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Special Report

Fortnightly Magazine - July 15 1998

of the effects of the Kyoto Protocol.

Climate Change Counterpoint

Eizenstat, however, strongly countered the two Republicans.

"You may have seen or heard some studies projecting dire consequences...from this agreement," he said. "Let me say first that these are the same Chicken Little advocates who have made the same arguments for every environmental effort that we've made, going back to the initial Clean Air Act...every country would love to have the ability to trade their economy for ours.

"But there are also several reasons why these studies overestimate wildly the impacts of Kyoto. Most important, many of these were conducted before the Kyoto agreement...some were based on more severe emissions cuts than the ones we negotiated and they didn't consider emissions trading or the inclusion of sinks...which reduce costs."

Eizenstat said advances have been made in energy efficiency through 1985, with energy consumption per dollar of gross domestic product falling by almost 25 percent.

"But since about 1986, there have been no further gains in energy efficiency," he said. "Some observers might conclude...we have exhausted all the cheap and easy improvements, but our options are not fixed. They evolve constantly. Many experts have found considerable scope for increasing energy efficiency, suggesting that the economy could likely come out ahead -- that is, savings could exceed costs -- if we take action."

The ambassador said emissions trading provides an incentive for countries and companies to achieve maximum levels of emissions reductions at the least cost. Trading also helps generate impetus for open and verifiable transactions, and energy efficiency.

He cited the success of sulfur-dioxide trading.

He acknowledged Kyoto doesn't meet the requirements for developing country participation. It made a "down payment" in this area, however, he said, working with Brazil to allow companies in the developed world to enter into cooperative projects to limit greenhouse gas emissions in the developing world. Credit would be given for this action.

Eizenstat also put in a word for nuclear energy's role in reducing greenhouse gas emissions: "I have always been a strong supporter of nuclear power and I believe that beyond Kyoto, nuclear power may have to play an increasingly important role."

Atwood also gave hope to nuclear power proponents. "We're very anxious that it be safe, but I think given the concern about greenhouse gases, it may well be that nuclear power sees a new age when it might be a little more popular than it has been."

The Cost of Compliance

Sandor looked at climate change from a capital markets perspective, particularly trading CO2 credits.

The sulphur trading program, he noted, started with a 1980s baseline of 18 million tons, but that was later cut in half. Cost of noncompliance was $2,000 a ton and allowances initially were available at $1,500/ton. In the last five years, credits have dropped to $100/ton, he said. "It's [now] at 5 percent of the fine level and 10 to 15 percent of the cost of the major economists and forecasters."

This bodes well for CO2, he said. One Harvard forecaster says CO2 credits will sell for a minimum