2
Over a five-year period, from 1987 to 1992, governments signed international treaties on two of the most profound challenges in international environmental governance: the thinning ozone layer and warming climate. On the first front, the 1987 Montreal Protocol set an initial schedule for cutting the pollutants most harmful to ozone, authorized the creation of expert committees to evaluate further controls, and required governments to keep convening to consider next steps.1 On the second front, the 1992 United Nations Framework Convention on Climate Change (UNFCCC) likewise set goals for cutting emissions, created committees to focus on technological and implementation challenges, and mandated subsequent meetings—again with the aim of progressively tightening controls on emissions.2 Both treaties exempted developing countries from their obligations or granted them long delays in imposing any controls on their pollution.
On paper, the two documents were quite similar.3 Indeed many of the same diplomats negotiated the two texts, and in the recollections of prominent participants, Montreal was the model for what came after in climate change.4 But despite these connections, the institutional machinery created to implement the two agreements differed almost from the beginning. Over time these differences shaped the evolution of the agreements themselves, obscuring the original appearance of commonality.
The performance of the two treaties diverged sharply as well. The Montreal Protocol has manifestly led to deep reductions in emissions of ODS, to the point that the ozone layer is now healing itself, albeit slowly. By contrast, the UNFCCC control mechanisms—and the subsequent 1997 Kyoto Protocol, which turned the general obligations of the UNFCCC into specific and binding commitments—have had little appreciable effect on the emissions of warming gases.5 While the UNFCCC agreements have doubtless contributed to a growing awareness of climate dangers, the failures of this apparatus are a significant part of the reason that the global pollution of greenhouse gases has been rising and planetary warming has been accelerating.
This chapter seeks to explain these divergences. The root cause, we maintain, is to be found in the underlying logic and institutions of governance in the two regimes. These design choices were, as is often the case with historical events of this degree of complexity and uncertainty, powerfully shaped though not compelled by differences in the background conditions under which the treaties arose.6
In the case of Montreal, we trace the incentives and background ideas that led to an experimentalist regime that drew firms and governments into collaboration in solving concrete pollution problems. We show how this form of problem-solving, once institutionalized, led almost immediately to an explosion of innovation that made it possible to set and implement ever-tighter limits on pollution. When progress did stall, the same institutional machinery allowed for the resetting of targets based on informed judgments about the level of pollution control that industry and governments could achieve. In time, the process of joint problem-solving and the results it produced led to deep changes in the interests of the actors. Major industrial firms previously opposed to pollution controls became enthusiastic supporters. Leading developing countries, from China to Brazil to Vietnam, shifted from resisting to embracing—sometimes zealously—pollution reduction efforts.
By contrast, we show how the UNFCCC regime—as it came to be embodied in the Kyoto Protocol—was not designed for collaborative, concrete problem-solving. Rather, it was designed to set unambiguous limits on allowable pollution, and then leave matters of implementation to national governments and firms on the logic that they alone knew the best ways to control pollution in their own circumstances. The diplomatic processes that arrived at those limits kept industry at a distance in the fear that public-private cooperation would invite regulatory capture. In the eyes of many of the architects of the UNFCCC agreements, this separation of responsibilities between diplomatic processes (controlled by government) and implementation (ultimately dominated by firms) could be taken one step further: given credible, country-specific binding limits on emissions, a market could be established that would allow the trading of quotas that would reward and give appropriate weight to superior solutions. Kyoto thus included several trading mechanisms that in theory, assured an efficient outcome by rewarding polluters with the lowest cost of abatement—regardless of sector, pollutant, or location—for intensifying their efforts. The reliance on market incentives as necessary and sufficient to induce change reflected the growing orthodoxy in the 1990s in the advanced countries and international economic governance that favored markets over bureaucracies as the instruments for solving problems.7 The more complex the problem and unpredictable the solutions, this thinking had it, the greater the need to let market forces find the way. Yet in the case of climate change this approach produced essentially no innovation—certainly no burst of new technologies and strategies of the kind that accompanied the installation of the Montreal machinery—and arguably, no reduction of pollution beyond what participants would have undertaken in the absence of any agreement.8 If anything, it produced a hardening of the initial conflicts of interest among the parties, deepening the division between advanced and developing countries. If diplomacy evolved into problem-solving with the development of the Montreal regime, in climate change, diplomacy remained in control.
This story has profound lessons for the value of experimentalist governance. But before we proceed to tell this story in detail, we have to address a common objection: that limiting climate change and protecting the ozone layer are such fundamentally different problems that methods effective against the one cannot be usefully applied to the other. On this view, ozone protection is the lesser challenge. It involved merely a few large, advanced countries and a few large, highly capable ODS-producing firms that stood to benefit if regulation drove established chemicals from the market. Moreover, this objection goes, the science connecting ODS to a dangerous deterioration of the ozone layer, harmful to human health and natural ecosystems, was clearly established almost from the start, and the technologies needed for safe substitutes were easily identified. In climate change, the opposite is true. The problem sprawls across virtually every aspect of life, involving countless actors with widely differing capacities. The science, though clear in its direction, remains daunting in its complexity, continuously generating differences among experts that critics can construe as confusion and doubt to avoid costly regulation, and the technologies needed for solutions sit far beyond the frontier of innovation. In short, the path to an ozone solution was obvious and easily traversed, while in climate it remains anything but.
