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Just one week after receiving the Nobel Peace Prize, President Barack Obama addresses the world in Copenhagen, Denmark on the priorities and strategies of the United States of America in stabilizing climate change.
"Climate deal reached in Copenhagen," official says.
World leaders reach agreement that provides for a means to monitor and verify emission cuts by developing countries but has less ambitious climate targets than the U.S. and European governments had initially sought, according to an Obama administration official. read moreOur Mission
William K. Reilly, Former Administrator, EPA
The Consumers’ Cartel
The nations convening in Copenhagen disappointed the expectations of many by failing to agree on a binding treaty placing limits on greenhouse gas emissions. What they concluded was essentially to promise their best efforts, with each country adopting those measures best tailored to its situation, and subjecting them to some sort of international verification. Critics may charge that countries will choose the path of least resistance and avoid measures that involve serious sacrifice. But there is another way to look at the agreement: that nations will seek out the most cost effective solutions. And there are plenty out there, including many that will actually pay them to implement.
In the early 1970s, the large oil exporters of the world (primarily in the Mideast) built a cartel (called OPEC), and used it to squeeze down oil supply and drive up prices. Because the U.S. had no substitute fuels, and built cars with the pitiful fuel efficiency of 13 miles-per-gallon, our entire economy was held hostage to OPEC’s moves—and two major recessions followed.
President Gerald Ford, in 1974, reacted by signing standards than nearly doubled auto fuel efficiency and this shifted market power from producers to consumers for a couple of decades—and low oil prices were the consequence.
But in 1996 and 1997, driven by a growing global car fleet, demand again outstripped supply, and oil prices peaked at $160 per barrel. Once again, the producers held all the cards. This time the culprit wasn’t just US transportation: China’s auto market was booming, and is now the largest in the world, and other nation’s car markets—especially in Asia and Latin America, were booming as well. The current recession has tempered prices, but will not affect the fundamental dynamic, which is that with unbridled demand, oil is a seller’s market.
So what can be done to swing market power back to consumers? The answer lies in his history—but it needs updating. The U.S. needs to make cars and heavy trucks more efficient, and the other large car markets in the world need to do the same. We need, in effect, a consumer’s cartel, to move market power back to the consumer. We need an agreement with China, India, Japan, and Europe to steadily move to more efficient cars. That will hold down oil prices. If we could pull this off, consumers worldwide would save hundreds of billions of dollar annually.
As it turns out, the oil story is just the start. The same strategy can work for natural gas and coal. Serious efficiency commitments for buildings, appliances, equipment, and industry, if shared across the biggest countries, would knock down those prices, worldwide. Here’s the punchline: The International Energy Agency has released analysis that says if the world were to get on board such a serious energy strategy, global energy prices would drop by 18 percent. That is a one trillion dollar per year savings, worldwide. The US share is about $200 billion per year, direct to consumers. For a family of four, that’s almost $3,000 per year in savings.
Is such a consumer’s cartel possible? The answer lies right before us. The best way to control greenhouse gas emissions is to stop waste, and the best way to stop waste is to encourage efficient use of energy—through fuel efficiency standards for cars, strong building codes, and smart appliance and equipment standards. Can we get the 20 largest nations to do this, in concert, and thus drive down global energy prices? That may seem far-fetched. Except that these nations are now coming to the table to discuss just such a deal. Next week, in Copenhagen, the nations of the world will converge to build a new structure for controlling climate change. Their goal is to control greenhouse gas emissions. The analysis shows that whatever else they do, they need to commit on a few simple energy policies that will make an enormous difference. Quit wasting gas with inefficient cars. Quit building buildings that are sieves. Dial down waste in the industrial sector. If the negotiators succeed on these straightforward actions, they bring home a serious bonus: $1 trillion, per year, in energy price reductions. Direct to consumers. For the U.S., I like to think of Copenhagen as a signing bonus: Get the negotiations right by building it on serious, proven energy policies, and we bring home $200 billion. Per year. That’s our signing bonus for a great treaty. Saving the planet is gravy.