John McCain and Barack Obama both promise big cuts in greenhouse gas emissions, but neither has yet confronted the economic impact of their targets
Republican presidential candidate John McCain’s speech at a wind turbine factory in Portland, Oregon, in May, could prove to be a key moment in determining how far – and how fast – the US moves towards a low-carbon economy.
The Arizona senator called for mandatory greenhouse gas emissions reductions and a cap-and-trade scheme for the biggest US polluters. He promised to engage China to reach an international agreement for reducing global emissions to come into force after the Kyoto protocol expires in 2012. But he also wants to push ahead with carbon cutting plans even if Beijing refused to co-operate on a global deal.
McCain’s remarks were good news for companies that are already preparing for business in a carbon-constrained world, although some may wish his plans for a cap-and-trade scheme had gone further. Potential carbon traders, such as investment banks, will also welcome McCain’s words. Emissions trading regimes look set to remain the policy option of choice for meeting climate change commitments under an international agreement to succeed Kyoto. Such an agreement could pave the way for a global market for trading carbon dioxide emissions or their equivalents (see special report).
It makes perfect sense for McCain to stress his environmental credentials. It differentiates him from George Bush. Turning climate change into an election issue will help McCain deflect claims from Democratic rival Barack Obama that the Republican candidate offers nothing but a “third Bush term”.
Not far enough
So far, environmental campaigners have welcomed McCain’s remarks but said his climate change policy does not go far enough. It is true that McCain’s position, relatively speaking, is a conservative one. The cuts in emissions that he proposes – a 60 per cent fall by 2050, compared with 1990 levels – fall short of the Democrats’ more ambitious aim of 80 per cent cuts in emissions by 2050.
Critics also accuse McCain’s emissions trading plan of being soft on business. This is also true. The cap-and-trade system he outlined in his Portland speech is designed to keep compliance costs for the energy-intensive industries involved as low as possible. He will do this by allocating emissions credits to polluters under the scheme for free, rather than selling them at auction. He will also allow polluters to buy carbon offsets, meaning that heavy industry could continue business as usual so long as it paid someone else to reduce their emissions. Critics claim these measures will push down the carbon price, giving power companies and others less incentive to invest in cleaner sources of energy.
Hitting pockets
The majority of US voters are unlikely to share the greens’ concerns about McCain’s climate change proposals. Already hit by rising fuel prices and an economy heading for recession, the electorate will be much more interested in what these planet-saving plans will cost. The advantage of McCain’s proposals is that they will reduce the pain not only for businesses covered by the scheme, but for ordinary homeowners too. A lower carbon price means power companies will pass less of the cost of emissions allowances onto commercial and domestic consumers, limiting rises in energy bills.
The uncomfortable fact is that tough climate change measures will make Americans less well-off. The US Environmental Protection Agency published in March a review of the economic impacts of the Lieberman-Warner bill – the draft law proposing a nationwide emissions trading scheme that goes before the Senate in June. It says US gross domestic product would be between 0.9 per cent ($238 billion) and 3.8 per cent ($983 billion) lower in 2030 and between 2.4 per cent and 6.9 per cent lower in 2050 than it would be if the bill were not passed. Lieberman-Warner promises to deliver 70 per cent emissions cuts by 2050.
Now, these all may be prices worth paying to save the planet. But where is the politician that will step forward with that promise? McCain will not do it. Nor is there anything to suggest that Obama will, especially in a contest that could be decided by votes won in the coal mining states of Ohio and Pennsylvania. Politicians must come clean with the public and explain the huge costs of meeting their ambitious climate change goals.
For brands that are serious about cutting their emissions – and there are many in the US as there are elsewhere in the world – politicians’ inability to address the climate change cost taboo could be fatal. The companies that are most aggressively tackling their carbon footprints are doing so to gain a competitive advantage in a world where carbon will be expensive. That world is coming, slowly. But leading brands that are innovating and investing in low-carbon technology will have to lobby governments much harder to make sure their investments pay off sooner rather than later. It could be a long, bitter fight.