- Tale accurately identifies several similarities and differ- ened by the dynamic nature of climate change and they led ences between the problems leading to the Montreal Pro- to the formation of the Intergovernmental Panel on Climate tocol and the Kyoto Protocol.5 One important difference Change (IPCC).10 They also provide reasons or excuses for is that climate change involves a much greater disparity delay by those inclined to move slowly or not at all, compli- between short-term winners and losers than depletion of cate policymaking for those who do want to address the the stratospheric ozone layer does, thus making interna- problem, and are a significant reason why cost-benefit anal- tional cooperation less likely regarding the former. ysis cannot meaningfully be applied to climate change and Through its repeated emphasis on the comparison between to related activities such as ratifying the Kyoto Protocol (as is discussed further below). Tale also underestimates the importance of the realities Daniel Magraw is the President of the Center for International Environ- mental Law, Washington, D.C., and Geneva. that a much broader set of activities leads to climate change and a much larger range and depth of mitigation and adapta- 1. Cass R. Sunstein, Of Montreal and Kyoto: A Tale of Two Protocols, 38 ELR (Envtl. L. & Pol’y Ann. Rev.) 10566 (Aug. 2008) (a lon- tion measures are necessary to deal with it. These realities ger version of this article was originally published at 155 U. Pa. L. Rev. 1605 (2007)). 6. Montreal Protocol, supra note 5, art. 2, ¶ 9. 2. Id. United Nations Environment Program (UNEP) & Nat’l 7. For example, the IPCC predicts a global temperature increase of 1.8 3. See to 4.0 degrees Celsius (°C) by the end of this century. IPCC Synthe- Center for Atmospheric Research, Report of the Workshop sis on Assessing Winners and Losers in the Context of Global , supra note 4, §3.2. Warming (1990). 8. Id. §3.1. 4. Intergovernmental Panel on Climate Change (IPCC), Cli- 9. See, e.g., Guss J.M. Velders et al., The Importance of the Montreal mate Change 2007: Synthesis Report §3.3.1 (Rajendra K. Protocol in Protecting Climate, 104 Proc. Nat’l Acad. Sci. 4814 Pachauri eds., 2007) [hereinafter IPCC Synthesis]. (2007); Keith Bradsher, Push to Fix Ozone Layer and Slow Global Warming, N.Y. Times, Mar. 15, 2007, at C3. 5. Montreal Protocol on Substances That Deplete the Ozone Layer, Sept. 16, 1987, 1522 U.N.T.S. 3 [hereinafter Montreal Protocol]; 10. The IPCC was formed in 1988 by the World Meteorological Organi- Kyoto Protocol to the United Nations Framework Convention on zation and the UNEP. It has three working groups (science, impacts Climate Change, Dec. 10, 1997, 37 I.L.M. 22 (1998) [hereinafter and adaptation, and mitigation). It issued its fourth set of reports in Kyoto Protocol]. 2007. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10576 ENVIRONMENTAL LAW REPORTER 8-2008 can paralyze policymakers and, in any event, make domes- B. Impossibility of Valuing and Monetizing Relevant tic and international policymaking much more difficult than Interests, Including Ethical Considerations it was with respect to ozone depletion. Cost-benefit analysis depends on numerical and monetized III. Cost-Benefit Analysis figures for its comparisons, and yet these comparisons are fundamentally flawed in areas like climate change because The logic and conclusions of Tale are based in large part on many relevant considerations cannot be meaningfully mon- assumptions about the existence, veracity, and effect of etized. For example, climate change will have widespread cost-benefit analyses as they relate to the ratification of the effects on nature’s ability to provide the ecosystem services Kyoto Protocol (and other measures designed to combat cli- that are the real infrastructure of society.14 Many of these ef- mate change). Tale provides specific cost-benefit analyses fects cannot be meaningfully monetized. Climate change for the United States and the globe, and concludes that the will have other profound impacts, not only on economic ac- United States has not ratified the Kyoto Protocol because a tivity, but also on environments, societies, human health, cost-benefit analysis by prominent analysts indicated that cultures, religious practices, social justice, and political for- the United States had more to lose than to gain from ratifica- tunes (some of which can be considered as aspects of eco- tion.11 Tale makes a similar claim regarding China.12 Tale in- system services) around the world. These impacts cannot be cludes disclaimers, such that it does “not mean to suggest meaningfully factored into cost-benefit analysis, yet no re- that all relevant officials . . . based their decision on a formal sponsible decisionmaker will ignore them. cost-benefit calculation of any kind,” and it refers to an “in- Related to the preceding point is the fact that cost-benefit tuitive” sense that the United States had more to lose than to analysis excludes ethical considerations. Climate change, gain, and that the cost-benefit analysis cannot offer an “un- however, is rife with equitable issues, both intergenerational impeachable point estimate”13; but Tale’s analysis depends and intragenerational. Countries differ markedly in terms of to a remarkable degree on the usefulness and credibility of their contribution to climate change, both historically and cost-benefit analyses. currently (whether measured by absolute emissions, per ca- Unfortunately for that approach, cost-benefit analysis pita emissions, or emissions per unit of gross domestic prod- figures regarding ratifying the Kyoto Protocol specifically uct), their ability to mitigate or adapt to climate change, and and climate change generally are subject to serious chal- the extent to which they will be harmed or benefitted by cli- lenge. Substantial literature exists detailing difficulties of mate change. Even disregarding the moral imperative of cost-benefit analysis, particularly with respect to health, considering factors such as these, they can have important safety, and the environment. It is not surprising, therefore, political implications for dealing with climate change and to find that the well-known difficulties of cost-benefit thus cannot be treated as irrelevant. analysis are present with respect to climate change gener- ally and the Kyoto Protocol specifically; and there are C. Externalities other characteristics of the science, ethics, and politics of climate change and the Kyoto Protocol that make cost-ben- Climate change is an externality relating to the emission of efit analysis even less appropriate and reliable in these con- GHGs and precursors; but cost-benefit analysis cannot take texts. The following discussion summarizes several of account of externalities, because it primarily relies on mar- these difficulties. ket prices. Indeed, there is something surreal in relying on such prices when trying to assess the largest market failure A. Massive Uncertainty, Including Regarding Tipping in history. The use of a “global cost-benefit analysis” does Points and Cataclysmic Outcomes not cure this deficiency.

