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Looking Back on Collective Insanity

  • Date: 03 October 2013
  • Author: Robert Litterman

Looking back twenty years from now at the climate debate, people will ask, “How could this go on for so long? Why did it take humanity so long to price greenhouse gases appropriately?”  The only answer is some sort of collective insanity.

In June, President Obama unveiled the U.S. Climate Action Plan, an outline of how our nation plans to address the climate challenge in the coming years. In addition to setting a course for the development of CO2 standards for new and existing power plants and other initiatives to reduce emissions, the administration also redoubled its commitment to leading “efforts to address climate change through international negotiations.”

While this is the Obama administration’s stated intention on the international front, their opposition to the European Union’s Emissions Trading System (EU-ETS) for aviation has actually hobbled their ability to push for effective emissions reductions at the International Civil Aviation Organization (ICAO)—the UN body which is concluding negotiations this week in Montreal.

To its credit, the administration has pledged its commitment to a global market-based measure (MBM), the most efficient policy tool for reducing emissions. But through the administration’s past actions to drum up other countries’ opposition to the EU’s aviation law, the US created a toxic negotiations environment which has stymied progress on the very global measure it seeks. In addition, the US’s position on national and regional MBMs has effectively led to a gutting of the scope of the EU’s aviation law and its environmental benefits.

As it was originally written, the EU-ETS’s inclusion of aviation would cover all emissions from flights to and from the EU member states. However, due to firm opposition from a “coalition of the unwilling” which included the US, Russia, India, China among others, the EU “stopped-the-clock” in November 2012, delaying implementation of the full policy in order to resolve differences on the ETS and to achieve a global market-based measure in ICAO. Throughout the ICAO negotiations, the US and other countries heavily objected to the EU’s ability to cover all emissions on international flights from its member states. As a result of this US-endorsed pressure, the EU Commission scaled back its proposal to include only emissions on the portions of flights within EU regional airspace thus reducing its emissions coverage by more than 50 percent.

Not only does this “regional airspace” approach not line up with the Obama administration’s own climate commitments in the international sphere, it also it delays near-term reductions.

While the US has promised time and time again to get tough on climate change, its recent position on international aviation emissions appears to indicate the opposite. The administration is clearly indicating that it does NOT want to price all emissions, nor does it believe that immediate action is paramount. As a result, we could miss an opportunity to create appropriate incentives for the aviation industry to create its own path to sustainability.

And, to the keen political observer, it’s fairly obvious why this insanity continues: the administration appears to place a higher priority on limiting US airlines’ exposure to new climate standards rather than delivering an international deal to price emissions through ICAO. This approach misses the big picture. “Protecting” airlines from facing appropriate incentives to become more efficient and sustainable wastes a scarce resource—atmospheric capacity for more emissions. A world with less space in the atmosphere for emissions to be absorbed is not a world which favors the long-term health of aviation. It is in aviation's best interest to lead the conservation of this scarce resource.

At a time when emissions reductions are more critical than ever, the US should consistently act to support appropriate incentives to stop wasting the atmosphere's ability to safely absorb emissions. The time for action is now. The place is Montreal. It’s time for the US to stand up and lead.

Robert Litterman is chairman of the Risk Committee of Kepos Capital LP, a globally focused asset management firm, and a board member of World Wildlife Fund (WWF). He previously served as head of Risk Management at Goldman Sachs.

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