Assessing Europe’s Kyoto Claims, and Comparative EU/US Approaches: Debunking the Political Mythology Underlying the EU’s

1. Assessing Europe’s Kyoto Claims, and Comparative EU/US Approaches:Debunking the Political Mythology Underlying the EU’s Kyoto Scheme Christopher C. Horner Rome 29th May 2007

2. Summary • Kyoto’s rationing scheme is misdirected and failing • Emissions are increasing everywhere, including Italy • The approach continues nonetheless to harm the economy • Additionally, the EU is merely transferring wealth • The Kyoto rationing approach diverts scarce resources from addressing solvable, “here-and-now” problems • Given current and foreseeable technologies, what Kyoto’s champions demand, in order to detectably impact climate, would trigger the biggest economic crisis ever • Rhetoric and mythology aside, US emission performance is far superior than Europe’s (EU-15), including Italy’s • This despite faster US population and economic growth • While paradoxical this makes sense: by focusing on economic growth the US pulls through new technology and capital turnover

3. Key Points • Europe is not performing, yet remains unrealistic • Italy is not performing • This is proving costly (exporting growth, paying others for ‘credits’) • The US is doing better, even taking European jobs • This is due to the different approaches • Italy will soon be asked to make a promise of ever deeper emission reductions, for “post-2012” • If Italy agrees this will be remarkably costly • Right now, politicians are merely delaying an unpleasant reality, while making false boasts

4. EU PerformanceHere’s what “Global Leadership in Reducing Emissions” Looks Like

5. This isn’t Actually Necessary • “Of all the effects of the [ETS] rules, the rise in the price of power has aroused the most outrage. The chief executive of one utility, Vattenfall, which owns a coal plant that is one of the continent's biggest carbon emitters, defended the decision. Lars G. Josefsson, who is also an adviser to German Chancellor Angela Merkel, said higher electricity prices are ‘the intent of the whole exercise. . . . If there were no effects, why should you have a cap-and-trade system?’ But consumers ask why four big utilities that dominate the German market got to keep the money.”     --Steven Mufson, The Washington Post, 9 April 2007

6. Italy’s emissions, from its January 2007 Report to the UNFCCC

7. How Does the EU Stack Up with the US?So, Maybe Name-calling and Rhetoric Aren’t Enough? …

8. Italy Projects Continued Emission Increases

9. Italy Projects +12% by 2020(as of 11/06)Not a reduction. Regardless this is unrealistic:Italy’s emissions are already there (2004), and rising

10. The Whole World is Increasing its Emissions

11. The “Post-2012” Promise Looms:What Should Italy Expect? • 2008-2012, Italy was granted a reduction slightly less than its original -8% promise (-6.5% over 1990 levels); Italy’s emissions increased, however. • Calculations based on currently agreed burden sharing, and public statements of EU government officials, indicate that Italy should expect its “fair share” in a “-20 by 2020” post-2012 Burden Sharing Agreement to be to reduce emissions to -20% below 1990 levels by 2020. • That equates to 415.68 Mmt, which is a 29.6% reduction from current reported levels.

12. Italy’s Projection to the EUA Consistent 2020 Burden = Massive Reduction or Wealth Transfer

13. Everyone expects that They Will Get a Break post-2012 • Addressing the need for a post-2012 “Burden Sharing Agreement” that assigns real cuts to countries previously given a free-ride, German Chancellor Angela Merkel “admitted that tough negotiations are still ahead. The compromise would be a tough task. The beauty is, Merkel said smiling, that each member state thinks they're a special case. ‘That makes us all equal’.” -- Der Spiegel, 9th March 2007 • This increasingly looks like politicians seeking to put off an embarrassment until a later date when someone else must admit to it and repair the damage. • This isn’t responsible policymaking or leadership, this is a game. Meanwhile, EU emissions climb and the economy suffers, both remarkably as a direct result of this approach.