Cost-benefit analysis depends on accurate predictions re- D. Long-Term Discount Rates garding probable effects of action and inaction. As de- scribed above, however, climate change is characterized by Critical to the issue of intergenerational equity is the use of massive uncertainties of many types. The presence of these discount rates in cost-benefit analysis to determine the pres- uncertainties means that cost-benefit analysis estimates are ent value of future costs and benefits. The usual difficulty of extraordinarily speculative. selecting such a rate is greatly exacerbated in the case of cli- One particular type of uncertainty is potential tipping mate change because of the dynamic and possibly non-mar- points and non-marginal, cataclysmic and irreversible out- ginal aspects of climate change. The very long time frames comes, such as a shift or cessation of the Gulf Stream. Nei- involved in measuring the future harms associated with cli- ther their likelihood nor probable effects can be accurately mate change present a particular difficulty, for example cal- predicted, and they further exacerbate the speculative nature culating the benefits of mitigation efforts. This difficulty of cost-benefit analyses regarding climate change. may not apply to specific short-term activities relating to cli- mate change, but it certainly applies to the Kyoto Protocol, which is part of a long-term process.15

11. Sunstein, supra note 1, at 10569. 12. Id. 13. Cass R. Sunstein, Of Montreal and Kyoto: A Tale of Two Protocols, 14. See Millennium Ecosystem Assessment, Ecosystems, and 31 Harv. Envtl. L. Rev. 1, 35, 33 (2007). These quotations were Human Well-Being: Synthesis 40 (2005). in large part removed from the condensed version of Prof. Cass Sunstein’s article published in this issue, although the general 15. Nicholas Stern, The Economics of Climate Change: The ideas remain. Stern Review 23, 44-48, 52 (2007). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10577

