The U.S. Climate Change Action Plan: Challenges and Prospects

In 1992, the United States and 154 other countries signed the United Nations Framework Convention on Climate Change, an international accord outlining measures for dealing with the threat of global warming. The following year, the Clinton administration released its Climate Change Action Plan for meeting the convention's goal of stabilizing emissions of carbon dioxide and other greenhouse gases at 1990 levels by the year 2000. Evaluation of the plan's prospects for success must necessarily be speculative at this point, but already several of the assumptions on which the plan is predicated appear questionable. Moreover, even if the emissions stabilization goal is met, the problem of global warming will persist. Therefore, the greatest contribution of the plan might be to raise consciousness about the need for sustained measures to address climate change and its attendant socioeconomic consequences.

The gap between actual and economically optimal energy use represents the potential for a major payoff in energy savings; but it also poses a significant challenge in terms of overcoming past inertia in bridging the gap.

The administration predicts that implementing the CCAP will contribute to lowering the federal budget deficit and (using somewhat optimistic assumptions) yield the private sector an attractive return on investments that are designed to lower emissions of CO2 and other greenhouse gases. (CO2 is the dominant greenhouse gas; its release is associated primarily with fossil fuel combustion and secondarily with deforestation.)

This outcome presupposes significant changes in energy use by the private sector, almost entirely undertaken by voluntary rather than prescriptive actions. For example, the plan ascribes well over 15 percent of the overall greenhouse gas savings in the year 2000 to residential energy users. These savings are to be achieved, among other measures, through development of energy-conscious building codes and mortgage-lending practices, as well as incentive programs that would lead to the introduction of new energy-efficient appliances. An expanded "Green Lights" program is designed by the U.S. Environmental Protection Agency to acquaint the commercial lighting market with opportunities for profitable investments in energy-efficient lighting systems. The "Motor Challenge" initiative of the U.S. Department of Energy seeks to increase the market share of efficient electrical motors in industry. (See table on p. 21 for a breakdown of how these and other CCAP initiatives are expected to change greenhouse gas emissions levels.)

Successful implementation of the proposed initiatives is predicated on the willingness of individuals and firms to narrow substantially the gap between economically optimal and habitually less-than-optimal energy use. While this gap represents the potential for the major payoff in energy savings foreseen by the administration, it also poses a significant challenge in terms of overcoming the inertia that seems to inhibit greater energy conservation. In the past, heightened consciousness of energy costs has narrowed the gap between optimal and suboptimal energy use, but significantly bridging the gap has remained an elusive goal.

One CCAP initiative that might have been advanced more boldly is a proposal designed to discourage use of employer subsidized parking and thereby encourage commuters to use public transportation or to carpool. If implemented, this proposal, together with several other energy-saving transportation proposals, would bring about some seven million tons of greenhouse gas savings.

Employer-subsidized parking has long been criticized by tax-reform advocates, who argue that this form of untaxed, in-kind income (up to $155 per month) limits expansion of the tax base and unfairly penalizes commuters whose employers do not offer it. It has also been attacked by conservationists, who view the practice as the squandering of a rich opportunity for energy savings. The Clinton administration entered the parking pork fray—but only gingerly—when it proposed, as part of the CCAP, that employers offer employees the cash equivalent of the employees' currently subsidized parking. The administration argued that this (henceforth taxable) income would induce many recipients to use public transportation or to carpool and would enable them to pocket part of their after-tax receipts. But political caution has not been thrown to the wind: nonparticipating employees would continue to receive free, untaxed, parking benefits. Implementation of this rather timid proposal is far from certain, since it requires new legislative authority.

The CCAP's prospects for success

It may be premature to declare the CCAP emissions savings target unreachable, but both increased economic growth and lower-than-expected energy prices make it difficult to check growth in energy use to the extent implicit in the plan.

Second, the case for improved energy efficiency that is critical to the success of the CCAP has been predicated on the economic benefits that would accrue to energy users even without the spur of higher prices, provided that numerous market barriers, institutional impediments, and informational gaps are overcome. It may well be that past attempts to get people to capitalize on energy-saving opportunities were not as skillfully designed and disseminated as the CCAP initiatives and thus inhibited a greater degree of energy conservation. Still, some analysts argue that prevailing energy-use behavior comes close to representing consumers' conscious preferences and that only through higher energy prices or taxes—neither of which are proposed in the CCAP—could energy-use behavior change significantly. I do not share that viewpoint but grant that the issue is far from resolved.