There is something to this contrast. The climate problem implicates essentially all of industry and agriculture, while ozone-destroying chemicals are more marginal. For this reason alone, the reduction of warming pollution touches off more complex and ferocious political fights than disputes over ODS. There are more subtle differences as well. Ozone diplomacy came first, as developing countries were just beginning to articulate their interests in debates about how to govern the global environment. They were not much involved in the original crafting of the Montreal Protocol.9 By contrast, in climate diplomacy, which began just a few years later, developing countries were much more aware that emission controls might slow their own economic development, much more alert to the injustice of being charged for climate harm caused by the accumulated pollution from advanced countries, and much better organized politically and diplomatically.10
But despite these differences, little else in the contrast of the two problems withstands scrutiny—and least of all the suggestion that the solution to the ozone problem was significantly more obvious and easier to implement. From the time the first alarms were sounded regarding ozone depletion, it took some fifteen years of public mobilization in various countries to create the setting for negotiating an international agreement, with many starts, stops, and wrong turns. The political and technological solutions to the problem were not obvious to the eventual parties to the ozone treaty. The science of ozone depletion likewise progressed, as does nearly every new subdiscipline of science, by fits and starts. The discovery of a “hole” in the ozone layer above Antarctica in winter 1985, right in the middle of the diplomatic process that would lead two years later to Montreal, revealed profound uncertainties in ozone science. Prevailing models of atmospheric science did not predict such a hole, much less whether human activity had caused it.11 And while the science wavered, the technological prognosis was steadfastly discouraging. Leaving aside limits on the ODS in aerosols (where they were mostly used as propellants for hair spray and other toiletries, and easily replaced), a RAND study in 1980 predicted that it would be possible to find substitutes for at most 25 percent of ODS, at any price; a second authoritative study, reporting disagreements among the many experts consulted, allowed it could be possible to aim for, at most, a 50 percent reduction.12 When the first international set of cuts was agreed on in Montreal, governments and industry were unsure what level of pollution control would be achievable.13 Only when the Montreal regime created sectoral committees—in which ODS-using firms were invited to join with government regulators and academic experts in searching for alternatives—did the full array of solutions start to emerge. Sectors such as industrial solvents and flame-quenching halons, where substitutes were widely presumed to be extremely costly or even nonexistent, quickly reduced or eliminated ODS use.
The lesson is clear. In the case of Montreal, it was not the confident expectation of quick and painless solutions that led to a problem-solving regime but rather the formation of such a regime that made the problem manageable. The problem of ozone depletion is certainly more circumscribed than that of climate change. But far from being categorically different, it is of the same general type, subject to the same kinds of uncertainty regarding scientific and technological understanding—and the same kinds of political disputes as well. What works for one is instructive about what can work for the other. Unfortunately, though, what worked in Montreal was not tried in the case of climate change.
We turn first to the story of Montreal, discussing its experimentalist institutions in detail. Then more briefly, we explore why, at nearly the same time, and in the absence of any credible threat of regulation or any encouragement of cooperation among firms and governments, the climate regime went in a sharply different direction, toward a system in which pollution reductions would be secured by the profit-maximizing decisions of individual firms instead of a collaborative search for new possibilities for greener production. Scholars and policy makers have learned a great deal from the failures of Kyoto in climate, although the efforts to apply those lessons remain fraught. We think there is just as much to learn from the successes of Montreal in protecting ozone, and this chapter aims to redress the balance.
The Origins of Environmental Diplomacy and the Success of Montreal
The prehistory of global environmental diplomacy stretches back to the end of World War II. The first wave of postwar international environmentalism led to international agreements on topics such as wetlands, endangered species, ocean dumping and regional air pollution, and in 1972, the creation of the United Nations Environment Programme (UNEP) as the “environmental conscience” of the international system.14 UNEP rose in prominence through its work on projects such as an action plan to clean up the Mediterranean Sea—a plan that became a model for other regional seas around the world. By the mid-1980s, concern focused increasingly on systemic, potentially irreversible assaults on the global environment such as deforestation, the thinning of the ozone layer, the reduction of biological diversity, and eventually greenhouse warming.15 Mitigation in these cases required the provision of expensive public goods, with attendant collective action problems whose solution called for enhanced international cooperation.16
Even as the need for global cooperation increased, the terms of cooperation were changing. A growing number of developing countries were industrializing rapidly at the time, becoming or promising to become significant polluters in their own right.
Growth—and the sense of economic prowess that came with it—added new force and meaning to the Global South’s postcolonial resentment of the West’s hegemony in world politics. Developing countries demanded the same right to achieve prosperity that the advanced countries, in disregard of the environment, had claimed before them. From this followed the demand for compensation for contributions to global public goods along with a rejection of onerous commitments and intrusive monitoring that could inhibit growth. Managing the tensions between developed and developing countries, with the latter increasingly well organized and assertive, compounded the already-large challenges of managing global common pool resources just as ozone and then the climate emerged on the international agenda.17
It was under these conditions that atmospheric scientists discovered in the 1970s that the chlorine in CFCs depleted the ozone layer through catalysis. Each molecule of these chemicals could destroy many multiples of ozone, meaning that small quantities of industrial pollution could yield big global harms. Because CFCs are easily shifted from the liquid to gas phase, and are inert and nontoxic too, they were widely used as refrigerants as well as propellants in spray cans and for blowing plastic foams in industrial production. Some CFCs and related compounds are also good solvents that could be used safely as cleaning agents for degreasing industrial machinery or removing residues from circuit boards during soldering. Although most of the hypothesized ozone destruction came from chlorinated compounds, bromine—just below chlorine in the periodic table of the elements—was almost immediately implicated too. Brominated substances such as halon were widely used in fire extinguishers; other compounds of this class were used to fumigate agricultural products, among diverse other applications.
The discovery that the ozone layer might be in jeopardy mobilized public opinion in a number of advanced countries and led quickly in the United States to legislation with long-term consequences. Headlines in the US press announced the coming “Death to Ozone” and that “Aerosol Spray Cans May Hold Doomsday Threat.” Environmental groups, rapidly expanding in size and influence, responded almost immediately: the Natural Resources Defense Council proposed a ban on CFC aerosols within months of publication of the paper linking chlorine to ozone depletion; public campaigns shaming consumer products companies for using dangerous substances resulted in a 25 percent decline in the sales of aerosols; several states banned aerosol CFCs in spray cans.18
Public pressure quickly reached Congress as well. The 1976 Toxic Substances Control Act defined “toxic” broadly enough that the Environmental Protection Agency (EPA) used it to prohibit CFC aerosol propellants two years later. More important, the 1977 amendments to the Clean Air Act, undertaken mainly to deal with local and regional air pollution, were extended to require the EPA to conduct regular assessments of the ozone problem, and instruct it to propose regulations for “any substance, process or activity” that may reasonably be expected to harm the ozone layer.19 Acting on this provision, the EPA created a special office to consider the regulation of ozone thinners, making the eventual imposition of controls entirely likely.