E. Human Rights IV. “It Wouldn’t Be Cool” and Other Factors That Contributed to Kyoto’s Failures Climate change arguably implicates human rights because it affects individual’s property, culture, livelihood, and stan- Based on my own experience as a government official dur- dard of living, and even can result in loss of life.16 Cost-ben- ing much of the relevant time period (March 1992-Decem- efit analysis cannot account for a country’s obligation to ber 2001), I believe it is also the case that, as an empirical protect human rights; and it cannot trump the obligation to matter, a commonly accepted cost-benefit analysis (or a set protect human rights. of cost-benefit analyses) did not play a strong role in setting U.S. policy toward the Kyoto Protocol or toward climate F. Multi-Step Process and Demonstration Effect change generally. This is partly the case because of the na- ture of governmental decisionmaking. The Kyoto Protocol was correctly viewed as just one stage Within any U.S. administration, important positions are in a multi-step process involving serial international instru- typically reached as a result of an intense interagency pro- ments. Attempting cost-benefit analysis with respect to the cess. Agencies’ positions typically depend on their man- Kyoto Protocol thus must take into account the likely char- date, values, and legal constraints. The U.S. Environmental acteristics and outcomes of the future steps, which adds yet Protection Agency (EPA), the U.S. Department of State and another set of uncertainties to those identified above. the U.S. Department of Energy, to mention just three agen- A peculiar aspect of the Kyoto Protocol, not present with cies that participated in the climate change debate, differ the Montreal Protocol, is that developing countries refused markedly in these respects and certainly do not approach to accept any binding reduction targets until the industrial- cost-benefit analysis in the same way. For example, the ized countries demonstrated that they would, in fact, reduce Clean Air Act21 prohibits EPAfrom making decisions on the their emissions.17 This attitude owes its strength to the facts basis of cost-benefit analysis. Similarly, negotiations be- that GHG emissions from industrialized countries (includ- tween Congress and the current Administration on climate ing particularly the United States) caused the current cli- change reflect differing perspectives, roles, and interests. mate change crisis, and that those GHG emissions were im- Even the U.S. Senate and the U.S. House of Representatives portant in achieving the high standards of living in industri- (both would need to pass implementing legislation if the alized countries, thus leading to a virtually unanimous sense United States were to ratify the Kyoto Protocol) approach of inequity on the part of developing countries. Accounting climate change issues through different lenses. for this “demonstration effect” in a cost-benefit analysis of In addition, it was the worst of times in the United States the Kyoto Protocol, raises yet another challenge, not only for taking strong action on climate change generally and for to the cost-benefit analysis itself, but also to assertions that ratifying the Kyoto Protocol specifically. This was the case the Kyoto Protocol can or should be analyzed in isolation not because of a commonly accepted cost-benefit analysis, without reference to its effect in leading to future climate but for several other reasons: change commitments by developing countries in new inter- · national instruments. Implementation of the Kyoto Protocol would Taken together, the preceding difficulties demonstrate undoubtedly demand nonvoluntary measures, that cost-benefit analyses of the Kyoto Protocol are so spec- which would in turn require serious domestic reg- ulative and incomplete as to be meaningless.18 The Stern ulatory activity. The 1997-2006 Congresses, how- Commission was only slightly more forgiving, concluding ever, were fiercely anti-regulatory, as is the cur- that: “Standard externality and cost-benefit approaches rent Administration. · Climate change is viewed as an “environmental” have their usefulness for analyzing climate change, but, as 22 they are methods focused on evaluating marginal changes, problem, but this Administration has not viewed and generally abstract from dynamics and risk, they can protecting the environment as a priority, and indeed 19 has taken many steps to reduce environmental only be starting points for further work.” Cost-benefit 23 analysis thus should not be used as a basis for deciding what protections. action to take on the Kyoto Protocol or any other major ac- · Climate change requires a coordinated multilat- tion with respect to climate change.20 eral effort, but this current Administration has been opposed to multilateral approaches in many arenas, 16. See United Nations Human Rights Council Draft Resolution on Hu- including the environment.24 man Rights and Climate Change, U.N. Doc. A/HRC/7/L.21/Rev.1 · (Mar. 26, 2008); The Malé Declaration on the Human Dimension of The Kyoto Protocol constitutes binding interna- Climate Change (Nov. 14, 2007), available at http://www.ciel.org/ tional law, but this Administration has been hostile Publications/Male_Declaration_Nov07.pdf; Martin Wagner & toward international law and institutions in many Donald M. Goldberg, An Inuit Petition to the Inter-American Com- mission on Human Rights for Dangerous Impacts of Climate Change implications of such actions; the question is what role cost-benefit (Dec. 15, 2004) (paper presented at the 10th Conference of the analysis should play. Parties to the Framework Convention on Climate Change in Buenos Stat. Aires, Arg.), available at http://www.ciel.org/Publications/COP10_ 21. 42 U.S.C. §§7401-7671q, ELR CAA §§101-618. Handout_EJCIEL.pdf. 22. Sunstein, supra note 1, at 10566 (referring to climate change in the 17. Sunstein, supra note 1, at 10570. same way). 18. Douglas A. Kysar, Climate Change, Cultural Transformation, and 23. See, e.g., Natural Resources Defense Council, Inc., NRDC: The Comprehensive Rationality,31B.C. Envtl. Aff. L. Rev. 555, Bush Record, http://www.nrdc.org/bushrecord/default.asp (last vis- 562-90 (2004). ited June 3, 2008). Stern 24. See Winston P.Nagan & Craig Hammer, The New Bush National Se- 19. , supra note 15, at 23. curity Doctrine and the Rule of Law,22Berkeley J. Int’l L. 375, 20. By this, I do not mean to suggest that policymakers should not care- 401 (2004) (discussing the Bush Administration’s general adher- fully attempt to determine the economic, social, and environmental ence to unilateralism). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10578 ENVIRONMENTAL LAW REPORTER 8-2008

