#14 - JRL 8008
Moscow Times
January 9, 2004
Jumping to Conclusions on Kyoto
By Michael Grubb

The public pronouncements by President Vladimir Putin's economic adviser Andrei Illarionov about the Kyoto Protocol on climate change at last brings to the topic the level of attention and debate that it deserves. But it is a pity that he has jumped to conclusions before looking more carefully at the evidence.

Illarionov's most basic assertion is that Kyoto's emission limits for 2008-12 could constrain Putin's goal of doubling Russia's GDP. He justifies this with reference to countries in which "each percent of GDP growth is accompanied by a 2 percent growth in CO2 emissions." This is extremely misleading and must rely on a bizarre selection of countries.

The most directly relevant international comparisons would be with other countries that, like Russia, have undergone transition from former central planning. In these countries, resurgent economic growth has not generally been accompanied by rising emissions, and indeed in most developed countries there is no longer a clear and simple link between GDP and CO2 emissions.

The relevant measures are per capita economic and emissions growth (no one disputes that an increase in population can add to both GDP and emissions -- this is part of what Illarionov's statistics measure -- but the president's goal is to double Russia's economy, not its population). Since the mid-1990s, Poland and Hungary have averaged 4 percent a year per capita economic growth without any increase in their per capita emissions; Slovakia exceeded 3 percent a year economic growth with declining emissions. Economic growth has resumed in Ukraine and the Czech Republic but their emissions have continued to decline by more than 2 percent a year on average since 1995.

The reasons for this are simple. Central planning resulted in a huge energy infrastructure which, whilst it served well the need for basic industrialization in the post-World War II era, was grossly inefficient compared to the needs of modern economies. The economic burden of wasting so much energy is an impediment to further economic development, not a corollary.

The special features of transition economies emphasize the divergence of GDP and emissions as economies mature, but the underlying fact is more fundamental. Even U.S. emissions since 1990 have only grown at the same rate as the country's population. And Britain's economic resurgence since 1990, with per capita economic growth significantly exceeding even that in the United States, has been accompanied by a 9 percent absolute reduction in CO2 emissions. About half the gains came by replacing Britain's antiquated coal power stations with natural gas; the other half came through economic restructuring and radical improvements in industrial energy efficiency.

Per unit of GDP, Russia currently emits about twice as much CO2 as China and the United States, and about four times as much as Western European countries (as measured on a purchasing power parity basis to minimize exchange rate distortions; measured on real exchange rates, the disparity is even larger). Russia could double its GDP and yet not emit any more, just by achieving the efficiency levels of the United States. If it moved towards Western European or Japanese efficiencies, doubled GDP could be accompanied by further emission reductions.

Yet Russia's emissions cap under Kyoto allows Russia more than 50 percent CO2 emissions growth from recent levels over this decade. Efforts to increase Russia's energy consumption by as much as this would imply wasting energy on a colossal scale that would surely undermine rather than aid the president's economic goals. If Russia wants to double its economy in a decade, it needs to be efficient about it.

That is why Russia's own national energy strategy, and the ministries that contributed to it, stress the importance of improving Russia's energy efficiency and project that Russia will continue to have a large surplus of emission allowances under its Kyoto cap, and that its emissions will not surpass their 1990 levels until well after 2020. Illarionov's arguments simply do not stand up.

Russia will not lack emission allowances, but it may lack sufficient investment capital and modern technology to secure the president's economic goal, and Kyoto offers one contribution to address this. Its surplus allowances will be available for sale to other countries in the Kyoto system: the European Union, Japan and Canada -- all of which now acknowledge that they will need to acquire emission units by investing abroad under Kyoto's international mechanisms. Russia would be the biggest potential partner and that is why most of Russian business is lining up in favor of Kyoto.

Illarionov expresses fears about the longer term, but these are not well founded. As indicated, the longer-term trend of emissions in advanced economies is not a force of nature, it is in our hands. Technology studies show huge potential for continued increase in efficient and low-carbon emitting technological and economic systems. Britain has now made the pursuit of such an efficient low carbon economy the centerpiece of its energy policy and expects long-term economic benefits to flow from this. Nor is such action a threat to Russia profiting from its oil and gas resources. Gas is a relatively low-carbon fuel and benefits from the switch from coal, whilst oil remains the fuel of choice for transport. No actions under Kyoto will stop the global rise of oil and gas consumption.

All major countries, including the United States, now accept the scientific reality of the climate change problem and the need to tackle long term emissions. But limits post-2012 under Kyoto are not predetermined, they are all to be negotiated. No country need or should agree to limits that might seriously hurt its economy. Illarionov's fear that future emission limits would do so betrays a surprising lack of faith in the skill or power of Russian negotiators. They secured a very good deal in Kyoto's first-round commitments; there is no reason why they should agree to an unfair deal in future rounds.

A final consideration -- the most silent element in the Russian debate -- concerns wider issues of international relations. Russia faces big questions about the shape of the new "world order." The final Kyoto treaty, with the implementation rules as agreed in 2001, was the culmination of 10 years of diplomatic effort. Does Russia want to ratify the legitimate product of a decade's global effort to protect the planet, in a treaty that was finalized in ways that fully accommodated the concerns raised by Russia? Or will it ratify the authority of the Bush administration in declaring that its rejection renders the treaty dead for all other countries on the planet?

Illarionov is right that Kyoto deserves serious, strategic scrutiny -- for seen in that light, it embodies one of the most fundamental choices that faces Putin and the new State Duma. All the more important, then, to ensure that the economic analysis is well founded.

N.B. All data are drawn from the U.S. Energy Information Administration's World Energy Outlook, except for purchasing power efficiency comparisons (for which GDP comparisons on EIA data suggest even greater differentials than indicated here).

Michael Grubb is visiting professor of climate change and energy policy at Imperial College in London; senior research associate at the department of applied economics, Cambridge University; and associated director of policy at the U.K. Carbon Trust. He contributed this comment to The Moscow Times.