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Global-Warming: Bush's Double Blunder

By Peter Coy George W. Bush probably expected to get slammed by environmentalists last month when he reneged on his campaign pledge to set mandatory reduction targets for emissions of the greenhouse gases that contribute to global warming. But his Administration clearly was caught off guard by the negative reaction he has been receiving from corporate groups -- usually a Republican's best friends. Take the Pew Center for Global Climate Change, whose 33 corporate members include industrial stalwarts such as American Electric Power, DuPont, Alcoa, and United Technologies -- all major generators of greenhouse gases. Eileen Claussen, its president, recently told BusinessWeek that Bush "is not doing business a favor."

Seems strange, doesn't it, that big companies emitting greenhouse gases would be disappointed when the President opposes mandatory reductions? But look at the reasoning, and you begin to see their point. And you can't help concluding that President Bush may have made a big mistake by coming out so strongly against curbing carbon dioxide and other heat-trapping gases that are warming the planet.

ABOUT FACE. During the Presidential campaign last fall, candidate Bush said he didn't like the 1997 Kyoto Protocol, which requires the rich industrial countries as a group to reduce their greenhouse-gas emissions 5% below 1990 levels by about 2010. He argued that the reduction called for in the treaty is too extreme and that the treaty should cover all nations -- especially rapidly growing sources of greenhouse gases like China. Nevertheless, Bush said he was concerned about global warming and promised to set "mandatory reduction targets" for carbon dioxide emitted by U.S. power plants.

Then the switch. On Mar. 13, Bush wrote to several senators who oppose greenhouse-gas limits, saying he had changed his mind about those reduction targets. That didn't just stun Bush's Environmental Protection Agency Administrator, Christine Todd Whitman -- it also surprised the big companies that favor action against global warming.

It's not that they're eager to spend a lot more money on environmental protection or that they harbor any love for the Kyoto Protocol. But they're convinced that global warming is real -- not a figment of the Green movement's imagination. And they think, sooner or later, they'll be forced to do something about it. So they want to be involved in setting the international rules as soon as possible. That way, they'll be able to comply with the regulations as efficiently and as cheaply as possible.

GAS PAINS. Specifically, what big companies want is the freedom to use a little imagination about how they achieve greenhouse-gas reductions. They favor the government giving out permits that would allow companies to emit a certain quantity of greenhouse gases. Each year, the number of permits would be lowered, thus reducing emissions.

It's a market-based approach to environmental protection. Companies could buy and sell the permits, so an outfit able to reduce its emissions inexpensively would have an incentive to do so to an even greater extent than ordinary regulation. Meanwhile, another company would be able to buy extra emission permits, which, in some cases, might be the only alternative to shutting down a factory and throwing people out of work.

Indeed, the Clinton Administration fought hard last year to have the Kyoto Protocol allow trading permits -- not just between companies but also between countries. That way the U.S. could achieve its targets in part by financing efforts to reduce greenhouse gases from, say, Brazil, where rainforest destruction is contributing to global warming.

ANGER IN EUROPE. This approach is a win-win situation for both emitters and the environment. It was the ace card the U.S. held in the global-warming talks. Fact is, Europe's Green movement doesn't like the idea of letting companies buy permits to pollute. But if the U.S. had stuck to it guns, it likely could have shaped the outcome more to the liking of corporate interests.

But by flatly rejecting Kyoto, President Bush has infuriated the Europeans and engendered distrust of the U.S. He may have inadvertently, and permanently, undermined support for the system of tradable emission permits, worries Robert Bonnie, an Environmental Defense Fund economist. The New York-based organization, which favors market-based solutions, has been working with several large companies on experimental permit-trading systems.

Here's the final irony: Bush said he made his decision based on what he called "important new information" contained in an Energy Dept. study, which concluded that it would be very expensive for electric utilities to curb carbon dioxide emissions at the same time they're cleaning up sulfur dioxide and nitrogen oxides. But the cost estimates in that study were unrealistically high because they didn't factor in the kind of permit-and-emissions trading corporate players have been advocating.

A MESSAGE. Why not? Because the House Government Reform Committee, which ordered the study, didn't ask Energy to take that possibility into account. "They give us a set of assumptions, and we did the analysis," says the study's chief, Scott B. Sitzer, director of the Coal & Electric Power Div. of Energy's Office of Integrated Analysis & Forecasting.

Corporate execs are still hoping that the Bush Administration will reconsider. Paul V. Tebo, DuPont's corporate vice-president for safety, health, and environment, thinks Bush wants an "integrated policy" covering environmental concerns as well as economic growth and energy security. Then again, says Tebo, "Maybe I'm just reading something in [his reversal explanation] that's not there."

Most execs at big corporations are, by nature, nonconfrontational. "I can't tell the Administration what they should do," Tebo says. Nevertheless, Tebo has a message: "The thing that would help us from an economic standpoint would be a good emissions-trading system."

Did you hear that, Mr. President? The real danger: By turning a cold shoulder to concerns about global warming, Bush may have lessened the corporations' chances of getting control over the agenda in a way that helps them and the environment. Coy covers the economics of energy for BusinessWeek in New York

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