Abnormally high oil and gas prices don’t just lift profits of oil and gas companies. They also clarify the self-destructive tendencies of political mistakes like the Kyoto Treaty on Climate Change.
In the very year it took force, Kyoto has begun to unravel. Countries whose governments are its staunchest supporters won’t meet the treaty’s targets-widely acknowledged as only initial steps-for cutting emissions of greenhouse gases. And energy consumers have now endured sharp increases in prices of oil and gas and don’t like the experience. In the US, they’re downright surly about it.
Political responses
American politicians have gone loony over oil and gas prices that leapt for sound and obvious reasons and that now are easing back as those reasons abate. With straight faces, lawmakers are telling companies how to invest their money and discussing a new “windfall profits” tax, government ownership of refineries, and other such nonsense. They have summoned oil company executives to hearings ostensibly to learn why profits rose at the same time prices surged-such mystery!-but really to mask, behind self-righteous theatrics, their own manifold failures on energy.
Even as they draw out the worst tendencies of politicians, high oil and gas prices underscore the folly of Kyoto prescriptions sure to levitate prices while offering no compensating benefit. To consumers, budget-straining energy prices feel the same whether the cause is market tightness aggravated by hurricanes or carbon taxes. The difference is that markets adjust themselves away from extremes of shortage and plenty, and hurricane effects subside; taxes have a nasty tendency to stay in place.
Kyoto roared to life amid alarm over little-understood natural systems and ambition to produce an international deal. Concern for practicalities such as cost and efficacy gave way to the zeal to act, the quicker the better. It turns out, however, that costs and feasibility matter. Even before two damaging hurricanes in the Gulf of Mexico reminded consumers how uncomfortable high energy costs can be, Kyoto had collided with reality as it became clear that the goals required unacceptable sacrifice.
The latest blow comes from former Kyoto champion Tony Blair, the UK prime minister. At the end of October, Blair wrote an article in London’s Guardian Unlimited Observer outlining Kyoto’s flaws, chief among them the treaty’s costs. “The blunt truth about the politics of climate change is that no country will want to sacrifice its economy in order to meet this challenge,” he wrote. Nor, he might have added, would consumers have stood for the energy price increases needed to attain Kyoto’s target emission cuts, which even treaty supporters admitted would have been too little to have meaningful effect on the climate.
The costs of just that first step, however, were certain to be large. In 1998, the US Energy Information Administration projected that Kyoto compliance would raise average energy prices in 2010 relative to a reference case by 20-80% for electricity, 25-148% for delivered natural gas, 12-62% for petroleum products, and 11-53% for gasoline alone, depending on assumptions about carbon reductions. The reference case could not have foreseen the price increases resulting from market factors of the past 3 years. Whatever the base, however, Kyoto-then and now-promises greatly increased energy costs, imposed by governments. As Blair now understands, the political prospects of such a move are not favorable. And they deteriorate as dry price projections become real costs to consumers.
Blair’s Kyoto change will receive a thrashing next month at the United Nations 11th Conference of the Parties meeting in Montreal. Diehard Kyoto supporters will oppose any retreat from unachievable dictates. Yet everyone else can see that the Kyoto approach is failing.
Better approach
In his article, Blair seemed to align himself with US President George W. Bush, who drew international scorn for giving voice to a fact that preceded his presidency: The US won’t ratify Kyoto. Bush has countered Kyoto with a plan to encourage voluntary responses to the atmospheric build-up of greenhouse gases, supported by aggressive technological exchange. That approach makes more sense than Kyoto’s futile mandates. And it promises to cost much less.
As US oil companies can attest, association with high energy costs can be perilous. As Blair shows, politicians are beginning to get the message.✦