instances, preferring instead voluntary activities, tent with the idea that the Kyoto Protocol would not be ef- e.g., regarding mercury pollution.25 fective, but it also would be consistent with a more gut-level · Climate change has significant implications for rejection of the Kyoto Protocol based on other reasons. fossil fuels, but this Administration has strong ties Tale concludes with an observation that in order to to the oil industry, and powerful members of Con- achieve successful participation by the United States and gress are strong supporters of the use of coal. other countries, the international community must devise a · Ratifying the Kyoto Protocol requires concur- regime that gives those countries reasons to believe that they rence of two-thirds of the U.S. senators present,26 will gain more from participating than they will lose.29 This but the Senate has been notoriously unwilling to observation has some merit if two things pertain. First, the consent to ratifying environmental treaties from evaluation will not solely turn on cost-benefit analysis: poli- the mid-1990s to the present time, e.g., the Senate ticians are too savvy for that and governments are too com- has not approved ratification of the United Nations plicated for that. Second, “gain” must be understood as Convention on the Law of the Sea despite the sup- meaning more than economic gain: myriad considerations port of the security establishment, industry, the en- enter into politicians’ and countries’ evaluations of what is vironmental community, and both Presidents Wil- in their interest. liam J. Clinton and George W. Bush.27 Indeed, there is even ground for hope that Tale’s conclud- · Finally, implementing the Kyoto Protocol would ing thought is too cynical. Just as a business may engage in require important legislative action, but the U.S. enlightened self-interest and undertake activities that do not political climate has been bitterly partisan almost actually increase net profit or the value of shares in any mea- continuously since 1997, making passage of that surable way, so politicians and countries are sometimes mo- magnitude of legislation extremely unlikely. tivated by grand factors. They are, of course, sometimes mo- tivated by petty factors too. It is not exactly clear what motivated U.S. policy toward It is one of the lessons of environmentalism that the bio- the Kyoto Protocol, of course. At a White House ceremony sphere, including human society as a whole, is interdepen- in 2001 to sign the Stockholm Convention on Persistent Or- dent. Without question, globalization reinforces that inter- ganic Pollutants, one of my staff asked President Bush why dependence—environmentally, economically, culturally, he was not willing to sign the Kyoto Protocol. The president and politically. It is possible that the threat to human civili- responded: “It wouldn’t be cool.”28 That response is consis- zation posed by climate change will cause countries to un- 25. See Press Release, Michael Bender, Executive Dir., Mercury Policy derstand that their own interests and survival are inextri- Project, U.S. Plans to Thwart Global Mercury Treaty Talks, Docu- cably tied with those of other countries—just as World ment Shows (Jan. 27, 2003), available at http://www.mercurypolicy. War II caused countries to view the aggressive use of org/new/documents/BanHgRelease012703.pdf (discussing U.S. ef- force from a global humanitarian perspective rather than forts to block a binding international treaty on mercury). from their narrow self-interest—and thus that concern for 26. U.S. Const. art. II, §2, cl. 2. the common good will strongly influence decisions re- 27. Contrary to Sunstein, supra note 1, at 10568, the Senate has not ex- garding climate change. pressed its opposition to or rejected the Kyoto Protocol, nor has the Senate even had the opportunity to consider it since it was not sent to the Senate by either President Clinton or Bush. sponse differ, but each includes the idea that becoming a Party to the Kyoto Protocol would not be “cool.” 28. I have heard accounts of this exchange from three people who were present. The accounts of the precise wording of President Bush’s re- 29. Sunstein, supra note 1, at 10574. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10579

