Representatives from the U.S. and 195 other countries are meeting in Lima, Peru for the 20th Conference of the Parties of the United Nations Framework Convention on Climate Change, hoping to lay the foundation for a major treaty to reduce global greenhouse gas emissions. But evidence shows this is the wrong approach to address climate change and negotiators would be better off focusing on market competition and innovation, which have proven able to reduce emissions intensity and promote economic growth.
The U.S. is seeking an agreement based on voluntary reductions in carbon dioxide emissions by each nation. In an attempt to kick start that process, it recently announced a bilateral agreement with China in which the U.S pledged to slash its own greenhouse gas emissions by more than 25 percent by 2025 (compared with 2005 levels). China is under no obligation to cut emissions until 2030.
While the U.S. is promoting voluntarism internationally, at home it is foisting new, heavy-handed regulations on business sectors to meet its stated commitments. But these regulations are probably not necessary and they are almost certain to drive up costs.
U.S. energy-related carbon dioxide emissions have declined in five of the past eight years, led by emissions reductions in the electric power sector. In 2013, carbon dioxide emissions in that sector were 15 percent below the 2005 level, despite increased electricity consumption. The reduction is mainly the result of greater efficiency and increasing use of natural gas-changes which have been driven by competition. That trend will likely continue, absent new regulations, because of market driven innovations like hydraulic fracturing for natural gas development and efficiency improvements. Market success and innovation coincide. Efficiency improvements improve companies’ bottom lines while reducing emissions. At the same time, energy efficiency tools like light emitting diodes (LED) lamps are reducing consumer energy use. Smart motors reduce the amount of consumption in industry and homes, further reducing emissions. Voluntary programs like “green pricing” allow consumers to pay a premium for renewable generation.
According to the Energy Information Administration, while U.S. total carbon dioxide emissions are the second highest in the world behind China, U.S. emissions intensity (emissions per unit of production) ranks better than most other countries, especially some of the large industrializing countries, including India and China. The Energy Information Administration estimates U.S businesses use a fraction of the energy that companies in other countries use when producing a dollar’s worth of goods. For example, American companies use just 40 percent of the energy used by Indian businesses and less than 30 percent of the energy used by Chinese businesses to produce a dollar of goods.
If the U.S. proceeds with its planned domestic emissions restrictions-which include regulation of emissions at power plants-it will drive up the costs of production in the U.S. by driving up energy costs. Since most countries, with the exception of some in the European Union, are unlikely to impose similar restrictions in the short-term, more energy-intensive U.S. businesses may relocate to countries where energy costs are lower but emission intensities higher. Thus, despite emissions reductions in the U.S., the net result could be an increase in global emissions as domestic reductions are offset by increases elsewhere. Similarly troubling, reduced U.S. economic growth would have globally negative effects, reducing the ability of people and societies to adapt to whatever climate they face.
A far better approach would be for negotiators in Lima, and ultimately next year in Paris, to embrace voluntarism more fully-all the way to the individual level. That means opening markets such as natural resource development and electricity generation and introducing competition in global markets. These are the forces that have been demonstrated to increase efficiency, enhance growth and reduce emissions intensity in electric power generation, agriculture and transportation in the United States. It makes more sense to pursue such a tried and tested win-win approach than it does to attempt to impose a centrally-planned energy diet on American businesses that could produce adverse consequences for nearly everyone.
Tom Tanton is a senior research fellow at Reason Foundation. This article originally appeared at Real Clear Markets.