The chances of even an outline global climate deal at Cancun in December 2010 look slim after America’s Democrats failed to garner the 60 votes needed for a cap and trade bill in the dying days of July. Short of a miracle, President Obama will in effect go naked into that conference chamber.
The passage of the House of Representatives bill in 2009 was a high watermark (ENDS Report, May 2009). Since then, the US Senate, which must also get a version through before a unified bill can pass into law, has struggled against strong fossil fuel interests (ENDS Report, June 2010).
Already by July, Democrats had agreed to restrict the cap and trade element to energy utilities and oil refineries and had increased support for nuclear power in a bid to please tax-averse Republicans and Democrats worried at the impact on coal and oil dependent states.
But now, Democratic senators are looking at a cut-down bill with even this element of cap-and-trade excised, and no major renewable energy element, focused on reducing risks from offshore oil exploration and a modest investment in domestic energy efficiency. In reality, it amounts to a face-saving, populist move that will satisfy nobody.
The truth is President Obama had two years to get through economic measures, health reform – and a climate bill. Putting it third all but ensured that by the time it reached Senate, the mid-term swing against the encumbent party had inevitably begun. There was not enough gas left in the tank.
And it puts the US on a collision course with the European Union and other parties to the Kyoto Protocol. President Obama’s pledge under the Copenhagen Accord of a 17% emissions reduction by 2020 relative to 2005 depended on it.
Developing countries in particular have accused the EU of siding with the USA in seeking a different kind of treaty as a means of sinking the protocol, or at best as a dangerous distraction. They will see this as proof they were right, and the pressure for a second commitment period under the existing protocol after 2012, leaving the US out, will grow.
At least this would give interim protection to the existing structures created or made possible by Kyoto, the EU Emissions Trading Scheme and the huge international offset market. The US could then opt for a parallel agreement at a later date, a possibility already discussed unofficially at the June Bonn talks (ENDS Report June 2010).
Already the UN is investigating interim arrangements that could preserve its system of international offsets and verification. Countries such as Japan are also looking at bilateral deals on international offsets to overcome the impasse.
But without full international consensus, the EU will struggle to agree tighter targets, reducing incentives for faster decarbonisation of its economies, pressure for trade measures against carbon-intensive imports will grow, and with it the risks of further fragmentation of hard-earned international consensus that has been achieved under the UN framework convention in 1992.
Does this mean all is lost in the USA? Well, no. It still has in place several existing and emergent regional greenhouse gas cap and trade schemes, and a very active carbon market which has already drawn major traders across the Atlantic. These would have been superseded by a Federal scheme, and the uncertainty over their future was damaging the market.
They could now continue to link up as planned – a Plan B of sorts. But the caps are still modest compared with the EU Emissions Trading scheme, and it is not clear how this devolved system could be considered as part of an overall US commitment to a binding national target. And linkage with the EU ETS is even more remote a possibility in the foreseeable future.
The other possibility, the so-called nuclear option, is for the US Environmental Protection Agency to regulate greenhouse gases. It has the power to do this, and Republican attempts to overturn these powers have failed.
But Democrats have so far seen forcing through such changes without consensus as likely to be even more divisive than cap and trade, which at least offers flexibility in how large emitters respond. There is a small chance this may happen after the mid-term elections, but Obama may then have to decide between global legacy and a second term. A tough choice perhaps.
There is keen interest in renewable energy in the US, and legislation on this is far more likely to get through. But this is an open-ended commitment.
Renewables alone are unlikely to achieve anything near the 25-40% reductions needed by developed economies by 2020 without corresponding cuts in fossil fuel emissions and energy efficiency incentives from a high carbon price. Without a cap, reduction targets cannot be set, achieved and measured with any certainty.
Other options are far harder to equate with the needs of a new global climate treaty post-2012. There is always a risk that the arbitrage of cap and trade can become a distraction in achieving emissions cuts compared to more direct means such as regulation and technology shifts.
But it is too late at this stage to change horses with just two years of life left in Kyoto. Quite simply, too much is at stake, and too much time has already been lost for further experimentation.