America.gov - Telling America's Story

12 March 2008

Point/Counterpoint: The Role of Government?

Two experts express their views on government’s role in encouraging “green”

 

We welcome reader comments on these articles for future publications online. Please send your comments on this topic to eJournalUSA@state.gov. The limit is 200 words in English. Please identify your country in signing your comment.

As other articles in this issue of eJournal USA, “The Greening of U.S. Corporations,” make clear, U.S. corporations are venturing into more environmentally sustainable ways of doing business for a variety of reasons. Traditionally, however, in many countries, government regulations have been a driving force in environmental cleanup. What is the appropriate role for government in encouraging business to go green?

We asked two experts.

Margo Thorning is senior vice president and chief economist with the American Council for Capital Formation in Washington. She has a doctorate in economics from the University of Georgia and has served with the U.S. Department of Energy, the U.S. Department of Commerce and the Federal Trade Commission. The council’s mission is to promote economic growth through sound tax, trade, regulatory and environmental policies.

Bob Willard is an expert on the business value of corporate sustainability strategies. The author of The Sustainability Advantage and The Next Sustainability Wave, he has a doctorate degree from the University of Toronto. Willard applies business and leadership development experience from his 34-year career at IBM Canada to engage the business community in avoiding the risks and capturing the opportunities associated with sustainability issues.

Following are two opposing articles on reducing greenhouse gas emissions:

(begin article)

Greening Business Investment: How About a Carrot?
By Margo Thorning

Reducing the growth of U.S. greenhouse gas emissions, a central environmental issue, while promoting economic growth are important goals for policy makers all over the world. The U.S. business sector is, for the most part, on board with the idea that companies should do their share to slow the growth of U.S. greenhouse gas emissions (GHGs). In 2002, the Bush administration committed the United States to reducing GHG intensity (the amount of energy needed to produce a dollar of GDP) by 18 percent between 2002 and 2012, and the United States is on track to exceed that target.

Accelerating the rate of GHG reduction will, none the less, require stronger efforts by industry, electric utilities, households, and government. Implementing a strategy that reduces the cost of capital for clean energy investments, for research and development (R&D), and for demand side management could pay high dividends in terms of stronger U.S. economic growth and reduced energy intensity — without slowing economic growth and increasing unemployment.

Impact of Mandatory Programs for GHG Reduction

Many current legislative proposals rely on a “cap and trade” approach to reducing emissions, while a few proposals call for a tax on carbon emissions. These proposals, if enacted, are likely to slow the growth of GDP and employment in the United States. As noted in a 2007 Congressional Budget Office report, Issues in Climate Change: “Obtaining allowances — or taking steps to cut emissions to avoid the need for such allowances — would become a cost of doing business for firms that were subject to the CO₂ cap. However, those firms would not ultimately bear most of the costs of the allowances. Instead, they would pass along most such costs to their customers (and their customers’ customers) in the form of higher prices.”

Many pundits think the U.S. economy is near (or possibly already in) a recession. As policy makers attempt to rally the U.S. economy during this difficult period, it may be wise to consider some “carrots” to help companies make the kind of green investments in plant and equipment and R&D that will not only reduce the growth in GHGs but also raise productivity and economic growth.

The Role of Economic Growth and Technology in GHG Reduction

Many policy makers overlook the positive impact that economic growth can have on GHG emission reductions. For example, in 2006, while the U.S. economy grew at 3.3 percent, CO₂ emissions fell by 1.3 percent. Overall, energy use declined by only 0.9 percent, indicating the U.S. economy is becoming less carbon intensive even without mandatory emission caps.

Technology development and deployment offer the most efficient way to reduce GHG emissions, and a strong economy tends to pull through capital investment faster. There are only two ways to reduce CO₂ emissions from fossil fuel use: use less fossil fuel or develop technologies to use energy more efficiently to capture emissions or to substitute for fossil energy. There is an abundance of economic literature demonstrating the relationship between energy use and economic growth, as well as the negative impacts of curtailing energy use. Over the long term, new technologies offer the most promise for affecting GHG emission rates and atmospheric concentration levels. Providing better tax treatment for R&D in the United States would be a positive step; for example, making the R&D tax credit permanent would encourage sustained longer-term programs that could lead to technological breakthroughs.

The Role of International Partnerships

Research by David Montgomery and Sugandha Tuladhar of CRA International makes the case that agreements such as the Asia-Pacific Partnership on Clean Development and Climate (AP6), an agreement signed in 2005 by India, China, South Korea, Japan, Australia, and the United States, offers an approach to climate change policy that can reconcile the objectives of economic growth and environmental improvement for developing countries. Together, the AP6 partners have 45 percent of the world’s population and emit 50 percent of man-made CO₂ emissions. The projections of very strong growth in greenhouse gases in developing countries over the next 20 years mean that there is enormous potential for reducing emissions through market-based mechanisms for technology transfer.