14. There Is Another Approach • Growth-oriented approach offers economic growth, jobs • It recognizes that emissions are rising everywhere, but also one approach is performing far better than another • Admitting this is responsible policymaking; stubbornness and name-calling (Brussels’ path) is not • This does require a little political courage in Europe’s environment of a speech code regarding climate change • Alternative: mortgaging Italy’s future on a Cross of Green • At bare minimum, the government cannot be given a free ride to make yet another impossible promise that merely means EU exports its wealth – and, increasingly its jobs • Challenge that approach as being blindly irresponsible

15. “What if We’re Wrong”/“What if They’re Wrong?” Short Answer: • If we are wrong : • You end up with a wealthier world left to deal with that which will always be there: unpredictable, often severe weather. (Best estimate is 1.7° C in 100 years) • If they are wrong: • You end up with a poorer world left to deal with that which will always be there: unpredictable, often severe weather.

16. The Better Political Approach • Italy’s government confronts whether to worsen this flawed approach by not standing up for your interests within Europe • Yes, much Brussels pressure exists to accept their plan • Costs are now mounting and it’s time for leaders who see the policy has failed, before Italy agrees to an even worse deal • Several EU Member States appear in a mood to oppose this • There are better approaches, encouraging economic growth which actually lead to a better GHG performance • No known technologies would permit the real GHG reductions Brussels is now demanding; only economic collapse allows that

17. It’s Italy’s Decision “The EU – particularly in Germany – is presently investing abhorrent sums in expanding natural gas generating capacity and the infrastructure. However, the reserves of natural gas in Europe (outside Russia) will be exhausted within the next 10 years. Thus in 10 years' time we will be 100% reliant on the dependability of Russia and North Africa as energy suppliers.”

19. More Mythology: this “What if…?” • European and (ever fewer) US politicians continue to pretend that what’s happening with EU climate policies isn’t really happening, and that we’ll all be millionaires from using less energy and selling windmills to each other. • The presumption is also that, somehow, feasible efforts under existing and foreseeable technology can impact the climate. Science suggests otherwise(see, e.g., Hoffert et al., Science Magazine, 2002) • Both represent make-believe thinking and now is a good time – and opportunity – to stop playing such games.

20. “Amerikanische Verhältnisse”“Only 5% of the world’s population produces 25% of its (Man-made) GHGs!” • Query: does the US pay 5%, or 25%, of the UN’s budget? • Truth be told about this claim, with 5% of the world’s population, the US produces somewhere below 25% of its emissions …and above 25% of its wealth. • Compared to Europe, US produces more jobs with higher wages, and enjoys an economy that is 42.5 percent wealthier per person. Year after year, the US leaves Europe farther behind not just economically but, now, in rate of C02 increase: EU-15 emissions rising much faster. • While the US continues to emit more CO2 per person than Europe – partly attributable to economic, geographic, demographic and climatic differences – per dollar of economic output, the US is improving much faster.

21. Stern and the IPCC:Economic Considerations for Policymakers The Stern Report hints even reveals that: • Humanity would be better off in a high-growth globalized “Business as Usual” (BAU) world with climate change (even the worst-case story lines he selects) than in a fully-mitigated, regionalized world like the Greens seek. • The social cost of carbon dioxide that Stern selected implies that most European countries are already raising more than enough from energy taxes to account for the externalities. • But, in short, even Stern acknowledges that the 2100 world will be vastly richer no matter what and therefore better able to deal with what we will always face – always unpredictable, often severe weather. • The question is therefore why we ought to suddenly harm our own wealth creation – and thereby theirs – in the name of expensive gestures?

22. A Word About the Stern Report, and its Ilk:The Fatal Flaw • Every “study” used to support energy rationing in the name of “global warming” has been revealed as assuming the worst case scenario for the effects of future climate change, and the least-cost scenario for mitigation. • Even then, as Stern proves, they cannot make a compelling case for the Kyoto approach – that is, intervention over adaptation (wealth creation) – that survives scrutiny.

