US: Waxman-Markey Bill changes the landscape of international climate change negotiations

Author: Frank Jotzo

The US House of Representatives has passed the Waxman-Markey bill, or American Clean Energy and Security Act. The bill mandates national emissions reductions using economy-wide emissions trading and various other policy measures. The bill is now entering the Senate process, and though the hurdles there are much higher than in the House, America could have in place comprehensive and not unambitious carbon emissions control in the near future. It would be a momentous change for the US, and it would catalyse action elsewhere.

Rep. Henry A. Waxman &  Rep. Ed Markey

For Australia, progress towards US climate legislation means that there is zero credibility left to the argument that Australia should not get ahead of other developed countries. Australia has been behind Europe on climate change policy for a number of years, and would be part of a small bunch of developed country followers once America takes the lead. And follow it invariably would, as it is simply unthinkable to hold out as a renegade rich polluter in the face of America setting to the task.

Equally, the ‘waiting for Copenhagen’ argument falls to pieces with any meaningful degree of progress on US climate policy. American domestic commitment will create strong pressure for China to formalise and extend its existing goals on energy and emissions, and that in turn will make it hard for many other countries to resist the push. Whether or not a comprehensive agreement is struck at Copenhagen in December, if the US enacts legislation along the lines of Waxman-Markey then the train is on its way.

The result in Australia might well be to foster a repositioning by the opposition, which could even lead to the Carbon Pollution Reduction Scheme being enacted, with amendments, in the not too distant future and without the need for Green and independents’ votes.

Waxman-Markey also matters for developing countries. The US coming to the party would place a tick in the biggest box of prerequisites for action by developing countries: the need for rich countries to begin reigning in their carbon emissions at home.
Developing countries could also benefit directly from selling emissions reductions to the US. The proposed legislation would allow significant amounts of trading in international emissions units, with a sizeable additional program to help reduce deforestation in developing countries. The obvious first destination for US carbon investment in the developing world is Latin America, but some of the tens of billions of dollars that might flow each year would likely also find their way to Asia, including for avoided deforestation. That in turn would create business engagement and help domestic policy efforts in developing countries.

But is the US legislation too weak? The national target is for a reduction in total emissions by 20 per cent compared to 2005 levels at 2020 (17 per cent for sources covered under emissions trading). This means a return to just below 1990 levels, while America’s Kyoto target was to reduce by 7 per cent below 1990 already at 2010. The lack of ambition has been criticised, including by Chinese officials. And it is true that a much quicker and steeper fall in emissions by the rich and highest emitting countries would be needed for a truly strong global outcome on greenhouse gas emissions. But the longer term targets under Waxman-Markey at least go in the direction that climate science calls for, with an 83 per cent reduction by 2050. It is in sharp contrast to the 60 per cent reduction that the Australian government still proposes for 2050.

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  • On the target, because there is also funding for REDD, it could be that the actual emissions reductions are something like 10 per cent more than the 20 per cent reduction. My understanding is that the 20 per cent reduction is 7 per cent less than 1990 emissions.

    Obama has also stated that if emissions reductions turn out to be cheap, then they could move to a more ambitious program. It would be useful to have a statement like this from our government. In an interview with the New York Times, Obama said:

    As I said before, I actually think that this is going to be similar to our efforts at controlling acid rain with the cap and trade. I think this is going to end up being much less costly, much more efficient; technology is going to move much more rapidly than people anticipate. And we are going to have — be able in this process to take a look at what kind of progress are we making five years from now, 10 years from now, 15 years from now. With the framework now in place we may find ourselves not only able, but eager to move on that even more ambitious program.

    One interesting issue is how compatible is the Australian legislation with the US legislation – how much potential is there to link the two? The key section is Section 728 on international emissions allowances. For the CPRS to qualify as a qualifying program, it would need to have a mandatory absolute cap, and have offset provisions that are at least as strict as those of the US. While the Australian scheme has a price ceiling (until something like 2016), Australia would not have a mandatory absolute cap, and most probably not qualify. This could easily be fixed by having a limit on the amount of permits that can be sold at the fixed ceiling price. Whether Australia’s offset provisions are strict enough is a more complex question, but this could also be an issue.

  • While it is important to have a more admirable and larger target for 2020, it is much more important to have the US to act and get it into an international agreement as the first step of global actions. In this sense, people may care little about the specific target of the US for 2020, given its long term target of 80% reduction of the 2005 level by 2050.
    Without the US in action, there is little chance of success in any global actions, given that it is the world largest economy and its share of global emissions.
    US actions are critical in persuading developing countries to join international actions to combat global warming, although how to involve them is important. There are complex issues of effectiveness, efficiency and equity involved. Differential timing and targets may be essential to the success of such efforts.
    If the US doesn’t join the international community to reduce emissions, how can one expect that developing nations should take actions in doing that?
    The US, together with Australia, has been a stumbling block to the Kyoto Protocol in the past. It has hampered international efforts and actions. So let’s hope that the Waxman-Markey bill will pass the US senate and becomes law. It will mark a new beginning in the global effort to tackle global warming.
    Once a meaningful international agreement is reached, the signal it sends to governments and businesses is important. Innovations by the private sector will create new energy technologies, or reduce the costs of green energy technologies.