ECONOMICS REPORTING REVIEW: Examining the
Climate Change Negotiations
Week of November 25 - December 1
Dean Baker is co-director of the Center for Economic and Policy Research.
GLOBAL WARMING
"U.S., EU Clash Over Emissions Pact 'Mechanisms,'" by William Drozdiak in the
Washington Post, November 25, 2000, page E1.
"Talks Go Down to the Wire On a Global Warming Pact," by Andrew Revkin in the New
York Times, November 25, 2000, page A7.
"Global Warming Talks Collapse," by William Drozdiak in the Washington Post,
November 26, 2000, page A1.
"Treaty Talks Fail to Find Consensus In Global Warming," by Andrew Revkin in the
New York Times, November 26, 2000, Section 1, page 1.
"Envoys Could Not Agree on Value Of Forests to World Environment," by Andrew
Revkin in the New York Times, November 26, 2000, Section 1, page 16.
These articles report on the failure of an international conference on climate change
in The Hague. Participants at the conference were unable to reach agreement on a
plan to reduce greenhouse gas emissions. The discussion in these articles
substantially misrepresents one of the key issues that obstructed an agreement.
The United States, along with Australia, Canada, and Japan, insisted that it be able
to count the carbon absorbed by carbon sinks -- forests and farms -- against the
emissions ceiling specified in the 1997 agreement reached in Kyoto, Japan. The
articles wrongly identified the battle over this issue as a question of the willingness
of the European nations and others to accept "market mechanisms" or to recognize
the importance of carbon sinks as a tool to combat global warming.
This is inaccurate. The way the United States proposes to count carbon sinks would
significantly increase the emissions ceiling agreed upon in 1997. These ceilings were
based on an assessment of the costs of reducing emissions and the probable impact
of the continued accumulation of greenhouse gases. Rather than being bound by the
ceiling specified in the 1997 agreement, the United States is proposing that it be able
to deduct the carbon dioxide that is pulled out of the atmosphere by its forests and
farms. The negotiators at Kyoto were fully aware of the fact that forests and farms
pulled carbon dioxide out of the atmosphere and took this into account in setting the
ceilings. The United States position means that it wants to have the earlier ceiling
raised significantly.
This point does not appear anywhere in these articles. In fact, the second Post
article includes comments from the chief U.S. negotiator at the conference, Frank
Loy, which implied that the Clinton Administration understood that it would be able to
count its carbon sinks against its emission ceilings when it signed the Kyoto
agreement. This claim seems unlikely since virtually all of the public discussion of the
agreement, including the discussion in the 1998 "Economic Report of the President,"
assumed that the emissions targets represented real reductions against a projected
baseline of more rapid emissions growth. If the Clinton Administration had always
been anticipating that carbon sinks would be counted against these ceilings, then
the international debate around the implications of the emissions reductions specified
in treaty was badly misinformed. The debate assumed a far more significant reduction
in emissions than the Clinton Administration claims that it had agreed to. No Clinton
Administration official every bothered to correct the general misunderstanding about
the expected pace of emissions reduction.
It is also worth noting that the modeling of the economic impact of the Kyoto
agreement, which was done by an inter-agency task force established by the
administration, also did not assume that the U.S. would be able to count its carbon
sinks against its emissions limits. If the Clinton Administration understood this to be a
part of a Kyoto agreement, it is strange that this information was never passed along
to the task force it established to model the economic impact of the agreement.
It is also inaccurate to claim that other nations disputed whether there should be
incentives to preserve forests and farmland. Incentives can be provided by crediting
the change -- the increase in forests and farmlands compared with the 1990 base --
against the emission ceilings This would both provide significant incentives for
keeping farmland and forests, and adhere to the original targets specified in the
Kyoto agreement.
One final point worth noting is that the U.S. proposal makes the agreement extremely
complex. The New York Times and Washington Post articles implied that this
complexity may have confused European negotiators, and therefore made them more
reluctant to accept the treaty. While this may be accurate, economists ordinarily
consider simplicity -- whether in contracts or treaties -- to be extremely important.
Complexity provides more room for ambiguous interpretations and could make
subsequent enforcement of the agreement more difficult, if not impossible.
"Odd Culprits in the Collapse of Climate Talks," by Andrew Revkin in the New York
Times, November 28, 2000, page D1.
