The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  Project 88 identified a host of environmental and energy problems for which “harnessing market forces” would be a major step forward. “Economicincentive systems” would deliver quicker, better results for much less money than the “dictated technological solutions” of command-and-control. Climate change was on the target list.10

  THE ACID TEST OF ACID RAIN

  Project 88 may have put the idea of using prices and markets out there. But now, with the 1988 election over, an acid test was at hand. It happened to involve “acid rain.” The story about acid rain, and how it was dealt with, has become a central, often-cited narrative for those promoting market-oriented climate change policies today.

  “Acid rain” was the evocative term applied to the effects of the sulfur dioxide, SO2, which, when emitted by coal-burning power plants, reacts in the atmosphere to become sulfuric acid. It was a major issue in parts of Europe, where, among other things, it was said to have damaged half the trees in the Black Forest in Germany.

  It was ranked, by far, the major air pollution issue in the northeast United States and eastern Canada. This was not the familiar matter of local pollution, which could be addressed with local standards. The tall chimneys of coal-burning Midwest utilities sent the SO2 high into the atmosphere where it migrated across state and national borders, damaging forests and acidifying lakes, killing fish, and corroding buildings. By the end of Ronald Reagan’s term, more than 70 different acid rain bills had been introduced in Congress. Whatever their many differences, they all shared one striking characteristic—none had become law. The issue had become so corrosive with Canada that its prime minister had, with a certain acid humor, jokingly threatened to declare war on the United States over acid rain. But during the 1980 campaign, both Michael Dukakis and George H. W. Bush had categorically pledged to reduce SO2.11

  Shortly after George H. W. Bush’s victory, C. Boyden Gray, the new president’s White House counsel, invited Robert Stavins down from Harvard to talk about how to implement a market based-approach to acid rain. Boyden Gray had read the Project 88 report, and he was very interested in applying market principles to environmental questions to reduce compliance costs. During the Reagan administration, Gray had worked on the lead phasedown. In addition to the work of economists, Gray was also influenced by legal scholars working on structuring markets for pollution reductions, most notably Bruce Ackerman and Richard Stewart, who was a former chairman of the board of the Environmental Defense Fund.12

  “LEAST-COST SOLUTIONS”

  Boyden Gray built a small team of advisers, which included Robert Grady from the Office of Management and Budget, and an economist on the Council of Economic Advisers, Robert Hahn, whose California Institute of Technology Ph.D. was about market-based solutions to Los Angeles’ smog. Gray’s team was united in its determination to design a lower-cost system by creating market-based system in which utilities could trade emissions. “One quarter of U.S. regulatory costs were from the Clean Air Act,” Gray later recalled. “The best way to lower costs to the American people was by lowering compliance costs.”

  But how to do it—and how to sell it politically?

  Gray had read an article by Fred Krupp, in the Wall Street Journal, in which Krupp, the president of the Environmental Defense Fund, had advocated using markets to help solve water issues in the West. Now, he brought Krupp into the acid rain discussions. Gray told Krupp that if EDF could draft something that had a reasonable chance of making its way through the Congress, he would present it to the president. Krupp in turn brought in two of his colleagues, a lawyer named Joseph Goffman and Daniel Dudek, an economist who was an evangelist for the market-based approach.

  But the opposition was fierce. There had been a decade-long stalemate on cleaning up acid rain because of a coal versus coal battle between the congressional delegations representing Appalachia and the Middle West (where high sulfur coal was produced by unionized miners), and the West (where low sulfur coal was produced by non-union miners). Moreover, except for EDF, just about every major environmental organization was resolutely opposed to emissions trading. They thought that emissions trading—a “license to pollute”—was perverse, heretical, immoral, and totally unacceptable. The environment should not be “for sale.”13

  There was another important opponent—the bureaucracy itself. As John Schmitz, Boyden Gray’s deputy, recalled, the Environmental Protection Agency “was not enthusiastic. They had already pulled the map out of all the big plants in the Midwest and knew what technology they wanted on each of those power plants.... We were arguing a totally different concept—let the market decide that.” But letting the market decide would shift “decision-making from the bureaucracy to the private sector.” Instead of making the technical decisions, and ordering compliance, the agency officials would become more like market monitors. 14

  Gray and his team were convinced that a market-based solution would allow much wider latitude for innovation. The fundamental difference from the command-and-control approach was that the proposed legislation would specify performance and outcomes, rather than ordain specific technologies and processes. It would, as Goffman and Dudek of EDF wrote, “harness the complex, widely dispersed and ever-changing information needed” to get the best—and “least-cost”—outcomes.15

  In a lesson of lasting importance, the acid rain legislation would demonstrate what could be achieved with bipartisan collaboration. This was a flagship issue not only for the Republican president but also the Democratic Senate Majority Leader, George Mitchell. Still the struggle was intense before a bill could work its way through Congress.

