THE ENVIRONMENT:
On the Horizon, a Climate Consensus

By George P. Shultz

Why not replace the Kyoto Protocol with something that really works? What we can learn from the Montreal Protocol on ozone, by one of the diplomats who drafted it. By George P. Shultz.

We in the United States—and we as global citizens—live in what is, in many respects, a golden moment. Economic growth is globally strong, and, if security threats can be contained, this expansion, with some ups and downs, can be sustained.

Strong growth means increased use of energy at a pace that can strain the ability to supply what is needed at a reasonable price. This highlights two urgent questions: how to use energy without producing excess greenhouse gases that create disruptive conditions on a global scale, and how to reduce the threat to national security from excess dependence on oil.

The greenhouse gas problem is more broadly recognized today than it was during the Kyoto Protocol negotiations a decade ago. Moreover, the protocol, which was meant to stabilize greenhouse gases in the atmosphere, is fatally flawed. The emissions that cause climate change can originate anywhere, so the precondition of success is universal coverage. Yet the emission limits proposed by the protocol imposed too high an economic price on some countries and too low a price on others. The carbon cap-and-trade system that was laid out under the protocol would create gigantic property rights in some areas and daunting deficits in others, implying a huge transfer of funds among countries.

The protocol is running its course, meaning a new treaty is needed, with a different structure—one that ultimately achieves universality.

During the Reagan administration, we faced the problem of depletion of the ozone layer, and negotiations resulted in the Montreal Protocol. To be sure, the problem then was less complex than the one we face today. There are parallels, however, and lessons from the Montreal Protocol can be useful.

The reductions called for in ozone-depleting substances were aggressive and realistic in that they could be undertaken without severe economic damage, in part because of the demand triggered by private industry’s development of needed chemicals and appliances.

Because we in the United States were ready to take action, we could ask others to act as well.

The protocol also recognized the importance of a little wiggle room, so provision was made for the possibility of special arrangements among countries.

The countries with low per capita incomes, which were integral to the process, were given special treatment in terms of trading rules and the establishment of a fund that could help meet their obligations.

What can we learn from this? Here are some guiding principles:

• The process benefited greatly from strong U.S. leadership. We were the science leader, the moral leader, and the diplomatic leader. Yes, those of us working for an agreement, notably John Negroponte, now deputy secretary of state, faced internal opposition; there were doubts about the reality of the problem and whether reasonable solutions could be identified and implemented. But at all the crunch points, Ronald Reagan was there for us. The president cleared the way, and in the end he called the result a “monumental achievement.” The Senate readily gave its consent to ratification.

• Universality of coverage is a necessary goal. The world must be represented at the table. Interests and capabilities vary widely. Patience and flexibility are key. We must focus on the countries that matter most and explore shared interests, identify respective vulnerabilities and adaptive options, and share views on scientific and technological advances. We could explore the possibility of industry-specific solutions within such groups as air transport, the automotive industry, the steel industry, and electric utilities. One caution: holdouts must not be allowed special treatment.


• The negotiating structure must involve constituencies because, in the end, they will bear the weight of necessary actions. At all costs, we must avoid what happened at Kyoto, where we signed the protocol after the Senate, by unanimous vote, advised President Bill Clinton not to conclude a treaty that lacked commitments by developing countries. In other words, our negotiator lost touch with his constituency.


• The use of economic incentives (caps and trading rights, and carbon taxes) is essential to avoid disastrously high control costs. The cap-andtrade system has been highly successful in reducing sulfur dioxide emissions by electricity utilities in the United States; it relies on a scientifically valid and accepted emission-measurement system used by a clearly identified and homogeneous set of utilities. Fortunately, such careful measurement standards exist for a viable greenhouse gas regimen. The product of collaboration between the World Resources Institute and the World Business Council for Sustainable Development, those standards for accounting and reporting greenhouse gases should be duly understood and adopted. Even with clear units of account, however, large problems arise as the coverage and heterogeneity of the system grow. And for trading across borders, the system must be accepted among the trading partners. Scams are easy to imagine. No nation should be allowed to trade without a verifiable, transparent system of measuring and monitoring reductions and holding emitters accountable. In many respects, a straight-out carbon tax is simpler and likelier to produce the desired result. If the tax were offset by cuts elsewhere, making it revenue-neutral, acceptability would be enhanced.

• Do not expect China, India, and other developing countries to accept what amounts to a cap on economic growth. They will not—and cannot— do that. We must create market incentives for them to cut emissions while continuing to grow and find actions that are economically feasible in a relatively low-income environment. We may also need to give them extra time, even allowing some short-term emissions growth, before requiring them to reduce their emissions. This is similar to the way we accommodated developing countries under the Montreal Protocol.


• Another imperative, a derivative of the previous point, is the need to deal effectively with issues of intellectual property. The obligation to reward innovators must be reconciled with the needs of low-income societies.


• The negotiations should not conclude until important first steps are identified and agreed upon so that everyone takes some action.

The negotiators of an effective treaty will have to take into account many variables. Nuclear power, for instance, has the potential to make a great contribution to the energy supply, but there are concerns about the dangers of weapons proliferation and radioactive waste. Important work is under way on these problems and should proceed with a sense of urgency. There are also ways to squeeze more energy from existing fuel sources through technologies such as improved batteries; compact fluorescent and LED lighting; the use of composites to make lighter, stronger vehicles; greater use of wind and solar power; and cleaner-burning coal.

As we consider a new treaty, we must recognize that one size will not fit the world, even though some technologies may have wide, even universal, application. The Montreal Protocol, as a successful environmental treaty, provides a model for what might be called a “Commonsense Protocol” on greenhouse gas emissions—a way to establish a process with wide agreement to take important action.

This essay is expanded from an article that appeared in the Washington Post on September 5, 2007.

Available from the Hoover Press is Implications of the Reykjavik Summit on Its Twentieth Anniversary: Conference Report, edited by Sidney D. Drell and George P. Shultz. To order, call 800.935.2882 or visit www.hooverpress.org.

George P. Shultz is the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution. He was sworn in on July 16, 1982, as the sixtieth U.S. secretary of state and served until January 20, 1989. In January 1989, he rejoined Stanford University as the Jack Steele Parker Professor of International Economics at the Graduate School of Business and as a distinguished fellow at the Hoover Institution.