RESPONSE

Comment on Of Montreal and Kyoto: A Tale of Two Protocols

by Peter R. Orszag and Terry M. Dinan

n Of Montreal and Kyoto: A Tale of Two Protocols,1 Prof. global cap-and-trade program. Finally, we suggest in Sec- ICass Sunstein compares the political economy dynamics tion III that the measures of domestic benefits that Professor leading up to the signing and ratification of the Montreal Sunstein presents do not adequately incorporate a primary Protocol (governing substances that deplete the ozone layer) motivation for agreeing to GHG restrictions: reducing the and the Kyoto Protocol (governing substances that contrib- possibility that the buildup of those gases could lead to ex- ute to global warming). He observes that the United States tremely large, potentially even catastrophic, damage that was a strong and early supporter of the control of ozone-de- could not easily be allocated among countries.3 pleting substances but has generally opposed binding con- trols on greenhouse gases (GHGs). In contrast, Britain was I. Distribution of Costs and Benefits in a Global significantly more reluctant to agree to limits on ozone-de- Emissions-Reductions Scheme pleting substances but has actively supported restrictions on GHGs. Professor Sunstein attributes that contrast to differ- Any effort to make meaningful reductions in global emis- ences in the two nations’ perceptions of domestic benefits sions of GHGs would have to involve the world’s five major and costs from environmental action, and he concludes that emitters: (1) the United States; (2) China; (3) the European the key to obtaining a global agreement on GHGs will in- Union (EU); (4) Russia; and (5) India (see Table 1). As Pro- volve raising perceived benefits within the United States fessor Sunstein points out, available estimates of the dam- from such an agreement while reducing its perceived do- age that China and the United States would incur (inade- mestic costs. He suggests that motivating developing coun- quately accounting for the uncertain possibility of cata- tries to agree to emission limits and achieving such reduc- strophic outcomes, as discussed below) as a result of a 2.5 tions through an incentive-based global approach—such degrees Celsius (°C) increase in average global temperature as a global tax on carbon dioxide (CO2) emissions or a may provide an insufficient incentive for either the United global cap-and-trade program—are the most promising ap- States or China to agree to incur significant costs to reduce proaches to altering U.S. perceptions of domestic benefits emissions.4 Further, China may be less willing to shoulder and costs. even more modest costs given its low per capita income. It is undoubtedly correct that perceptions of domestic Among those five top emitters, India is predicted to benefit benefits and costs are important determinants of countries’ the most from reduced warming, but like China, it has far willingness to enter into international agreements (includ- fewer economic resources to devote to the problem than ei- ing those about limits on global pollutants).2 As we discuss ther the United States or the EU. Among the key players, the in Section I below, however, if one accepts Professor countries in the EU stand out as likely to benefit signifi- Sunstein’s perspective and measures of the domestic bene- cantly from reduced warming (again, in expected value fits of GHG emissions reductions, his proposed approaches terms and without accounting for very uncertain but poten- would be unlikely to motivate the United States to enter into tially very large damage), having sufficient per capita in- such agreements. Specifically, those approaches would ac- come so that reasonable levels of emission reductions tually serve to increase costs to the United States while do- would not pose undue hardship, and having contributed sig- ing little to increase its perception of domestic benefits nificantly to the stock of emissions in the past. (based on the benefits measures that Professor Sunstein Professor Sunstein observes that changing the dynamics uses). While incentive-based approaches are likely to be im- of international negotiation would require a method of in- portant components of a cost-effective approach to reducing creasing perceived benefits and reducing perceived costs GHG emissions, we point out in Section II that Professor for some of the major emitters. He suggests that a global tax Sunstein does not give sufficient attention to the serious im- or cap-and-trade program might help achieve such an out- plementation challenges that would be associated with a come. We agree that a global incentive-based approach would lower the aggregate cost of reducing emissions and Peter R. Orszag is the Director of the Congressional Budget Office (CBO). could lead to greater total reductions. It would be much less Terry Dinan is the CBO’s Senior Advisor for Climate Policy. likely, however, to alter the distribution of potential benefits (as indicated by the distribution of expected damage pre- 1. Cass R. Sunstein, Of Montreal and Kyoto: A Tale of Two Protocols, 38 ELR (Envtl. L. & Pol’y Ann. Rev.) 10566 (Aug. 2008) (a lon- ger version of this article was originally published at 31 Harv. 3. While Professor Sunstein has written extensively about the role that Envtl. L. Rev. 1 (2007)). concern about catastrophic outcomes plays in shaping climate pol- icy, the expected value measures of damage that he presents here do 2. This observation holds regardless of which level of government not adequately represent those outcomes. See Cass R. Sunstein, adopts the policy intervention. For a discussion of how the distribu- Worst-Case Scenarios (2007) [hereinafter Sunstein, Worst- tion of costs and benefits among states affects the likelihood of Case Scenarios]. reaching an agreement on the control of tropospheric ozone, see Terry Dinan & Natalie Tawil, Solving Environmental Problems With 4. In reality, the increase in the average global temperature resulting Regional Decision-Making: A Case Study of Ground-Level Ozone, from unchecked emissions may be much larger than 2.5 °C. Further, 56 Nat’l Tax J. 123 (2003). We also note that many analyses that preventing an increase of 2.5 °C may not be feasible given the emis- consider emissions restrictions from a global perspective suggest sions that have already occurred. However, the pattern of relative that well-designed policy actions to slow climate change would pro- damage across countries is likely to provide insight into the pattern duce larger benefits than costs. of relative benefits for policies that restrict emissions. Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