Firms responded with a mixture of damage control and defense of the status quo. Users of ODS in aerosol packaging introduced a massive “CFC Free” labeling program to reassure the public that their spray cans did not threaten the environment. The large producers of ODS, meanwhile, challenged the new claims directly, arguing that the science was inconclusive, alternatives to CFCs were unsafe, and brash policy would result in “direct economic, health and safety” harms.20 The CEO of DuPont, the biggest US producer of ODS and the company with the brand most at threat, tried to blunt criticism by pledging to cease production of CFCs if conclusive evidence linking them to atmospheric harm should be found—little anticipating that the company would have to honor his pledge in a few years.21
A few of the firms in ODS-facing industries undertook research programs, modest in relation to their budgets for public relations campaigns in this period, to explore the feasibility of substitutes. A few close molecular relatives of ODS showed promise, but synthesis at a commercial scale looked to be prohibitively expensive, and there were concerns with toxicity. DuPont abandoned its investigations in 1980. In retrospect the research programs were plainly defensive, designed to permit the firms to capture the gains from innovation should they prove easily achievable, but in the more likely case that progress proved elusive, the programs would provide evidence against mandating a costly regulatory leap into the unknown.22
Then there was a lull. Bans on some applications in the United States and a few other countries flattened global growth in the total use of CFCs for a few years. But increasing consumption in other countries and for uses not covered by the restrictions erased the gains. By the 1980s, the global consumption of ODS was on the rise again.23 To further complicate the picture, the consensus in ozone science wobbled; as pollution increased, it seemed that ozone depletion, though still a serious problem, might not be as bad as originally feared.24
Against this backdrop of shifting science and intense yet sporadic public concern, UNEP convened meetings to discuss a treaty to address the problem.25 Proceeding deliberately, but under little pressure of urgency, the diplomacy resulted in early 1985 in the Vienna Convention for the Protection of the Ozone Layer.26 It contained few obligations except that governments should keep meeting and talking.27 The governments most engaged in this diplomatic process were principally the Western industrialized nations under the greatest public pressure to address the ozone problem.
That same year, in 1985, as mentioned above, a hole in the ozone layer was detected exactly where and when climate scientists least expected it: over Antarctica, in the darkness of late winter. At the time, the chemistry of ozone depletion assumed that bright sunlight was required for the key reaction that broke apart chemical bonds and led, after many further steps, to ozone destruction. Dark places should have been the most protected from this process, allowing for the greatest accumulation of ozone. The Antarctic ozone hole was thus as much a shock for science as for industry and politics. Even though its causes were not initially understood, it showed the ozone problem could be much more urgent and mysterious than expected.
The negotiations for what would soon become the Montreal Protocol, underway even before the Vienna Convention entered into force, turned urgent. On September 16, 1987, diplomats in Montreal signed an agreement obligating the parties to cut CFC use in half within two years and freeze the use of halons. For most of Europe and Japan, reaching this target meant little more than applying the bans on CFC propellants already in place in the United States, while US compliance would require breaking new ground, in accord with the growing domestic pressure for action. By a coincidence so nice as to seem contrived, the science achieved important progress that very day: a converted U2 spy plane flown into the Antarctic hole with sensitive instruments measured a sharp increase in chlorine concentrations just as ozone concentrations dropped—data that analyzed later, confirmed the role of human agency in the form of CFCs causing the hole.28 Soon thereafter the scientific puzzle was on the way to a solution; the catalysis of chlorine and bromine were indeed at work, but through a process not anticipated in the research of the early 1970s. The destructive chemistry in the Antarctic hole occurred on the surfaces of particles in the icy clouds of the polar stratosphere, without the need for much sunlight.29
For firms, too, the discovery of the ozone hole, in combination with the resumption of growth in the market for CFCs (and compounded by embarrassing revelations about their abandoned search for substitutes), tipped the scales from temporizing to active cooperation with regulators. Often the first to break rank were the users of ODS, which unlike the established producers of ODS, had no reason to prefer any particular substitute process over others. As they began cooperating with each other and the EPA in the search for alternatives, they also gave shape to the nascent institutions of the Montreal Protocol, extending this government-industry cooperation globally.
How Montreal Works
The success of Montreal depended on the way control measures were assessed and reviewed.30 But interestingly, the treaty text governing that process—Article 6 of the 1987 Montreal Protocol—is skeletal.31 It requires the parties to evaluate existing controls and the need for new ones at least every four years, beginning in 1990, “on the basis of available scientific, environmental, technical and economic information,” and to convene for this purpose panels of experts in each of these broad areas at least one year before the reviews.
Notwithstanding this spare instruction—indeed, empowered in part by its vagueness—the experts from government, industry, and academia chairing the initial committees or writing chapters in their reports immediately proposed elaborations to the bare scheme in the text, and the parties accepted them. Their first, tentative efforts revealed that there was nothing like a blueprint for institution building at the start; a committee, no sooner called into existence, was fused with another or spawned subcommittees that became fundamental in their own right. But progress was rapid, and the purposiveness of the quick reorganizations indicated a shared willingness to undertake collaborative research on alternatives and a ready understanding of how to put that research into operation.
By the first Meeting of the Parties in 1989, a structure and working division of labor had emerged. The Scientific Assessment Panel was to report periodically on the overall health of the ozone layer and, if need be, propose extensions of the scope of the whole regime—the kind of comprehensive assessment of progress that would come to be called stocktaking in climate change discussions.32 Concrete problem-solving was to be done in Technical Options Committees (TOCs), one for each sector, grouping industry specialists with corresponding regulators and researchers. Initially, TOCs were established in refrigerants, foams, solvents, aerosols, and halons; other TOCs were created as the regime expanded. Each TOC would become immersed in the process of implementation—for example, by identifying and helping to clear bottlenecks in industry, and linking suppliers of new technologies to users. The TOCs would also evaluate exemptions to commitments where elimination of a particular use proved premature, as well as the feasibility of accelerated phaseout schedules that allowed the parties, if they chose, to ratchet commitments tighter. The work of the TOCs was overseen by the Technology and Economic Assessment Panel (TEAP), which would look at the feasibility of adding new chemicals and uses for which a TOC wasn’t yet in place.33 Together the TOCs and TEAP organized the exploration and evaluation of promising alternatives in each sector, and translated the findings into goals that, while demanding, demonstrably met the test of feasibility.34
For the scientists and engineers organizing the new regime, there was nothing novel about the idea of collaboration in the solution of shared problems. As they were connected by education and work experience to professional communities that value reciprocity and honor elegant solutions, such cooperation was almost a reflex. For the concerned firms, however, the impulses conflicted. Having avoided engagement with regulators and, even more, one another in the preceding decade for fear of encouraging controls, firms had incentives to avoid collaboration. But as the likelihood of limits increased dramatically, the attraction of cooperation increased.
