Bush Clears the Air

Last week, President Bush offered his most comprehensive policy proposal on the threat of global warming since his decision to scrap the unworkable Kyoto Protocol last year. The plan would create a registry for carbon dioxide (CO2) emissions and then reward firms for voluntary reductions. The decision was not well received by leftist environmental groups, or global warming skeptics, which should please the administration, as it was looking for a “third way” on the issue.

In an op-ed piece in The New York Times, the Chairman of the president’s Council of Economic Advisers, R. Glenn Hubbard, explained the administration’s political strategy: “For too long, the loudest voices in the climate change debate have either called for large emission reductions in the next 10 years or ignored the fact that climate change is a real risk.” Bush’s plan attempts to split the difference by conceding a framework to regulate CO2, but basing the framework on “greenhouse gas intensity,” which is the ratio of greenhouse gas emissions to economic activity.

By basing greenhouse gas reductions on economic activity, Bush’s proposal is a marked improvement over the alternative, which would all but guarantee economic collapse. With little empirical evidence that global temperatures are rising, and even less evidence to suggest that human production of CO2 – which accounts for only 4.5 percent of all CO2 emissions – contributes to climate change, mandatory reductions in CO2 would jeopardize our prosperity for only hypothetical gains in return. By tying reductions to economic growth, the Bush proposal tries to do the wrong thing in the least costly way possible.

But that is not to say that the plan is without its faults, or that it will be without severe economic consequences. Although coal-fired plants may applaud the proposal for offering a decade of regulatory certainty – no action would be taken to compel greenhouse gas intensity reductions until 2012 – the framework will harm them and ultimately restrict the nation’s fuel diversity. By creating a registry for CO2 emissions, and implying that voluntary reductions would elicit some sort of reward, the Bush administration would take an unfortunate step towards an emission cap and trading scheme.

This is precisely the approach the administration is taking towards the power plant emissions of sulfur dioxide, nitrogen oxides, and airborne mercury. Under the proposal, each pollutant would be capped at levels well below today’s emissions, but the cap would come in the context of a comprehensive market-based emission credit program, which would allow cleaner-burning plants to sell excess credits to counterparts and eliminate the current piecemeal regulatory strategy.

While this kind of environmental regulation is costly, it represents an improvement over command-and-control systems and encourages new technologies to reduce emissions. But to apply such a system to CO2, which is emitted with each human exhale, requires irrefutable scientific evidence that the earth is warming due to human production of CO2. And no matter what the militant left may say, that evidence has not been substantiated.

The Bush proposal places the U.S. on precarious footing. By creating a paper trail of CO2 emissions, the Bush plan welcomes draconian regulation of the Kyoto sort if future evidence suggests that global temperatures are on the rise. But what if, as many scientists argue, rising temperatures are simply a natural phenomenon, and not the result of rising CO2 levels?

By lending credence to an unproven theory, the Bush proposal could put us on a perilous path. What if temperatures continue to increase in the face of 7 percent reductions in 1990 CO2 levels? Should CO2 be cut by 25 percent of 1990 levels? 50 percent? Once the die is cast, there may be no turning back.

At this early stage of our climatic understanding, attributing rising temperatures to CO2 emissions would be like blaming the “little ice age” of the middle of last millennium on the writings of Chaucer. For all of its marvelous advances, there are still things that not even modern science cannot explain, and even if a correlation between increased CO2 emissions and rising temperatures can be demonstrated over the past 30 years, that does not prove causality. And in the context of historical climatic data, the “threat” of increased temperatures is not really much of a threat at all.

Regulations are based on the notion that certain trades between producers and consumers generate externalities – such as pollution – whose costs are not borne by those involved in the exchange. Regulations, or certain types of taxes, are government instruments to incorporate the cost of the externalities into the decision-making of the relevant parties. But there is rarely consensus on the ideal levels of health and safety given the costs such standards impose on consumers. And when the costs are uncertain, or even imagined, regulation or taxes lack any justification.

Thus, any proposed climate change regulation must be based on sound science and cost-benefit analysis. If science fails to provide incontrovertible evidence that externalities exist, such as global warming, there is no basis for restricting property rights, or the freedom of exchange.