The third and perhaps most important factor undermining the emissions stabilization goal is the unexpectedly strong upward trend in U.S. as well as foreign economic growth. Since 1990, real growth in U.S. gross domestic product has been markedly outpacing the average annual 2.3 percentage rate upon which the CCAP's estimated emissions savings are based. While this is surely good news to many households, it does signify more greenhouse gas emissions than were anticipated. Along with this economic growth comes increased demand for energy. This demand is further stimulated by relatively low energy prices worldwide—a circumstance not foreseen by the CCAP, which implicitly projects a substantial annual rise in the real world oil price for the remainder of the decade. This is a prospect that seems increasingly in doubt. Nor does the plan allow for the fact that the U.S. electricity industry is becoming increasingly competitive, potentially leading to lower electricity prices—thereby stimulating electricity demand which, again, could translate into greater emissions than foreseen.

While it may be premature to declare the CCAP emissions savings target unreachable, both increased economic growth and lower-than-expected energy prices make it difficult to check growth in energy use to the extent implicit in the plan. The plan's projection of a nearly 1.5 percent annual reduction in nationwide energy intensity thus seems open to doubt. (In recent decades, a reduction of such magnitude was strongly helped by prolonged stretches of rising and high energy prices.)

The economic recovery now evident elsewhere in the world raises doubts about the ability of other countries to meet the emissions stabilization objective. Germany and Japan, among others, have acknowledged the near-impossibility of achieving that objective by the year 2000.

Climate control policies from a broader perspective

Even if the CCAP meets its year 2000 goal, additional measures would be needed to avoid a substantial increase in emissions and in atmospheric greenhouse gas concentrations in future decades.

From this longer-term and global perspective, dealing with prospective climate change raises scientific, economic, and equity questions. For example, what level of emissions will prevent breaching some threshold level of atmospheric greenhouse gas concentrations? How much is society willing to pay to ensure a long-term climate that is not radically different from today's? Will a system of "joint implementation"—that is, a system for exchanging greenhouse gas emission "allowances" within and among countries—prove tractable in the face of monitoring and enforcement problems? (The limited U.S. experience with sulfur dioxide emissions-permit trading is promising in this regard, but that experience is too recent to demonstrate the feasibility of such trading on a global scale.) And to what extent and by what means should developing countries be excused from the economic burden of reducing greenhouse gases? This question is ever-present in international climate talks. While developing countries will bear much of the burden associated with climate change, they are understandably reluctant to forgo the energy use necessary for economic growth in order to forestall climate change.

The possible ramifications of this development are daunting. Consider the hypothetical consequences when developing economies, which make up the bulk of the countries outside the Organisation for Economic Co-operation and Development (OECD), emit greenhouse gases at the level of the twenty-four OECD countries. If, in 1990, energy use by the non-OECD countries had led to CO2 emissions at the per capita level of the OECD countries, their total emissions would have more than quadrupled and worldwide emissions would have nearly tripled. If their CO2 emissions had equaled the per capita level of the G-7 countries—the United States, the United Kingdom, Canada, Italy, France, Germany, and Japan—the effect would have been even more striking (see figure, p 22). No one predicts an inevitable future outcome along these lines: conservation, fuel-switching, and technological advances can all mute the climatic and other environmental impacts of economic growth. Nonetheless, the figure dramatizes the seriousness of the task that must be faced to bring about a more acceptable state of affairs.

Confronting global climate change

The CCAP contains some flawed elements and lacks a certain degree of reality; but as the first White House–led effort to address global warming, it deserves considerable respect and the kind of constructive critique around which ensuing policy can be built.

In the same volume, Anthony Fisher and Michael Hanemann, natural resource economists at the University of California–Berkeley, call particular attention to what they call the climatic "damage function," which could spell physical, biological, and socioeconomic discontinuities of major proportions. Could does not mean will: we remain woefully ignorant about such possibilities—a fact prompting Fisher and Hanemann to "urge that more...economic research be focused on the potentially very large costs of adjustment affecting stocks of physical, human, and natural capital."

Clearly, we cannot dismiss global warming as a trivial climatological phenomenon or blind ourselves to the possibly severely unsettling consequences of climate change. The Climate Change Action Plan contains some flawed elements and lacks a certain degree of reality; but as the first White House–led effort to move this country toward a responsible posture for managing the global warming problem, it deserves considerable respect and the kind of constructive critique around which ensuing policy can be built. The CCAP and other efforts to curb emissions of greenhouse gases can help chart policy options, as well as keep the importance of the climate change problem firmly rooted in our consciousness.

Joel Darmstadter is a senior fellow in RFF's Energy and Natural Resources Division and coeditor of Assessing Surprises and Nonlinearities in Greenhouse Warming (see p. 14).

A version of this article appeared in print in the January 1995 issue of Resources magazine.