Montgomery and Tuladhar note that there are several critical factors for ensuring the success of an international agreement that relies strongly on private-sector investment for success. Their research shows that institutional reform is a critical issue for the AP6, because the lack of a market-oriented investment climate is a principal obstacle to reducing greenhouse gas emissions in China, India, and other Asian economies. China and India have both started the process of creating market-based economic systems, with clear benefits in the form of increased rates of economic growth. But the reform process has been slow and halting, leaving in place substantial institutional barriers to technological change, productivity growth, and improvements in emissions. The World Bank and other institutions have carried out extensive investigations about the role of specific institutions in creating a positive investment climate. These include minimizing corruption and regulatory burdens, establishing an effective rule of law, recognizing of intellectual property rights, reducing the role of government in the economy, removing energy price distortions, and providing an adequate infrastructure and an educated and motivated labor force.

The Importance of Technology Transfer for Emission Reductions

As described above, technology is critically important because emissions per dollar of income are far larger in developing countries than in the United States and other industrial countries. This is both a challenge and an opportunity. It is a challenge because it is the high emissions intensity — and relatively slow or nonexistent improvement in emissions intensity — that is behind the high rate of growth in developing country emissions.

Opportunities exist because the technology of energy use in developing countries embodies far higher emissions per dollar of output than does technology used in the United States; this is true of new investment in countries such as China and India, as well as their installed base. The technology embodied in the installed base of capital equipment in China, for example, produces emissions at about four times the rate of technology in use in the United States. China’s emissions intensity is improving rapidly, but even so its new investment embodies technology with twice the emissions intensity of new investment in the United States.

Strategies for Promoting Institutional Change

Although it is clear that there is a relationship between institutions, economic growth, and greenhouse gas emissions, there is no general formula that can be applied to identify the specific institutional failures responsible for high emissions per unit of output in a specific country. If there is to be progress on institutional reform, at a minimum the key actors or stakeholders — concerned businesses; other groups with influence on opinion and policy in China, India, and other developing countries (including local and regional governments); and national governments — must agree on the nature and scope of the problems and on reforms required to address the problems and identify concrete actions that each government will take to bring about institutional reforms.

For example, making progress on implementing the AP6 can be accelerated if the governments of Australia, Japan, and the United States would fund research on topics such as the investment climate; the level of technology embodied in new investment; the role of foreign direct investment and potential energy savings from technology transfer; and the nature and impacts of pricing distortions on energy supply, demand, and greenhouse gas emissions in China and India. Government support for research to make clear the direct consequences of proposed reforms for energy efficiency and the benefits of a market-based investment climate for the overall process of economic growth would also be helpful.

Broadening the International Partnership to Include all Major Emitters

At the G-8 Summit in Germany last year, policy makers agreed to take a series of steps toward GHG reductions. Recognizing that 85 percent of all emissions come from about 15 countries, G-8 leaders agreed to convene the major energy-consuming countries to agree on a new international framework by the end of 2008. The leaders agreed to work toward a long-term global goal for reducing GHGs and to accelerate the development and deployment of clean-energy technologies. They also agreed to work toward the reduction and/or elimination of tariff and nontariff barriers to environmental goods and services through the WTO Doha negotiations. Other points of agreement included developing and implementing national energy-efficiency programs and advancing international energy efficiency cooperation, as well as pursuing joint efforts in key sectors such as sustainable forestry, power generation, transportation, industry, and buildings. Finally, they agreed to enhance cooperation with developing countries to adapt to climate change.

In Conclusion

To be effective, policies to reduce global GHG emission growth must include both developed and developing countries. Polices that enhance technology development and transfer are likely to be more widely accepted than those that require sharp, near-term reductions in per capita energy use. Extending the framework of the Asia-Pacific Partnership on Clean Development and Climate to other major emitters will allow developed countries to focus their efforts where they will get the largest return, in terms of emission reductions, for the least cost.

Finally, if the United States does adopt a mandatory greenhouse gas emissions reduction program, serious consideration should be given to implementing a carbon tax rather than an EU-style cap and trade system. A key component of any mandatory U.S. program should be allowing emissions to increase as both economic growth and U.S. population increase.

(end first article)

(begin second article)

Government Leadership in the Quest for Sustainability
By Bob Willard

The 2007 Intergovernmental Panel on Climate Change report says that we have only a few years in which to stabilize our greenhouse gases before we experience irreversible and precipitous climate change. The Millennium Ecosystem Assessment says that 60 percent of the 24 ecosystems on which we depend are being degraded or used unsustainably, and the rest are in jeopardy. According to the Global Footprint Network, humanity’s ecological footprint is already 23 percent larger than what the planet can sustain, and the overshoot is growing. The United Nations Environment Program Global Environment Outlook (GEO-4) says that major persistent threats to the planet — such as climate change, the rate of extinction of species, and the challenge of feeding a growing population — remain unresolved, and all of them put humanity at risk.