38 ELR 10580 ENVIRONMENTAL LAW REPORTER 8-2008 sented in Table 1), which is independent of where and how icy.9 For example, China could agree to require new elec- emission reductions occur.5 tricity-generating facilities to meet certain efficiency stan- Professor Sunstein also suggests that major emitters with dards, which would be funded by proceeds from the tax on sufficient means could increase the benefits that China CO2 emissions in developed countries. would receive from restricting emissions by paying it to un- Asimilar outcome could be achieved through a system of dertake reductions, and that such payments could be built harmonized domestic cap-and-trade programs. In that case, into a global cap-and-trade program through the allocation countries could agree to adopt equivalent domestic of allowances (that is, rights to emit).6 If China were given cap-and-trade programs (with similar expected allowance enough allowances to cover its anticipated growth in emis- prices), sell a share of the allowances, and use some of the sions, any reductions in its emissions relative to that base- auction proceeds to fund emission reductions in develop- line would free up allowances that it could sell at a profit. ing countries.10 However, giving China enough allowances to provide it Either the harmonized tax and transfer—or the harmo- with unrestricted growth potential would mean that other nized cap-and-trade and transfer—policy described above major emitters, such as the United States, would need to re- could reduce the problem of system integrity associated ceive far fewer allowances than their business-as-usual with a global cap-and-trade program, but neither would cre- baseline. The result would, therefore, essentially transfer ate a more favorable benefit-to-cost ratio for the United income from the United States to China—improving the States, based on the distribution of expected damage (and, benefit-to-cost ratio for China but worsening it for the thus, potential benefits) presented in Table 1. Those mea- United States. sures do not, however, reflect the fundamental uncertainties associated with climate change and, as a result, may not II. Implementation Challenges of a Global adequately capture a primary motivation for limiting Cap-and-Trade Program GHG emissions.

