Transcript Document

North American versus European Global
Warming Policies:
Same Constraints, Different Objectives
Ross McKitrick
Department of Economics
University of Guelph
Europe and USA

Different stated objectives



EU: Kyoto target of 8% below 1990 by
2008
US: Intensity reduction of 18% by 2012
EU target implies hard cap and total
cut
US Target implies BAU
Actual outcomes not so
different

CO2, 1990 to 2004:



EU: up 5.5%
US: up 13.8%
But intensity changes similar:


EU (25): down 18%
US: down 15%
EU & US Intensity changes
since 1995


US: fairly steady decline
EU: decline slows after 2000
GHG Intensity for EU-25 and USA, 1995-2004
105.0
100.0
100.0 100.5
100.0
98.4
98.9
96.4
94.1
95.0
93.1
91.6
91.5
90.0
88.9
90.0
89.4
87.1
85.5
85.4
84.8
85.0
83.1
83.4
81.6
80.0
75.0
70.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
EU Intensity
USA Intensity
Why aren’t outcomes more
different?

Same constraints





Energy efficiency & emissions intensity are
resilient to change
No low-cost CO2 abatement options appear to
exist
Price paths favour coal over oil and natural gas
in recent years
Energy is crucial for growth
These constraints matter more than the
objectives
Context

Historical US emissions
Context

Historical EU emissions (not incl. Germany)
Factors behind emissions
growth
Change in Emissions/GDP
+Change in Population
+Change in Income (GDP per person)
=Change in Emissions
 Emissions   GDP 
  Population
TOTAL GHG EMISSIONS  
  
 GDP   Population
Factors behind emissions
growth
Change in Emissions/GDP (-1% p.a.)
+Change in Population
(+1% p.a.)
+Change in Income (GDP per person)
=Change in Emissions
Historical rates

US after 1960



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Population
Intensity
Real Income
+1.1% p.a.
-1.7% p.a.
+2.2% p.a.
If Income+Pop grow by 3.3%, intensity
must fall by 3.3% just to cap emissions
Twice the historical rate
How likely is this?

Low-cost air pollution options do not
carry over
TABLE 1
AIR POLLUTION ABATEMENT OPTIONS AND COSTS
Availability
Abatement Option
Relative Cost
SO2
CO2
Scrubbers
Low
Yes
No
Switch to cleaner version of same fuel
Low
Yes
No
Switch to different fuel
High
Yes
Yes
Reduce overall consumption
High
Yes
Yes
OPA Analysis 2007

“[Projected] Reductions in CO2 emissions
between 2010 and 2014 were driven by
reductions in coal [-fired electricity]
production rather than by emission controls.
At present there is no viable control
technology available to reduce CO2
emissions from coal plants. Therefore CO2
reductions under all alternatives are the
same.” (OPA 2007, p. 5)
Recent price trends

Favour coal adoption
Real Fossil Energy Price Indexes (US$ per Million BTU) 1991-2006
400.0
350.0
Coal
300.0
NatGas
250.0
Crude
200.0
150.0
100.0
50.0
0.0
1991
1993
1995
1997
1999
US$/Million BTU
2001
2003
2005
Energy consumption & growth

Does energy use cause growth or does
growth cause energy use?

If the latter, the 2 can be more easily
decoupled without putting growth at risk

Method of analysis: Vector
Autoregression/Granger Causality testing
Causality runs both ways

The multivariate analysis shows that energy
Granger causes GDP either unidirectionally as
indicated by the first of the three models
investigated or possibly through a mutually
causative relationship… The results presented in
this paper, strengthen my previous conclusions that
energy is a limiting factor in economic growth.
Shocks to energy supply will tend to reduce output.

Stern (2000) p. 281 (emph. added)
Rhetoric and reality in EU

US opposition to mandatory cuts longstanding and
clear

But EU countries have done little either

Apart from UK and German one-time drops, EU
emissions paths have not changed much

“there are no systematic signals for distinguishing the
behavior of the examined countries in the pre- and postKyoto period.”

Diakoulaki and Madaraki (2007 p. 655)
ETS problems

Price collapse in first round

German request for 14-year supply for coal plants

Latvia, Poland, Hungary, the Czech Republic,
Slovakia and Estonia suing Brussels

13 Polish and one French steel companies suing
Brussles, as well as the governments of the UK,
Slovakia and Germany on behalf of domestic power
and steel companies
It’s not so easy
Blair.
Washington,
Nov. 2005
Conclusions

EU and US have staked out very different
objectives

But both operate under same basic
constraints

These constraints are sufficiently strong that
the outcomes are not all that different