Two closely related developments helped tip the balance in favor of cooperation. First, the growing threat to US industry from Japan and other countries had sparked a national discussion about the need to foster precompetitive industrial research and development. The US Congress passed the National Cooperative Research Act in 1984 to encourage such activity, most notably by effectively exempting it from antitrust liability. Precompetitive research became a legitimating trope for organizing collective industry responses to novel challenges. Second, the EPA actively used the 1984 Act to advance the collaborative pursuit of ODS substitutes. Even before the Montreal structure had taken shape, the EPA had supported the formation of research consortia for the reduction of halons, speeding the deployment of alternatives in automotive air-conditioning, and crucially, testing the toxicity and environmental sustainability of new fluorocarbons. It then played a similar role within the ozone regime.35
Stephen Andersen, the head of industry cooperative programs in the EPA’s Stratospheric Protection Branch as well as cochair of numerous Montreal committees and panels, including the Solvents TOC, was a key link between Montreal and the agency.36 The scope of Andersen’s activity illlustrates the fluidity of the emerging arrangements, degree of the EPA’s commitment to joint efforts, and breadth of industry’s disposition to cooperation. To the Solvents TOC, he recruited AT&T and Nortel, both of which used CFC-based solvents extensively in the assembly of circuit boards. Work on this TOC convinced both companies of the mounting advantages of collaboration, and the experience led them to form a separate international research consortium—the Industry Cooperative for Ozone Layer Protection, which would later play an important role in helping developing countries adopt ODS substitutes.37 In addition to actively encouraging the formation of such consortia, the EPA sponsored annual conferences to circulate the latest developments in technology and alert industry to the direction and pace of regulation.38 When standard setting or similar coordination problems stalled progress, the EPA convened ad hoc negotiations to restart it. Quickly the Montreal TOCs and other Montreal institutions began to coorganize such events with the EPA, and the line between national regulation and international institutions blurred. The EPA was reducing the costs of cooperation in the United States by helping potential partners find each other and supplying templates for organization, while at the same time increasing the costs of inaction with the promise of increasing regulatory controls. The TOCs, meanwhile, were propagating these actions internationally. The emerging cooperative equilibrium proved as compelling as had the compulsion of the status quo.
The Solvents TOC demonstrated the advantage of the joint search for solutions over the search capabilities of even the most capable incumbents left to themselves. Critically, it looked across the whole supply chain and beyond to other industries, not just at producers of the ODS. Established producers focused on the most familiar alternatives to the substances they already manufactured, assuming that the trajectory of development they had mastered would continue to be the path to superior solutions. Users were different. Technically sophisticated users such as AT&T and Nortel, which had a shared interest in finding an acceptable ODS substitute but no interest in producing that substitute themselves, were not attached to any particular solution, and thus were willing to search widely and together. AT&T, for instance, had begun in the late 1970s to replace CFCs in circuit board assembly with aqueous solutions for reasons of cost as well as environmental and worker safety, but it had not yet made the switch in crucial high-value, high-precision circuit board operations known as surface mounting. As Montreal was coming into effect, the company chanced on a small firm producing a terpene-based solvent that seemed suited to the task, and the two companies jointly developed a process that could be applied to surface mounting. Shortly thereafter, on a site visit organized by the new TOC, a group of experts observed yet another solution: using a machine to solder in a controlled atmosphere could prevent oxidation of the solder joints, eliminating the need to clean the circuit board with solvents in the first place. AT&T, Nortel, and Ford each bought several of the balky machines and collaborated to make them robust enough for their use.39
The proliferation of substitutes benign to the ozone layer as well as processes not requiring any cleaning at all took the incumbent ODS producers by surprise. They had expected to profit from the shift away from ODS by selling their preferred alternative, only to find that users’ innovations transformed the market under their feet. By 1990, the United Kingdom’s Imperial Chemical Industries—one of only two producers of CFC solvents that also sold the cleaning equipment that used solvents—began to cannibalize its own CFC supply business by shifting its solvent equipment sales to devices that used terpenes.40 In the jargon of business today, the CFC producers had been “disrupted.” Fixated on a sophisticated and, it seemed, self-evidently superior product whose development they had mastered, they ignored potential threats from technologies they had dismissed or never considered, until new competitors dislodged them from the market.41
But even within sectors such as solvents where progress was disconcertingly rapid, there were occasionally subsectors in which users’ requirements were so exacting that substitution had to proceed cautiously. The TOCs would review the requests and propose an exemption, conditional on effort.42 As many of these chemicals were phased down to zero, the need for these elastic exemptions often grew. Tightening too fast—beyond the limits of good faith, fully informed efforts—invited political backlash.