Linking the cap-and-trade programs of various countries III. The Uncertain Possibility of Catastrophic could help minimize the overall cost of reducing emissions Consequences but could also create significant concerns. Competitive forces would equalize the price of allowances among coun- Estimating the damage that might result from unrestrained tries, a desirable outcome in that it is a necessary condition growth in emissions of GHGs is complicated by several fac- for global cost-minimization. However, countries would tors. Once emitted, GHGs can linger for a very long time in have to give up sovereignty over the price of allowances the atmosphere (for example, each ton of CO2 generates a traded in their programs as well as control over the standards rise in the average global temperature that peaks about 40 governing emissions reductions. Lax monitoring or en- years after the CO2 is emitted and then dissipates slowly, forcement by any one country would lessen the incentive to with a half-life of about 60 years), and the damage that they cut emissions in other participating countries and could un- create could be irreversible.11 Further, analysts face pro- dermine the integrity of the whole system. Including devel- found uncertainties about baseline emissions, the physical oping countries in a cap-and-trade program could increase processes leading to changes in the average global tempera- the likelihood of that outcome since such nations may lack ture, the resulting changes in regional climates, and ecologi- the institutional structures necessary for successful moni- cal and human responses to changes in regional climates.12 toring and enforcement.7 Potential outcomes from unrestricted emissions include a Aharmonized tax—implemented in different countries at much larger temperature increase than the 2.5 °C value on an agreed-upon rate—could avoid one of the potential prob- which the Table 1 damage estimates are based; a weakening lems of a linked cap-and-trade program: lax monitoring and of the Gulf Stream, resulting in a much colder climate in Eu- enforcement in one country would not undermine the integ- rope; rapidly rising sea levels, with resulting land losses; rity of the tax system in other countries.8 If such a tax were and far more rapid warming than anticipated (making adap- agreed to by developed countries, some of the revenue pro- tation much more difficult) as a result of strong positive ceeds could be used to fund emission reductions in develop- feedback effects, such as the release of large quantities of ing countries in ways that would depend less on the ability of the country to monitor and enforce an incentive-based pol- 9. See Joseph E. Aldy et al., Climate Change: An Agenda for Global Collective Action (paper prepared for the Pew Center on Global Cli- 5. A global incentive-based approach could affect the distribution of mate Change Workshop on the Timing of Climate Change Policies, benefits only if it led to much larger emission reductions than would Oct. 11–12, 2001), available at http://www.sbgo.com/Papers/Aldy- have occurred under non-linked programs. In that case, adopting a Orszag-Stiglitz_5.pdf; Joseph E. Aldy et al., Thirteen Plus One: A global approach could alter the types of damages that would be Comparison of Global Climate Change Policy Architectures (Ken- avoided and, as a result, the distribution of benefits. nedy Sch. Gov’t Working Paper Series, Paper No. RWP03-012; FEEM Working Paper No. 64.2003, 2003), available at http:// 6. Others have suggested a similar approach. See, e.g., Robert Stavins, ssrn.com/abstract=385000. Brookings Institution, A U.S. Cap-and-Trade System to Address 10. Assuring that emitters face similar incentives to reduce their emis- Global Climate Change (Hamilton Project Discussion Paper No. sions would be more difficult under a system of harmonized cap- 2007-13, 2007), available at http://www.brookings.edu/~/media/Files/ and-trade programs than under a harmonized tax, however, because rc/papers/2007/10climate_stavins/10_climate_stavins.pdf. allowance prices would fluctuate with changes in underlying market 7. See Table 1, for a cross-country comparison of governance conditions in individual countries. indicators. 11. See William A. Pizer, Combining Price and Quantity Controls to J. Pub. Econ. 8. In addition, countries would have a greater incentive to enforce a Mitigate Global Climate Change,85 416 (2002). harmonized tax than a global cap-and-trade program. For a discus- 12. For an excellent discussion of how these factors, as well as uncer- sion of this point, see William D. Nordhaus, To Tax or Not to Tax: Al- tainty and irreversibility on the cost side, affect policymaking, see ternative Approaches to Slowing Global Warming,1Rev. Envtl. Robert S. Pindyck, Uncertainty in Environmental Economics,1 Econ. & Pol’y 26, 33 (2007). Rev. Envtl. Econ. & Pol’y 45 (2007). Copyright © 2008 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