  “THE GRAND POLICY EXPERIMENT”

  On November 15, 1990, George H. W. Bush signed the Clean Air Amendments into law. Title IV established an emissions trading system to reduce acid rain. It was a great victory for something that had been considered beyond-thepale just a year earlier. Shrinking the caps over time, that is, reducing the total number of allowances or permits year by year, would have the effect of making the permits scarcer and thus more expensive, increasing the incentive to reduce emissions. Many called this system allowance trading. Others, more optimistically, called it the “Grand Policy Experiment.”16

  After a slow start, the buying and selling of allowances became standard practice among utilities. The results in the years since have been very impressive. Emissions trading delivered much larger reductions, at much lower costs, and much more speedily, than what would have been anticipated with a regulatory system. By 2008, emissions had fallen from the 1980 level by almost 60 percent. As a bonus, the rapid reduction in emissions meant less lung disease and thus significant savings on health care. 17

  The impact on thinking about how to solve environmental problems was enormous. “We are unaware of any other U.S. environmental program that has achieved this much,” concluded a group of MIT researchers, “and we find it impossible to believe that any feasible alternative command-and-control program could have done nearly as well.” Coase’s theorem worked; markets were vindicated. Within a decade, a market-based approach to pollution had gone from immorality and heresy to almost accepted wisdom. The experience would decisively shape the policy responses in the ensuing debate over how to deal with climate change. Overall, the evidence on SO2 was so powerful that it was invoked again and again in the struggles over climate change policy.

  Allowance trading had also acquired a new name—cap and trade.

  The fact that the SO2 program provided credibility for cap and trade for climate change was not exactly accidental. For the proponents saw the 1990 program as a “demonstration model” for what was coming to be their prime issue—climate change. And the success of the acid rain program became a touchstone for the growing number of environmental organizations that were working Capitol Hill to promote climate change policies. “We were going to wrap up clean air in a couple of years, we hoped, and then start gearing up to do climate in the 1990s,” recalled Joseph Goffman.

  “We used tha
t conviction to keep up our morale,” he added.18

  “A DISCERNIBLE HUMAN INFLUENCE ON CLIMATE”

  In the early 1990s, as the SO2 market was getting going, the IPCC was busy preparing its next every-half-decade “assessment” of where the science was on climate change. Once again the process was unfolding—pulling together research, examining it, challenging it, making sense of it, arguing about it, all across the world’s time zones. This time the “bulk reports” that constituted the Second Assessment Report would total two thousand pages and would reference ten thousand scientific papers.

  Once again, the process was under the steady, cautious hand of the Swedish meteorologist Bert Bolin, and once again, he wanted to be very careful and make sure that the conclusions did not outrun what could be known. “It was still difficult,” he said, “to tell how trustworthy projections of future changes might be.” He worried about misunderstandings. For instance, the use of the word prediction—when talking about climate change issues to the public or politicians—could “transmit a false impression of a capability that in reality is quite limited.”

  Bolin had to stand his ground. Some of the scientists wanted to declare that “appreciable human influence” on climate was now clear. It was not clear, however, to Bolin. On his motion, “appreciable” was replaced with the word “discernible.” And thus the second IPCC report, in 1995, declared, “The balance of evidence suggests that there is a discernible human influence on global climate.” As it was, that sentence became famous. So did the report’s “best estimated” judgment that, on current tracks, global temperatures would rise two degrees centigrade by 2100.

  “It’s Official,” headlined Science magazine, reporting on the IPCC. “First Glimmer of Greenhouse Warming Seen.” It announced that the report had identified the “newly perceived fingerprint of human-induced climate change.”19

  DEVELOPED VERSUS DEVELOPING COUNTRIES

  The IPCC may have gone up several steps in confidence, as well as visibility; but that, in turn, also meant that it was becoming more controversial. The first point of contention was the renewal of the “North-South” face-off between developed and developing nations. Some 75 percent of total accumulated emissions of CO2 between 1860 and 1990 had come from the industrialized nations. But they had only 20 percent of world population. As carbon limits seemed to take on greater likelihood, the developing countries became more vociferous in opposing limits on their use of hydrocarbons and the constraints such limits could impose on their economic growth. Bolin received an angry letter from China about the impact of proposed restrictions on developing countries. “We feel sorry for such a scientific assessment lacking fairness and equity,” the Chinese declared. Some editing was made in the report to make them feel less sorry.

  This clash between developed and developing nations was a dominant issue when national delegations convened in Berlin in 1995 to follow up on Rio and work out a “mandate” that would serve as the basis for the upcoming conference in Kyoto. The chairman of the Berlin meeting was Angela Merkel. Just a few years earlier, she had been working as a physical chemist in communist East Germany with no expectations of any career change. But the abrupt German reunification in 1990 had catapulted her into politics and, quite quickly, into the leadership of the Christian Democratic Party. Now, just half a decade after the fall of the Berlin Wall, she was environment minister of unified Germany. In her opening remarks to the Berlin conference, she stressed the importance of the industrialized countries being “the first to prove that we are bearing our responsibility in protecting the global climate.”20

  That was the thrust of the outcome. The Berlin Mandate concluded that while the industrial nations would take on specific targets in the next phase of global climate regulation, the developing countries would be spared such obligations. That “differentiated responsibility” would come to be an ever more important battlefield in the global politics of climate change.