23. Assessment: Spain and Kyoto Kyoto’s first round is already costly, and will only get more so The US thanks Spain for our first “Kyoto jobs” (Acerinox moved growth to Kentucky) Brussels will soon demand of Spain a deeper, “post-2012” commitment Under any reasonable calculation, this means real emission reductions Cf 1990 This would mean massive reductions (Spain projects being 48% >1990 by 2012) Fearing a realistic reassessment by Spain, UK emissary Henry Derwint came to Madrid last year offering “temporary exemptions for energy-intensive industries” in order to gain Spain’s agreement for a deeper “Round II” promise Key word: temporary Key message: this scheme chases jobs away Thesis: As you confront this decision, this is not a political threat to be afraid of, or simply ignore due to political dangers. Because Europe is harming itself economically, and unilaterally Because alternate approaches exist, and Because, e.g., the U.S. is vastly outperforming Europe on CO2 emissions This is a political opportunity: you can offer salvation, not from harmful “climate change” but from harmful climate change policies

24. The Argument, In Sum • Projections of temperature increases are based on models with built-in assumptions of global population and GHG emissions rising far more, and several times faster, respectively, than observations support. • History tells us that the world will be very rich in the future under even the most “pessimistic” economic projections underlying climate models, so paying extra now to avoid the costs of climate change amounts to a regressive tax on the poor today to benefit the rich of tomorrow. That’s wrong on both a policy and a moral level. • Mitigation strategies still demonstrably don’t work.  Every country has seen their emissions rise since 1997, when Kyoto was agreed.  In fact, since then Europe’s emissions have risen faster than the US’s. • If we “must do something” about global warming now, we should concentrate on affordable adaptation policies instead of expensive mitigation policies.  Making the world resilient to any damaging effects of climate change represents better value than trying to change future weather. • In fact, we could do much more of benefit to people now instead of wasting money on huge bureaucracies designed around a “price for carbon.”  We could eradicate malaria, bring safe drinking water to Africa, severely reduce the effects of famine and protect against sea-level rise.  If we aren’t willing to do that, we’ve got our priorities seriously wrong. • Of course there is a massive lobbying effort from industries hoping to benefit from mitigation policies.  Enron started this in the U.S. Banks stand to earn billions from trading carbon credits.  Europe has seen energy utilities making windfall profits.  Simply because something’s good for some big businesses does not mean it isn’t very bad for the economy as a whole.  We used to prosecute people who created cartels, yet the carbon trading schemes legally sanction one. • In short, let’s not crucify the poor on a cross of green.

25. Are You Serious?“Global Warming is the Greatest Threat…!!!” • OK, then how about building nuclear power plants? • NO! • OK, then how about sequestering CO2 emissions? • NO! • Well…are tree farms an acceptable way to reduce concentrations? • NO! • And on and on it goes. • Their demands here are the same as for every issue – lifestyle change – raising questions of sincerity.

26. Economic Growth, Not Rationing or Name-Calling, Improves One’s GHG Profile "For example, according to the International Energy Agency (IEA), from 2000 to 2004, U.S. emissions of carbon dioxide from fuel combustion grew by 1.7 percent, during a period when our economy expanded by nearly 10 percent. This percentage increase was lower than that achieved by Japan (2.5 percent), Canada (4.0 percent), the original 15 countries of the European Union (EU 15) (5.4 percent), India (13.5 percent) and China (58.9 percent). IEA data also show that the United States reduced its carbon dioxide intensity (emissions per unit of real GDP, kg CO2 per 2000 5 US$) by 7.2 percent between 2000 and 2004, better, for example, than Canada (5.6 percent), Japan (1.4 percent), or the EU 15 (1.1 percent). " White House Congressional Testimony, March 2007

27. That is to say that Europe’s approach is driving investment away, either into other countries for short-term “CDM” or “JI” credits under Kyoto, or to e.g., the U.S. to avoid the carbon games altogether. • Investment helps improve emissions performance by introducing newer capital equipment.

28. US vs. Spain, EU 1990 1997 2000 2004 US 5013.45 5547.9 (+10.6%) 5815.5 (+16%) 5912.21 (+18%) Spain 224.51 262.61 (+17%) 314.44 (+40%) 361.9 (+61%) EU-15 3250.42 3263.13 (+.04%) 3376.41 (+3.9%) 3572.24 (+9.9%) EU-25* 4132.79 4059.69 (-1.8%) 4039.57 (-2.3%) 4234.86(+2.5%) * This figure is less Estonia, Latvia and Lithuania 1990 4132.79 + Estonia, Latvia, Lithuania (working backward est. at 62Mmt) 1997 4059.69 + 18.11, 8.31, 16.21 (42.63) 2000 4039.57 + 16.15, 7.26, 13.19 (36.6) 2004 4234.86 + 18.23, 8.40, 13.23 (40.46)