Perhaps the best example of tightening without overreaching is metered dose inhalers, a drug delivery device that used ODS chemicals as the propellant. Exemptions for metered dose inhalers—with quantities set for each country where they were sold and were critical to the public welfare—were reviewed annually with technical experts, who then determined whether alternative metered dose inhalers had demonstrated adequate and safe performance for each of the drugs they delivered. Once two to three viable alternatives were proven, the exemptions were quickly removed. Industrialists thus could not afford to slack off in the search for alternatives, lest they be left behind when the market shifted.43
In some exceptional cases, user-led innovation was inhibited within an entire sector. In refrigerants, for instance, efficiency required that long-lived cooling equipment be precisely matched to the properties of the heat-transferring gas. The resulting codependence between refrigerant producers and equipment makers meant that the latter could not strike out on their own. Nor did the former have incentives to cooperate with each other, since each hoped to develop a substitute with distinctive properties, enhancing its position in the market. The situation was similar in insulating foams, with the additional complication that even if producers of foam-blowing gases and their customers could converge on an acceptable substitute, any substantial increase in the price of the final product could drive demand away from foams entirely to other insulating materials. Because of these entanglements, a cooperative search of any kind was difficult to organize, and these two sectors were among the slowest to innovate.44
Nevertheless, there was a profusion of alternatives in almost every sector by 1990, and two years later it was evident that the use of nearly all the original CFCs and most of the halons could be effectively eliminated. As Ted Parson, the leading chronicler of the ozone regulatory history, states flatly, “There was no technical reason that the burst of innovation that began in 1986–1988 could not have happened several years earlier.”45 The barrier then was not the want of fundamental scientific or technical knowledge but rather the reluctance to do the hard work of development needed to make potential solutions actually useful. What made the difference were penalty defaults and government support of cooperation, and with them a shift, sector by sector, of industry interests in favor of a joint search for solutions.
But as the new problem-solving institutions were consolidating and proving their worth, the Montreal regime encountered two limits, each in part a product of its very successes. First, while production and use declined rapidly in advanced countries, they increased in large developing countries such as China, India, and Brazil—none an original party to the Montreal Protocol. Second, as substitutes were found for the original CFCs and halons, it was necessary to expand controls to include new substances.46 Some of the additions were familiar products, long in use, that simply advanced in priority as the Montreal regime first addressed the biggest problems. Others were new substances created as ODS substitutes that had been accepted despite the fact that they added to global warming, but were no longer tolerable once warming itself became an urgent problem. For Montreal to succeed, the geographic scope and substantive sweep of the regime would have to expand.
EXPANDING GEOGRAPHIC REACH
In 1990, when the parties met in London to adopt their first amendments to the Montreal Protocol, the treaty included only a small subset of developing countries, but still covered 99 percent of global ODS production and 90 percent of consumption.47 China, not yet a party to the treaty, accounted for a small fraction of the unregulated global total. Six years later, China had become the world’s ODS leader, producing 34 percent of the global output and consuming 30 percent. In these years, China switched as well from being a net importer to a net exporter of ODS.48
Given this trajectory, it was clear that China and other expansive, highly capable developing countries such as India and Brazil would see joining Montreal as a mixture of risk and opportunity. The risk was that in agreeing to controls, they would need to accept costs or other burdens that slowed the growth of their economies. The opportunity was to mesh their standards and production processes with those rapidly being deployed in advanced countries, ensuring exporters access to developed markets and helping domestic industry stay abreast of technological development. The eventual deal balanced these considerations: developing countries accepted controls, and the reporting obligations that went with them, in return for compensation for the “agreed, incremental cost” of abatement and capacity-building technical support.49 Funding was to be provided by the MLF, comanaged by developed and developing countries.50 Violations were to be punished by trade sanctions limiting the imports or exports of ODS along with products using them.51
The greatest challenge posed by the agreement proved to be helping developing countries build institutions that could effectively foster and supervise complex abatement projects. The solution was an innovative system, along experimentalist lines, of joint planning and an ongoing review of the national infrastructure of ozone abatement. It allowed national governments and the MLF to engage in close monitoring as well as quick revision of not just individual projects but also the comprehensive system of decision-making by which projects were selected, budgets assigned, results reported, and commitments adjusted.
Under the arrangement, developing countries seeking support from the MLF had to propose a country program describing the institutional and policy frameworks implementing the country’s commitment to abatement. The “institutional framework” comprised the entities that would choose projects and monitor the phaseout of ODS, starting with a National Ozone Unit as a central coordinating point (augmented in large countries with regional and local counterparts) and system for tracking progress. The “policy framework” described regulations or voluntary certification schemes encouraging firms and other actors to phase out ODS. Reports on implementing the country programs were to be submitted annually. Taken together, these requirements integrated the review of compliance with control requirements along with discussion of the need for technical support or other forms of capacity building into a single, continuing exchange. Advanced country sponsors were thus reassured that projects stayed within budget and actually eliminated ODS-using technologies; developing countries had, in addition to funding, assurance of timely help with problems ranging from decoding the technicalities of applying for financial support to installing new equipment or building reporting systems.52
China played an important role in insisting on and negotiating the MLF, and its experience with the agreement has been emblematic. Exports of refrigerators had declined by 60 percent between 1988 and 1991 as advanced country markets shunned the import of equipment using CFCs.53 There was no mistaking the thrust of development. Still, the Chinese ministries then directing the economy were divided. The State Planning Commission opposed joining the treaty on the grounds that China lacked the financial and technical capacities to switch to ODS substitutes; the Chemical Industry Ministry was concerned that CFC substitutes would have to be imported, damaging China’s nascent chemicals industry and directly threatening plants, recently built, to produce CFCs. On the other hand, the Ministry of Light Industry, representing export interests, and the National Environmental Protection Agency (NEPA) favored joining the protocol. In the end, the high-level State Council asked the NEPA to convene a government-wide cost-benefit analysis of the choices, and the outcome was to ratify the treaty—but only on the condition that agreement could be reached on what became the MLF mechanism for funding. With the MLF in place, cooperation with donors and technical experts helped the Ministry of Light Industry, NEPA, and their allies overcome early failures in implementation, strengthening their hand in domestic politics and reinforcing China’s commitment to the ozone regime.54 As capacities increased, the Chinese found projects that paid for themselves, reducing dependence on the MLF.55 Similar conflicts surrounding ratification played out in countries such as Brazil, Mexico, Thailand, and Turkey, with similar resolutions and early effects of participation in the protocol.56 But China stands out in its ability to make use of the possibilities for development that the elimination of ODS afforded. Indeed, in three basic features—deliberately assessing the national interest, tapping into multiple forms of support in addition to funding to transform industrial policy, and accepting a reporting regime of mutual transparency—China anticipated the institutional arrangements that would come to define an emergent global trade regime, which we discuss in chapter 7. Those arrangements, by design, help governments and firms govern common problems by realigning national policy strategies and interests, and increasing transparency and accountability.