8-2008 ENVIRONMENTAL LAW AND POLICY ANNUAL REVIEW 38 ELR 10581 methane (a potent GHG) due to melting permafrost. Yet,sci- such as the United States, to agree to emissions restrictions entists have been unable to determine what level of GHG could be much greater than the damage estimates presented buildup would trigger such outcomes, and the risk of them in Table 1. occurring is captured very imprecisely in the damage esti- Scientists will continue to work at improving their under- mates presented in Table 1. Specifically, those highly uncer- standing of the conditions under which catastrophic out- tain but potentially extremely large losses are essentially comes might occur while analysts strive to develop better translated into much smaller but certain losses.13 methods of incorporating uncertainty into analyses of the Critics of the damage estimates presented in Table 1 sug- costs and benefits of restricting emissions. Meanwhile, gest that alternative ways of incorporating the profound un- policymakers must grapple with these uncertainties and un- certainties associated with climate change (methods that derstand the limitations of available damage estimates. Ap- better reflect the variation in possible outcomes around ex- plying an insurance framework to policy decisions might be pected outcomes) would result in far higher potential dam- helpful—while imposing costs on the economy, restricting age estimates.14 In fact, some analysts suggest that reducing emissions could be viewed as a method of buying a reduc- the risk of catastrophic outcomes is the primary motivation tion in the risk of triggering much larger losses than those for restricting emissions.15 Further, if damage in individual presented in Table 1 (or of being in a position to reduce regions grew to very large levels, the spillover effects to emissions more quickly should scientists judge that the con- other regions could be large, making the allocation of cat- centration of emissions in the atmosphere was approaching astrophic damage across different countries more diffi- a critical threshold that would trigger large losses). cult.16 If the uncertain possibility of extremely large losses Adopting that insurance perspective could cause major was better accounted for and the potential for spillover ef- emitters to revise their perceptions of domestic costs and fects was taken into account, the motivation for countries, benefits and provide a foundation for a global agreement.

Table 1. Factors Affecting Countries’ Potential Willingness and Ability to Implement a Carbon Dioxide Tax or Cap-and-Trade Program Contributions to GHG Emissions1 (Measured as a percentage of global Governance Indicators3 (Country’s percentile rank) emissions) Country Current Future Historic Damages Per Capita Government Regulatory Rule Control of (in 2000) (projected (1850 to From 2.5º C GNI2 Effectiveness Quality of Law Corruption for 2030) 2002) Warming (asa%of GDP)1

United States 20.6 18.6 29.3 0.45 44,970 90th-100th 90th-100th 90th-100th 75th-90th

China 14.7 24.5 7.6 0.22 2,010 50th-75th 25th-50th 25th-50th 25th-50th

EU 14.04 16.35 26.54 2.836 34,1497 75th-80th8 75th-80th8 75th-80th8 75th-80th8

Russia 5.7 n.a.9 8.1 -0.65 5,780 25th-50th 0-25th 0-25th 0-25th

India 5.6 5.0 2.2 4.93 820 50th-75th 25th-50th 50th-75th 50th-75th 1. Measures used as reported in Sunstein, supra note 1. Additional data available in the original version, published at 31 Harv. Envtl. L. Rev. 1 (2007). 2. Gross national income (GNI) converted to U.S. dollars using the World Bank Atlas method. See World Bank, World Development Indicators 2007 (2007). 3. Daniel Kaufmann et al., Governance Matters VI: Governance Indicators for 1996-2006 (World Bank Pol’y Research Working Paper No. 4280, 2007), available at http://ssrn.com/abstract=999979. 4. Includes countries in the EU with the exception of Bulgaria and Romania. 5. Includes all countries in Europe. 6. Includes all European countries in the Organization for Economic Co-operation and Development (OECD). 7. Includes all countries in the European Monetary Union. 8. Reflects average of European countries in the OECD. 9. Included in future emissions for all countries in Europe.

13. The potential for catastrophic losses of the type described above are represented as a single probability (derived from a survey of subjective probabil- ity estimates provided by experts) of a 25% loss in global income under a 2.5 °C increase in temperature. That aggregate loss was then distributed across countries on the basis of other damage estimates. See William D. Nordhaus & Joseph Boyer, Warming the World: Economic Models of Global Warming 87-88 (2000). 14. See, e.g., Martin L. Weitzman, On Modeling and Interpreting the Economics of Catastrophic Climate Change (Feb. 8, 2008) (unpublished manu- script), available at http://www.economics.harvard.edu/faculty/weitzman/files/modeling.pdf. 15. Robert S. Pindyck, Uncertainty in Climate Change Economics, Presentation at the International Monetary Fund (Jan. 24, 2008) (slides on file with the Environmental Law and Policy Annual Review). 16. Professor Sunstein raises a related point, referred to as “social amplification of risk,” in Sunstein, Worst-Case Scenarios, supra note 3, at 138.