29. Here’s What Unofficial Europe is Saying Merkel comment about every country thinks they’re a special case Merkel advisor saying the point is to increase the cost of electricity Arcelor Mittal, IneoChlorVinyl, Acerinox, UNICE (all other comments from my Marlo email) Victoriano Muñoz, particularly Open Europe Report comments What post-2012 should mean for Spain

30. Here is the Truth • "Tom Crotty, chairman of the chlorine producer Ineos ChlorVinyls, said that spiralling energy costs had led to the loss of 100,000 job losses over the past 18 months. Included in those losses were the closure of 13 glassmakers and 11 papermills. Ineos ChlorVinyls, which had to halt production temporarily last year because of higher energy costs, has 80 per cent of its costs tied up in energy. Mr Crotty said that energy policy had failed industry: 'The true cost comes in lost business, lost jobs and lost income'.” • Times (UK), November 28 2006 http://business.timesonline.co.uk/article/0,,8209-2474749,00.html • "Arcelor Mittal, the world's largest steel company with 135,000 workers in Europe, is among several companies that are sending out distress signals two years after the EU began capping carbon dioxide emissions from 10,000 factories and power plants. • Tougher EU policies to cap emissions 'could threaten two of our plants' because they would significantly raise costs, Wurth said during a recent interview. Instead of battling pollution, he argued, the measures were encouraging "less production in Europe and more imports from places with fewer environmental regulations" — a result that Wurth deemed 'absolutely ridiculous'." •  IHT, January 7, 2007 http://www.iht.com/articles/2007/01/07/business/ecolaws.php • "For other industries, the main concern is the higher cost of electricity, which was exacerbated by the introduction of emissions trading. • The Norwegian company Hydro has closed two aluminum units in Germany since 2005 because of high power costs, in part citing tough environmental laws in Europe. • A Norsk Hydro spokesman, Thomas Knutzen, said his industry would make new investments mainly in countries that 'do not have obligations to reduce their CO2 emissions through Kyoto.' • In the case of Arcelor Mittal, Wurth said the combination of high electricity prices and the prospect of buying carbon allowances could lead to partial plant closures in France."   IHT, January 7, 2007 http://www.iht.com/articles/2007/01/07/business/ecolaws.php • “The emerging large increases in electricity prices and their potential impacts on international competitiveness are a major concern for energy-intensive industries.  A full analysis of the impacts of the ETS and appropriate improvements is critically needed.” Union of Industrial and Employers Confederation of Europe (UNICE), representing more than 20 million companies in 33 European countries [largest EU employer group], November 2005 • “The rising costs of reducing carbon dioxide emissions by smokestack industries may trigger a shift in major investments in such sectors from Europe to countries where carbon controls are less strict, analysts said. ‘In the future, European companies may decide to make big investments abroad, say in Brazil, because Europe is too expensive,’ Michael Grubb, chief economist at the Carbon Trust, a UK thinktank [sic], told a European power conference last week. ‘There is an option of driving energy-intensive industries out of Europe’.” Reuters, 13 June 2006 • Many energy-intensive companies face the dilemma whether to pay the excessive costs of complying with Kyoto, or redirect investments to other countries, as has Acernox, the world's second-largest stainless steel manufacturer (sending its growth to the U.S. and South Africa). CEO Victoriano Muñoz repeatedly warns of Kyoto creating a “very grave” situation for Spanish industry, “forc[ing] us into a second industrial restructuring.” In his opinion, “Kyoto is one of the biggest problems Spain will have to deal with in the coming years.” [from an op-ed yet placed, by Dr. Gabriel Calzada from the Spanish press; see also "Three Spanish companies closed down for violating Kyoto Protocol,” Spain Herald, August 9, 2005, at http://www.spainherald.com/2005-09-08news.html#1416]

31. Zapatero, “Mister Brussels” • Zapatero statement Saturday: the "only war [to be fought] is against underdevelopment and climate change” • The poor are in deep trouble if he fights them both with the same inefficient, bureaucratic, ineffective approach. • Unlike with poverty, it is less wise, less cruel to “act now” • Still, nothing ever proposed would under any scenario have a detectable impact on the climate, that is, would “act now”. • These are gestures, only, and rewarding some interests groups and industrial mandarins, but doing nothing for the express target. • Lomborg/Copenhagen Consensus