In some cases, developing countries embraced Montreal with such determination that they joined advanced country counterparts in ensuring the rapid reduction of ODS. For example, participants in a 1994 study tour to Vietnam organized by the Industry Cooperative for Ozone Layer Protection and UNEP discovered (and closed) an important loophole during a site visit to a plant assembling autos from German and Japanese kits: some of the air conditioners being installed were models using CFCs that had been withdrawn from circulation elsewhere and dumped on the Vietnam market. Another site visit turned up refrigeration equipment imported from Japan that likewise was no longer for sale there or in other advanced countries. Concerned that such intentional or inadvertent dumping could be widespread, representatives from firms such as AT&T and governments such as the United States (represented by Stephen Andersen) and Vietnam composed a letter demanding that multinationals pledge to police their own as well as, implicitly, one another’s behavior. By the next day, the letter had been signed by the key ministries of the Vietnamese government, and a few months later, Vietnam, together with the Industry Cooperative for Ozone Layer Protection and US EPA, announced that forty multinationals had joined the pledge. The cooperative equilibrium that had come to dominate the domestic response in the United States and other Western countries to ODS reached the crucial developing countries too.57
EXPANDING REGULATORY COVERAGE AND GOALS
The complement to the geographic expansion of the protocol regime was the expansion of its jurisdiction to include new chemicals beyond the short list of CFCs and halons in the original 1987 treaty. The most vexed expansion came in 1992 with amendments to include methyl bromide. The difficulties of phasing out this substance laid bare a design limit that strained but did not break the problem-solving machinery of the regime, and pointed to the need, as we discuss in chapter 5, to complement sector-based variants of experimentalism with place-based ones.
Methyl bromide was widely used, especially in developing countries, as a broad-spectrum pesticide and fumigant in agriculture. An important application was sterilizing the soil before planting in it. While there were substitutes for almost all applications, most of these were crop and pest specific, and often place specific as well; many depended on new technologies and costly practices that could in turn only be effectively deployed with technical assistance.
Pesticides based on methyl bromide, for instance, could be replaced by integrated pest management, in which organisms that naturally prey on the pest are introduced into its immediate environment to control it. However, even when the species of the prey is the same, different predators thrive in different environments. For another example, seedlings can be protected from disease and pests with hydroponic techniques. But hydroponic methods for protecting, say, tobacco seedlings in Zimbabwe cannot simply be transferred to other crops and locations; a breakthrough in one place does not therefore automatically clear the way for widespread emulation.58 Developing such particularized solutions, proving they work under local conditions with affordable and accessible inputs, and teaching farmers to use them is expensive and time-consuming. The burdens of such differentiated transitions are especially great for developing countries, where research capacities and agricultural extension service may have to be built out to take on the new tasks.
China was particularly aware of the need to field test substitutes for methyl bromide, and secure farmers’ acceptance through on-field demonstrations and other methods. At the urging of the Ministry of Agriculture and State Bureau of Tobacco Monopoly, the Chinese government delayed ratification of amendments establishing and tightening controls on methyl bromide because of these concerns.59 China’s hesitations were widely shared. Developing country exporters of other high-value agricultural products such as cut flowers and fresh vegetables resisted controls as well.60 Producers of methyl bromide in advanced countries, which did not have much to fear from public pressure at the time as activists focused on other industries, further mobilized this opposition in hopes of weakening or averting regulation. Together these actors withheld information from the TOC, overstated the difficulties of switching, and pushed incessantly for critical use exemptions.61
In the end, though, the TOC system worked as it did with every other chemical—albeit with fewer industrial supporters, at a much slower pace, and with greater contention. Critical use exemptions in developed and developing countries continue to the present day—nearly three decades after the use of methyl bromide was first limited—precisely because substitutes are so often context specific. A patchwork of institutions encourages local searches; the US EPA and Department of Agriculture, for instance, maintain a website together that gathers current information on “laboratory, field, and on-farm research and technology transfer topics” related to methyl bromide alternatives.62 Meanwhile, the MLF funds projects—hundreds of them—that demonstrate the feasibility of alternatives, train the trainers who will help implement them, and then orchestrate the actual phaseout.63
The persistent difficulties in phasing out methyl bromide reveal a design limit in the cooperative problem-solving institutions of the Montreal regime. The sectoral TOCs work well when the goal is to substitute one standard solution with another—say, to replace an ozone-depleting solvent with an ozone-safe solvent or a production process that doesn’t require solvents at all. Whether the search for such general solutions is conducted jointly (through site visits or collaborative research) or in parallel (as firms and other participants investigate possibilities in their respective domains), the findings are pooled and reviewed in the TOC. This open-ended process regularly finds substitutes that the incumbent producers had considered scarcely or never—and superior to the ones they did.
But this system falters when alternatives are heavily context specific. In this case, the limited transferability of results means that ODS users have little incentive to cooperate with each other in searching for solutions. This obstacle, in turn, makes collusion with producers more appealing as a bulwark against change. In these circumstances, determining the solution through centrally coordinated search and review can be, at best, the frame as well as starting point for local investigation of what exactly works in a given place; the crucial, concrete problem-solving takes place on the ground. A sectoral TOC can take note of these efforts, but the local context is too important to allow many useful general rules for replacement of the offending chemicals and practices. In chapter 5, we will see that many of the most pressing current problems of decarbonization also require place-based solutions.
Climate Change: Wrong Turn to Kyoto
In contrast to the overarching experimentalist successes of Montreal, cooperation on climate change evolved along a different track—one that created institutions that were rigid and tightly controlled by diplomatic processes, and thus did not allow for much experimentation. In short, despite extensive diplomacy and growing attention to the problem of global warming, they didn’t do much problem-solving.