This article assesses the failure of the latest round of negotiations on restricting
greenhouse gas emissions. The article largely blames "hard-liners" among the
environmentalists who rejected a proposal from the United States. It is worth noting
that the U.S. proposal was a substantial step backward from the agreement reached
at Kyoto in 1997, which was already a compromise. Many scientists believe that it is
important to have a faster pace of emissions reduction in order to prevent serious
harm to the environment.
Most environmentalists accepted the original agreement with the understanding that
an imperfect agreement was better than none. It is not clear that the new U.S.
proposal would lead to significant emissions reductions or do anything to avert global
warming. It is understandable that environmentalists would not be interested in
reaching this sort of agreement.
It is also worth noting that the position that this article describes as politically
realistic may not require any reductions in emissions from the United States at all,
while still requiring significant reductions from European nations. Since the United
States already emits approximately twice as much carbon dioxide per person as
European nations, it is not likely that this agreement would be viewed as politically
realistic in Europe.
HEALTH CARE
"Experts Say Cost of Medical Care Is Underestimated," by Robert Pear in the New
York Times, November 30, 2000, page A1.
This article reports on a new analysis of projections for the growth in health care
costs. The analysis concludes that Medicare projections have underestimated the
rate of growth of health care costs. While the article discusses the implications of
this conclusion for Medicare's finances, it does not mention its implications for the
rest of the economy and living standards. If medical care costs do significantly
outpace overall GDP growth, as the analysis predicts, it will significantly reduce the
amount of income that workers have available after paying for their health care. It
also means that the number of workers without insurance is likely to continue to rise
in the decades to come.
Productivity growth has averaged close to 2.0 percent a year in other industrialized
nations, while it is assumed to be just 1.5 percent annually in the Medicare and
Social Security projections. No other industrialized nation pays anywhere near as
large a share of its GDP for health care (the average is half as much), nor do they
have the same sort of growth in health care costs. Taken together these projections
imply that workers in France, Germany, and other industrialized nations will enjoy far
higher living standards in twenty or thirty years than workers in the United States.
RUSSIA
"Thousands Lack Heat in Russian Far East," by the Associated Press in the
Washington Post, November 23, 2000, page A40.
This short story reports on a cut-off of power to tens of thousands of residents in
Russia's far east. The article indicates that the power cut-off was attributable to
inadequate fuel stockpiles. It also states that the temperatures in unheated houses
ranged in the forties.
According to the Danish newspaper Politiken, the power cut-off had nothing to do
with inadequate fuel stockpiles. Politiken attributes the power cut-off to a deliberate
decision of utilities to retaliate against businesses that have not paid their electricity
bills -- in some cases for years. The power systems in this part of Russia are not set
up to allow individual customers to be disconnected. The only way to shut off power
to a business that is behind in its payments is to shut it off for a whole area, which
is why tens of thousands of homes are without electricity.
The situation is also likely far more severe than is indicated in the Post article.
According to Politiken, temperatures in the region are more than twenty degrees
below zero. If this is accurate, the temperature inside unheated apartments is likely
to be far lower than forty degrees.
CANADA
"One Battle More -- the Last? -- Canada's Old Warrior," by James Brooke in the New
York Times, November 26, 2000, Section 1, page 16.
This article discusses Canadian Prime Minister Jean Chretien's political career on the
eve of parliamentary elections there. At one point it asserts that Canada has a "huge
national debt." The $365 billion figure presented in the article implies a debt that is
equal to approximately 56 percent of GDP. This is approximately 7 percentage points
higher than the peak indebtedness of the United States in the early nineties.
Canada's debt to GDP ratio is lower than that of many European countries at
present, and it is approximately half of the peak level reached by the United States
after World War II. The article does not indicate the criteria it used to determine
that Canada's debt is "huge."
ARGENTINA
"Argentina: Strikes Against Austerity," by the Associated Press in the New York
Times, November 25, 2000, page A7.
This article reports on a general strike in Argentina over the government's plan to
introduce an IMF-approved austerity package. The article is a three sentence piece
that appears in the Times's "World Briefings" section.
Since, according to the article, millions of workers took part in this strike, it may
have been appropriate to give it more attention. By contrast, the day before, the
Times devoted a large page three article to the concerns of a small number of
Argentineans with Italian, Spanish and U.S. relatives, who are returning to the
country of their ancestors ("With No Hope for Economy, Many Argentines Are
Leaving," by Clifford Krauss, New York Times, November 24, 2000, page A3). This
group of Argentineans tends to be relatively affluent.
STEELWORKER WAGES
"Steel City, Slovakia," by Edmund Andrews in the New York Times, November 30,
2000, page C1.