32. So, Upon Scrutiny… • The fact is, almost all of today’s popularized solutions to global warming would do little more than allow us to congratulate each other for “doing something.” • Actually “doing something”, however, would be neither easy nor cheap if it is even possible. • Policymakers must remember that, as is always true, wealth diverted to, e.g., making the environment cleaner is no longer available for other purposes. • Access to abundant, inexpensive energy has enabled prosperity, good health, longevity, comfort, and convenience. • Even if the 0.6° C warming over the last 150 years is entirely due to mankind — a dubious scientific claim — dare I ask if that would be such a terrible price to pay for our prosperity, improved standards of living, increased life spans, decreased disease and child mortality? • How much prosperity are you willing to give up in order to prevent some (likely unmeasurable) portion of future global warming? • Everyone considers himself an environmentalist until he gets the bill. • Spain’s bill has been trickling in and is coming due.

33. What if We’re Wrong: Longer Form • Implement our preferred no regrets policies leaves us more resilient to climate’s negative effects. • Sufficient global growth means we'll even be resilient to “catastrophe” (which is a relative term: high winds are a catastrophe to someone living in a house of straw, merely bad for someone in a house of sticks, and an inconvenience to someone living is a house of brick. • The policy objective should be to make sure as many people as possible live in brick houses.

34. What if They’re Wrong: Longer Form • We'll have condemned millions of people in the Third World to death by treating affordable energy as a curse, rather than the blessing it really is. • And ultimately without making a bit of difference, climatically -- so really, if we follow the alarmist agenda we'll be killing those people regardless of whether the alarmists are right or wrong.

35. A Reality Check for EuropeNot Just re: its Own Performance, but re: the US • Europe insists that Bush is standing between the US and Kyoto • “Bush’s successor will certainly join up with Europe” • After all, a couple of candidates in both parties support a domestic (only) version of Kyoto-style rationing (that is a fraction of Kyoto’s “first” step) • This cannot be a serious assessment • Bush’s successor certainly could sign another treaty • Like Kyoto it would go nowhere: remember, Bush’s predecessor signed Kyoto • And made clear he had no intention of asking the Senate to approve it • Because the Senate unanimously made clear it wants no part of this • It isn’t Bush that’s blocking Kyoto, et al: treaties require 2/3 of the Senate • Sure, the Democrats love having the issue, if to treat it less than honestly • However, they controlled the Senate in 2001-2002 when the issue was very “hot”. You notice even then they did not seek vote they could vote tomorrow. • The Senate is aware of Europe’s costly failure. It isn’t a secret. • Neither are the tricks that Europe is playing; tricks that the US could not pull. • No policy leader in the US wants a Kyoto-style pact. Europe is misinformed. The US has made clear what it will do, and what it will not do. Details may change. The big picture will not.

36. Is This Really a Fight Europe Wants to Pick?Ultimately, you have to stop talking about “since 1990!” • The Environmental Protection Agency estimates that U.S. carbon-equivalent emissions rose by 1.3 percent in the five most recent years for which we all have data (2000-2004). During the same period, the U.S. population grew by 4 percent, and our economy grew by 19.5 percent. • In the 25 European nations reporting under the Kyoto Protocol, carbon equivalent emissions rose by 2.2 percent during the same period (and by 2.4 percent in the 15 Western European nations). The EU-25 population, meanwhile, grew by 1.6 percent and their collective economy grew by just under 7 percent. • So, between 2000 and 2004, America had more than twice the population and economic growth of Europe and a little more than half of Europe’s growth in carbon emissions.

37. US vs. EUEmissions Intensity • At 0.55 metric tons of carbon per thousand dollars of GDP (our “carbon intensity”) in 2004, the United States fits right in with Europe, somewhere between the Netherlands (0.63 tons) and Belgium (0.54 tons), well below Estonia (0.81 tons) but well above France (0.26), which generates much of its electricity using carbon-free nuclear power. • More importantly, we have been reducing our emissions by this measure. Our carbon intensity has decreased by 7 percent since 2000 — larger than the EU-25 reduction of 4.5 percent during the same period.