Global warming is a hotter topic than ever. Hurricanes Katrina, Rita and Wilma have generated debate over whether recent increases in sea surface temperatures are adding to the destructive power of hurricanes, and whether human interference with the climate system contributes to that warming. In the midst of the hurricane debate, new analysis from satellite data demonstrates that the summertime sea ice coverage in the Arctic Ocean has reached a new low due to warming of recent decades at high northern latitudes. Meanwhile, the first nine months of 2005 indicate that this may be the warmest year on record in the warmest decade on record.

For decades the scientific community has predicted global warming for a simple reason. Human activity is changing the composition of the atmosphere. Levels of greenhouse gases that trap radiation or heat in the atmosphere have been rising since the industrial revolution. Now the oceans and atmosphere are warming rapidly. A mounting observational record of climate change indicators strengthens the conclusion that these changes are caused by the increased concentrations of greenhouse gases and not simply by the natural variability of the climate.

What is responsible for the build-up of greenhouse gases? The weight of evidence points to energy use, notably fossil fuel combustion, the main by-product of which is carbon dioxide (CO2), the largest contributor to the warming of the planet. If current CO2 emissions trends continue, the oceans and the atmosphere will become warmer, glaciers will continue to shrink, sea levels will rise, more intense storms will develop, and altered weather patterns will create more droughts and floods. Ecosystems will be stressed or die out.

The Challenge

To address this problem with any degree of success, all nations must participate in finding solutions, but the involvement of the largest emitters, the United States and China, is essential. For the United States to contribute most effectively, the challenge is to design a policy that is strategic and affordable.

During the past five years, the Climate Policy Center (CPC) has endeavored to identify key elements that would characterize a successful U.S. policy. The following is a description of two components that CPC believes are absolutely essential, and that serve as the focus of its current program.

Establish a Policy to Control Emissions

The federal government can employ a variety of approaches to reduce greenhouse gas emissions. To do so most efficiently and at the lowest cost, however, it must incorporate market mechanisms into any new policies.

Current debate in the U.S. Senate centers on using a cap and trade system. Through legislation, the government would establish a “cap” on total allowable U.S. greenhouse gas emissions, forcing a reduction in U.S. emissions. The government would implement the cap by issuing or auctioning “allowances” to producers or importers of coal, oil, or natural gas. This system, rather than focusing on the point of combustion, places allowances upstream, as fossil fuel enters the economy. Given the much smaller number of producers and importers, this is expected to greatly reduce administrative complexity compared to a system which attempts to cap emissions at the hundreds of thousands of points of combustion. The result would be that any business that produces or imports coal, oil or natural gas (carbon fuels and sources of CO₂) must obtain sufficient allowances through such a market system.

To avoid the possibility of a price shock to the economy, the government should also establish a maximum price for the allowances by creating a “safety valve.” Without a safety valve, allowance prices would rise to whatever price the market would bear to remain in compliance with the emissions cap. With a safety valve, if the price exceeded a set threshold, the government would issue additional allowances to maintain a ceiling price.

Over the past several months, a cap and trade system coupled with the safety valve concept have been the subject of attention in Congress as the Senate struggles to begin framing a system for addressing greenhouse gas emissions that is efficient and economically feasible. The safety valve addresses some of the key financial concerns of cap and trade systems critics, who have faulted such proposals in the past because they lacked cost limits.

Reshape Climate Related R&D

Society’s current means of producing energy from coal, oil, and natural gas must change in order to solve the global warming problem. Over the long run, carbon dioxide emissions must approach zero for concentrations of greenhouse gases to stabilize and prevent additional warming. If the government puts into place a cap and trade system that, in effect, establishes a price of carbon dioxide emissions, the market will begin to reward substitute technology.

A successful research and development (R&D) program not only can lead to the development of new energy technologies, but also can result in technologies that are cheaper, effective, and fully capable of replacing the current CO2- emitting technologies.

A robust R&D program is an essential element of long-term success in addressing global climate change, and an integral compliment to a cap and trade system. The private sector is understandably wary of the very large, high-risk, and long lead-time investments that will be necessary to bring new technologies to commercialization. Government funding is crucial, therefore, especially in the early stages of R&D. Finding the money and the institutional arrangements to make this R&D effective is a major challenge of climate policy.

While the U.S. government supports the concept of making substantial investments in climate related R&D, its current effort, as epitomized by the Climate Change Technology Program (CCTP), has been disorganized, unfocused, and subject to little oversight. We know from experience that federal research efforts can be well run, highly effective, and results oriented—just witness the development of stealth technology, the Internet, and the global positioning system. Let’s hope the recently announced strategic plan for the CCTP will help move U.S. climate R&D efforts in a more productive and effective direction.

—R. Pomerance