  RISING STAKES—AND RISING CLASH

  The second point of contention was what Bolin called the polarization over the IPCC process itself. As climate change gained traction as a political issue, the implications of what was embodied in the IPCC’s assessments became starker. For, if acted upon in the way some suggested, they would require a radical change in the energy foundations of the world economy, with potentially significant impacts—so some argued—on economic growth and well-being. Critics from the science community and from energy-producing and energy-consuming industries argued—and continue to argue—that there was much greater uncertainty about the science of climate change and the relative impacts of natural and human forces than the IPCC had allowed. They said that the syntheses and summaries projected a consensus that was not borne out by the myriad research on which it was founded. Some challenged the scientific objectivity of leading participants and, indeed, the legitimacy of the entire process. And some went even further, arguing that increased CO2 would actually be beneficent, for it would mean richer harvests and a lusher, more florid world. Some simply questioned how the human share of total CO2 emissions could be so decisive in the global climate system.

  In turn, participants in the IPCC dismissed the critics as ignorant charlatans, industry hacks, and practitioners of “junk science.” The ever-careful Bolin did not hide his disdain and exasperation when he denounced “the almost always scientifically inadequate approaches in the shallow analyses by skeptics who lacked the scientific knowledge to deal with the climate change issue.” In due course, the “skeptics” would be further dismissed as “climate deniers.” Some, like Richard Lindzen, a professor of meteorology at MIT who is often described as a climate denier, while praising the scientific work in the IPCC, continue to argue that the “iconic claim” of human responsibility cannot be substantiated and that key factors in climate, like the role of clouds, are very poorly understood. As Bert Bolin wrote in 2007, the focus of Lindzen’s research was “a legitimate scientific approach,” elsewhere adding, “We all know that projections into the future cannot be checked against observations and some basic processes and secondary feedback may still be poorly described.”21

  To be sure, little of this debate would have ever happened had not the IPCC continued to gain in credibility and impact as the arbiter of climate change and its risks. Its second assessment set the framework for what came next—a huge international conference that was to work out the game plan for implementing the pledges made in the United Nations Framework Convention on Climate Change at the Rio de Janeiro Earth Summit in 1992. The location—the ancient Japanese capital of Kyoto—would become synonymous with global climate change policy. “Kyoto” would come to represent the transition of climate change from a subject of international discussion among a narrow range of officials, scientists, and interested parties into a global political issue.

  BATTLES AT KYOTO

  In the autumn of 1997, Stuart Eizenstat, Undersecretary of State for Economic, Business and Agricultural Affairs, found himself on a few weeks notice drafted to lead the U.S. delegation to the Kyoto conference. Intense, focused, and very logical, with a tremendous ability to master a brief, Eizenstat was known as a consummate problem solver and master negotiator. But, in taking the Kyoto brief, he found himself launched into what he would later describe as “the most complex, difficult, and draining” negotiation he had ever encountered.

  The meeting at Kyoto’s International Conference Center, set on a lake, among the gardens and hills of what had been for a thousand years Japan’s capital, was convened to settle on binding targets for greenhouse gas reductions and on the mechanisms to implement it. Like Rio five years earlier, Kyoto had a circuslike quality to it—10,000 people, including officials, experts, NGOs, industry representatives, journalists—in a melee of meetings and negotiations, caucuses and huddles, plotting and arguments, and all of them constantly trading information and rumor about what was happening in this delegation or that subgroup or, most important, among the main negotiators. A number of them were a
wkwardly wielding, for the first time, bulky early-generation cell phones that were almost the size of shoes as they tried to keep up with all the twists and turns of negotiation and on top of every rumor.

  To demonstrate environmental sensitivity, the Japanese organizers turned down the heating in the conference center. But this created a new problem as Kyoto in December was cold. To compensate, the Japanese decided to distribute blankets to the delegates. But they did not have enough blankets, and so a whole separate negotiation erupted over how many blankets would be allocated to each delegation.22

  It was clear that countries would fall far short of the voluntary targets for national CO2 emissions conceived at Rio. So Kyoto was going to try for mandatory, binding targets, which would be much more challenging. It was not exactly the most auspicious time. The Asian financial crisis, which would throw much of the region into an economic collapse, had started the previous July.

  EUROPE VERSUS THE UNITED STATES

  The first big question at Kyoto pitted the European Union against the United States, and it led to a standoff. The Europeans wanted the Americans to take deeper cuts. The United States refused. The Europeans would have an easier time beating 1990 targets than the United States owing to the luck of history: Germany had been unified in 1990, and since then, the dirty old coal plants in the formerly communist eastern Germany were being retired. And in Britain, as a result of Margaret Thatcher’s victory over the left-wing coal miners’ union, coal was being phased out of electric generation and replaced with natural gas from the North Sea. What broke the deadlock on this issue was the sudden arrival of Vice President Al Gore in Kyoto for all of sixteen hours.