This informative article discusses a steel plant in Slovakia that is being purchased by
U.S. Steel, in the context of a larger discussion of Slovakia's transition to a market
economy. At one point it contrasts wages in the steel mill to those in the United
States, reported as $35 to $42 an hour. While these figures may come close to the
employer's cost per hour of work, they are far more than the wages workers actually
receive. According to the Bureau of Labor Statistics, hourly wages in the steel
industry averaged $19.20 in October. While U.S. Steel may have somewhat higher
labor costs than the industry average, most of this difference would be explained by
health care, pension, and other non-wage costs.
INVESTMENT
"Corporate Capital Spending Is Slowing Broadly," by David Leonhardt in the New York
Times, November 30, 2000, page C1.
This article reports on the slowdown in investment spending in the last few months.
At one point, it comments that investment spending for the first nine months of 2000
was 15 percent of GDP, compared to a historic average of less than 10 percent.
Actually investment spending has been just 13.7 percent as a share of GDP. This is
higher than it had been in the 1980s and early 1990s, but only slightly higher than
the peaks hit in the late 1970s. Since investment generally rises as a share of GDP as
nations grow richer, this spending level just moves the economy back towards its
previous trend.
It is also worth noting that the growth of car leasing has been a major factor in the
increase in investment spending. Nearly one third of all new cars are now leased
rather than purchased outright. A leased car would be counted as investment
spending in the GDP accounts, whereas a driver-owned car would count as
consumption. The rise in car leasing may have increased the investment share of GDP
by as much as a full percentage point.
SOCIAL SECURITY AND MEDICARE
"Trying to Escape the Purgatory of Parity," by Alison Mitchell in the New York Times,
November 26, 2000, Section 4, page 3.
This article assesses the political situation the nation faces with the two major
parties so evenly balanced in the House and Senate. At one point it refers to the
views of Michael Lind, who argues that the "fiscal strain on the Medicare and Social
Security systems ... might turn out to be the crisis that changes the political order."
This is a peculiar statement, since both programs are facing fewer strains than they
have through most of their history. The latest projections show that the Social
Security program will be able to pay all scheduled benefits through the year 2037
with no changes whatsoever. The projections show that Medicare will be able to pay
full benefits through 2022 with no changes whatsoever. Never in its history has the
Social Security been able to go thirty-seven years without a tax increase, nor has
Medicare been able to go twenty-two years. To have made this statement, Mr. Lind
must be unfamiliar with the finances of these programs.
THE STOCK MARKET AND CORPORATE PROFITS
"Two Views of a Marked-Down Market," by Jonathan Fuerbringer in the New York
Times, November 26, 2000, Section 3, page 7.
This article discusses the recent downturn in the market and various analysts'
assessments of its long-term prospects. At one point it gives a set of estimates for
annual profit growth for the S&P 500 companies for the next ten years. The range for
these estimates is 9.8-12.5 percent. It is worth noting that the Congressional Budget
Office projects that all corporate profits will grow on average less than 2.0 percent
annually over the next decade. Profits for the economy as a whole usually grow
somewhat more rapidly than for the S&P 500, since this index is composed of larger,
well established firms, and excludes rapidly growing start-ups.
OUTSTANDING STORIES OF THE WEEK
"Curse of the Wind Turns to Farmers' Blessing," by Douglas Jehl in the New York
Times, November 26, 2000, Section 1, page 1.
This article reports on the spread of wind-generated electricity across much of the
mid-west. The article points out that with modest subsidies from the government,
wind power is already competitive with electricity generated from fossil fuels in many
areas.
"Amazon.com Is Using the Web to Block Union's Effort to Organize," by Steven
Greenhouse in the New York Times, November 26, 2000, page C1.
This article reports on the various tactics that Amazon.com is using to prevent its
workers from joining a union.
"Selling Cheap 'Generic' Drugs, India's Copycats Irk Industry," by Donald McNeil, Jr., in
the New York Times, December 1, 2000, page A1.
This article discusses the Indian pharmaceutical industry. Since it is not forced to
honor U.S. patents, it is often able to sell drugs for prices that are one quarter, or
even one tenth, of the price charged by U.S. firms.
"Entrepreneurs' Golden Age Turns Out to Be Mythology," by David Leonhardt in the
New York Times, December 1, 2000, page A1.
This article shows that the widely held view, that new technologies have promoted a
surge in individual entrepreneurs, is wrong. The percentage of workers that are
self-employed has actually fallen over the last decade.