Sustainability problems teeter on the edge of tipping points. We are in a race to see if humanity can save the world that nurtures us. Happily, solutions are known and are within our capabilities. We do not have a deficiency of solutions.

But we do have a deficiency of sustained political will. We need to stop the unsustainable practices that are precipitating this planetary emergency. We need to declare a War for Sustainability to galvanize our collective resolve. We need to bring the same level of urgency and resources to the climate, energy, and ecological crises as we have to the War on Terror. Governments need to take the lead to future-proof society.

Here are seven bold actions that address the monumental environmental and social challenges we face.

1. Integrate Education for Sustainable Development throughout the formal, non-formal, and informal education systems: Governments at all levels must implement a whole-system approach to education policies, teacher training, facilities operations, and curriculum. The goal of the United Nations Decade of Education for Sustainable Development, 2005-2014, is to integrate the principles, values, and practices of sustainable development into all aspects of education and learning throughout the world.

Such education improves the mindsets of children and adults about the personal relevance of sustainability, the dangers of climate change and other social and environmental crises, and the urgent need for action. An informed population gives governments their mandates for change.

2. Replace the GDP with the GPI: The Genuine Progress Indicator (GPI) integrates health care, safety, a clean environment, and other indicators of well-being with the gross domestic product’s (GDP) financial and economic metrics to form a more holistic assessment of national progress. Government endorsement of this annual report on the genuine wealth of a country would legitimize value other than money. Having such an assessment of the national carbon or ecological footprint would awaken people to the need for urgent action on climate change.

3. Implement ecological tax shifting: Much of our tax system is upside down: We are taxing “goods” and incenting “bads.” Instead, we should tax pollution, carbon, and waste. We should incent employment, renewables, capital stock retrofits, responsible consumption, and energy efficiency. Revenue-neutral shifting of the tax burden from things we don’t want to things we do want will send strong behavioral change signals.

4. Eliminate “perverse subsidies”: Today, alternative energy options are discouraged by perverse subsidies to the nuclear and fossil fuel industries. Industrial countries annually subsidize the fossil fuel industry with more than $200 billion. In 2005, between $29 billion and $46 billion of that went to the U.S. fossil fuel industry alone. These are perverse subsidies because they underwrite environmentally destructive behavior. Citizens are billed twice for them — once when their taxes pay for the subsidies, and again when they bear the direct and indirect costs of environmental restoration and health care.

As with ecological tax shifting, subsidies should be shifted from the fossil fuel and nuclear industries to clean-technology industries.

5. Impose carbon caps/carbon taxes: An effective carbon-price signal could realize significant climate change mitigation potential in all sectors. Most assessments suggest that high carbon prices (20 to 50 US$/tCO₂-eq), sustained or increased over decades, could lead to a power generation sector with low-GHG (greenhouse gas) emissions by 2050 and make many mitigation options in the end-use sectors economically attractive. Therefore, governments should cap carbon emissions by company, with auctioned permits, and/or impose a carbon tax.

The Earth Atmospheric Trust proposes that governments cap global emissions, auction the pollution permits, and return dividends equally to every citizen on Earth to help reduce poverty. Another report, Option 13, also proposes a global carbon tax. Both are good ideas.

Further, governments should place a moratorium on new coal-fired plants and oils sands expansion until carbon capture and storage technologies are proven.

6. Lead by example: We need public sector leadership through government purchasing to expand demand for “green” products from “green” suppliers. Governments must lead by example by purchasing only appliances meeting rigorous energy-efficiency standards, advanced electric and hybrid vehicles with more powerful and reliable batteries, eco-friendly cleaning products, Forest Stewardship Council-certified paper with 100 percent post-consumer recycled fiber, and similar green products and services. All government buildings should be LEED (Leadership in Energy and Environmental Design) gold equivalent or higher, earning governments the right to change building codes and to demand the same standard for residential, commercial, and industrial buildings.

7. Work to alleviate poverty: Since many sustainability challenges stem from the desperate efforts by the poor in developed and developing countries who are trying to survive or improve their situation, concerted action by governments around the world to improve their living conditions could contribute to improving the environment.

A Summing Up

These seven bold strokes are guided by a compelling government vision of a better quality of life for all citizens. Rather than just preventing pollution, progress toward sustainability requires the systemic integration of environmental, social, and economic considerations in decision making at all levels in society.

Governments need to deploy a much more comprehensive set of policies to bolster efficiencies and productivity, reduce resource use, prevent pollution, and mobilize citizens. Governments have an important leadership role to ensure that market forces send signals that encourage sustainable corporate, institutional, and individual behavior, and punish the opposites.

(end second article)

The opinions expressed in these articles do not necessarily reflect the views or policies of the U.S. government.