Climate came on the global agenda in the late 1980s as a natural progression from the concern with ozone. At the time, many climate diplomats spoke of the Montreal Protocol as the model for a treaty on greenhouse gases. They regularly invoked the agreement and its early successes as a demonstration of how the world could respond with dispatch to a planetary threat, although they did not call much attention to how the Montreal Protocol pointed the way to new institutional forms of cooperation.64 Where uncertainty was recognized, it was nearly always uncertainty in the science of warming rather than uncertainty regarding the way forward. And this limited recognition of uncertainty was usually coupled with calls for more research as opposed to calls for institutional forms to better manage the uncertainty.
Despite the perception that there was (and should be) continuity in the forms of international cooperation used to tackle these two problems—ozone and warming—the situation had changed fundamentally since the early days of Montreal. The background conditions that had induced collaborative problem-solving in the case of ozone were largely absent in later climate diplomacy. While penalty defaults had accumulated in the fifteen years it took to arrive at the ozone regime, nothing similar had happened with respect to climate. Efforts to establish a credible, global regime for regulating illegal logging and other threats to forests (a major source of global emissions) were a centerpiece of the 1992 Earth Summit in Rio de Janeiro, for instance, but those efforts failed—a sign to firms and governments on the front lines that they might not have to worry much about the consequences of their behavior. In the case of ozone, the high likelihood of regulation or reputational consequences for intransigence made inaction or active resistance a risky strategy. By contrast, there were few such expectations or incentives in the formation of the regime to slow global warming. Starting in the 1990s, European governments and activists at the forefront of the movement for a climate regime focused increasingly on the need for action; in time, they developed a few initiatives on their own to target climate-related activities such as bans as well as controls on imported tropical lumber and palm oil. But outside a handful of industries, few firms felt much need to change. In most industries, if firms discussed climate change at all, it was usually as a matter of corporate social responsibility and public relations, not a redirection of corporate strategy. (Today, climate penalty defaults are a lot bigger in a few places in the world—but only after more than three decades of policy efforts.)
Meanwhile, convening power over the climate negotiations—along with de facto veto power over their outcome—was passing to the developing countries, which were deeply skeptical of cooperation with multinational firms and the advanced countries in which they were headquartered.65 UNEP had played the central organizational role in the ozone negotiations; the activism of its largely scientific and technical staff appealed to counterparts the world over. Governments inclined to the same kind of activism on warming—member states of the European Union such as Germany, the Netherlands, and the United Kingdom—sought to have UNEP organize the climate change regime as well. On the other hand, as domestic political support for action on environmental issues became more polarized, the United States had turned more cautious. It lobbied to have negotiations framed by the Intergovernmental Panel on Climate Change (IPCC), which had been formed in 1988 to assess climate science and policy, in the hopes that talks would narrowly focus on scientific and technical issues—above all, on the economics of climate change.66
Developing countries, fearful that rich industrialized countries would use climate change to hold back their economic growth while disclaiming their own historical responsibilities for a warming world, rejected these alternatives.67 Instead, through a series of formal decisions, they placed authority for launching the negotiations in the United Nations General Assembly, where they could confidently exert control themselves.68 The developing countries had, in the 1960s, formed the G77 caucus to represent their interests in the UN General Assembly and outside it.69 The caucus was large and powerful, but it encompassed an unruly array of interests—from those of economic powers such as China with expansive industrial economies and export interests, to those of oil exporters that feared regulation of their product, to the world’s least developed countries, including low-lying island nations with little to export and literally everything to lose as the sea level rises with global warming.70 On one front, however, the developing countries were united: their determination that they themselves be exempted from emission controls and the full burden of responding to climate change be assigned to the advanced countries. In any case, since the UN General Assembly, by convention, makes all decisions by consensus, the climate change regime that would emerge did the same, thus giving each developing country a veto over any proposal, no matter its origin. The advanced countries had no choice but to go along.
It took only some fifteen months from the formal start of negotiations early in 1991 to produce a nearly complete text of a climate treaty: the UNFCCC.71 The document was able to be drafted so quickly in large measure because it reflected only what was agreeable, with everyone knowing that consensus yielded the lowest common denominator. The developed country parties agreed formally only to “take the lead in combating climate change and the adverse effects thereof.”72 But aside from some minimal reporting requirements, the UNFCCC did clearly protect developing countries from meaningful—costly—obligations. “Developed” and “developing” categories were defined, and every country was categorized accordingly. The eventual commitments to cut emissions, whatever they turned out to be, would apply exclusively to the developed countries.
Diplomacy on climate change evolved quickly from this first framework of the UNFCCC. For more than a decade, those diplomatic energies focused on creating and managing the Kyoto Protocol. As evidence mounted that the Kyoto system was faltering, it proved difficult to gain consensus on alternative courses. So the diplomats soldiered on, only finally to pause and regroup when all the side deals and subagreements needed to hold together a consensus proved too fragile. That moment of pausing came, as we will see, in 2009, at the annual Conference of the Parties (COP) in Copenhagen. The formal agenda at Copenhagen was to reach agreement on a replacement for the Kyoto Protocol. What resulted instead was an awareness that no agreement was universally agreeable. Copenhagen ended in disarray—supplying an opportunity for fresh thinking.
BERLIN, KYOTO, AND BINDING TARGETS
Because it was largely devoid of content and inoffensive to practically any country, the UNFCCC was quickly and widely ratified. Within two years it entered into force, and the first formal COP was convened in April 1995 in Berlin. Three decisions were taken in Berlin that with little or no deliberate consideration of their broader implications, conclusively ruled out experimentalist problem-solving on the Montreal model, and entrenched the implicit commitment to fixed targets along with the explicit, rigid division of obligation between developed and developing countries.
First, in a declaration known as the Berlin Mandate, the conference proclaimed the indeterminate and hortatory goals of the UNFCCC inadequate, and pledged to replace them with unambiguous and ambitious commitments to targets as well as timetables for their achievement by the third COP, scheduled for 1997 in Kyoto.73 The developing countries insisted that the more precise restatement of purpose “not introduce any new commitments” for them.74
Second, the Berlin meeting restricted membership in UNFCCC committees and all subsidiary bodies to “government representatives.”75 This maximized the control of the state parties over the evolution of the agreement—reducing the risk that independent experts would gain inconspicuous and unchecked influence, but at the price of foreclosing the participation of academics and leading industry experts that made concrete problem-solving possible under the Montreal Protocol.
Third, Berlin adopted a funding program offering basic assistance to developing countries. But it included no support for the kind of comprehensive institution building that was emerging with the Montreal MLF. In the case of ozone, that support was intended to help developing countries not only comply with treaty obligations but also take advantage of the possibilities for technology transfer along with the coordination of standards that facilitate economic growth and exports, and quickly blurred the lines between “developed” and “developing.” Instead, under pressure from donors, the UNFCCC turned to a new mechanism, the Global Environment Facility, recently created as a kind of all-purpose vehicle for funding international projects. The Global Environment Facility was small in relation to the scale of the climate problem, and concentrated, as many international aid organizations do, on the distribution of the funds allocated to it and ensuring that the monies are dispersed on schedule for the agreed-on purposes.
In yet another sign of wariness about any agreement with impact, Berlin was remarkable for not deciding something that the first conferences of treaty parties routinely do decide: rules of procedure. Because of disagreements over alternate voting rules, the COP never agreed on voting systems, and by default—again following UN General Assembly convention—all decisions were (and still are) taken by consensus. This meant that the ambiguities, introduced to secure agreement, accumulated; discrete discussions to resolve the ambiguities proliferated; conference decisions, obliged to address (or at least not unsettle) the partial clarifications became package deals; and the package deals became so unwieldy that nothing of substance could be changed. The practice of consensus decision-making continues to the present.
Why did developed countries and the NGOs that were most motivated to address climate change go along with this framework? To some degree they had little choice because alternative approaches had proved unacceptable to the consensus needed for any diplomatic action. Moreover, the strict system of targets and timetables required by the 1995 Berlin Mandate, which became the centerpiece of the Kyoto Protocol, aligned with the core policy goals of most developed countries. For Europeans and NGO activists—the most reliable advocates for cutting warming pollution—targets and timetables were thought to be the only way to guarantee pollution would go down. The importance of binding country-specific limits was, they thought, one of the lessons from the Montreal experience.76 At the time, few were focused on the kinds of experimentalist institutions that made it possible for Montreal to impose such strict standards while keeping those standards in line with what was feasible.
As many in the developed countries saw it, especially in the United States, Kyoto’s inclusion of a rigid system of fixed pollution reductions could become the foundation for a new kind of international pollution control market. The turn to market mechanisms in the United States arose from broad criticism of the bureaucratic, New Deal state, and in environmental regulation, dissatisfaction with the Clean Air and Clean Water Acts of the early 1970s.77 For critics of the climate regime, the alternative was to shift the burden of finding an effective solution from government regulators to firms. These ideas were being put into practice in the 1980s through the creation of various kinds of “bubbles” (trading regimes allowing the transfer of permits between installations of a single facility, for example, or between old and new facilities) and a nationwide market for sulphur pollution (the leading cause of acid rain). In practice these markets had mixed results at best, as we will see in chapter 4. But politically—and for economists, conceptually—the ideas proved almost irresistible.78
Climate diplomats from developed and developing countries quickly and successfully introduced these promarket ideas into the Kyoto discussions. In principle, emissions trading is even better suited to controlling greenhouse gases than controlling pollutants with regional or local effects such as sulphur dioxide. Given huge global variation in the marginal costs of greenhouse gas abatement, the potential gains from trade were also expected to be huge. Moreover, carbon dioxide pollution is not directly harmful to humans, meaning that a standard concern regarding pollution trading—the rise of geographic “hot spots” of noxious pollution—did not apply.79 For once it seemed that the attributes of the pollutant in question allowed theory to be applied to practice.
Largely at the urging of the United States, supported by Brazil, Japan, and a growing number of other countries, the Kyoto Protocol provided for no less than three emissions trading programs. “Joint implementation” allows for trade between developed countries that had adopted emission control limits, meaning that countries in central and eastern Europe—formally classed as “developed,” but with relatively low abatement costs because their economies had collapsed with the end of the Soviet Union—could sell their surpluses to advanced country counterparts where abatement is expensive. A second mechanism allowed developed countries to pool their commitments if they were part of a broader economic and political union—a feature that allowed EU nations to treat themselves as one and create an EU-wide emission trading system (ETS). Third was the Clean Development Mechanism (CDM), which allowed investors from developed countries to finance emissions reductions projects in developing counties in return for tradable credits. The CDM was seen as the dress rehearsal for a truly global emissions trading system.
In short order, emissions trading also became the centerpiece of the Clinton administration’s argument for entering the Kyoto agreement. Early in 1998, a few months after negotiations concluded, Janet Yellen, then President Bill Clinton’s chair of the US Council of Economic Advisers, asserted that while “a global solution” was “critical to the global problem of climate change,” it was equally vital that global efforts be as efficient as possible. Because the United States had prioritized this goal in negotiations, Yellen maintained, the treaty text gave a cost-conscious public and private decision makers flexibility in when targets were met, what kinds of emissions had to be reduced, and where on the globe the reductions were to take place. Deadline flexibility allowed the parties to reach reduction targets over the course of a five-year “budget,” giving them control over the exact timing of their programs. In terms of the impact on warming, the exact annual flow of emissions didn’t matter much, on this line of thought, because the total warming was a function mainly of the accumulation of pollution over time.
Scope flexibility, meanwhile, left it up to the parties to choose which greenhouse gases to limit by including all six in the agreement. The Kyoto Protocol included exchange rates that allowed the parties to convert different greenhouse gases into common units. Reducing one kilogram of sulfur hexafluoride, a pollutant with superwarming characteristics, would count for as much as eliminating 23,900 kilograms of carbon dioxide. The exchange rate reflected these differences in potency, and would let governments and firms, on their own, decide where it was cheapest to concentrate their efforts. This scope flexibility was further increased by counting the creation of carbon sinks through afforestation and reforestation as equivalent to pollution reduction, although the treaty put some limits on that flexibility.
Finally there was geographic flexibility—arguably the “most important of all” according to Yellen (and most economically minded analysts at the time)—with clean development projects holding special promise of being “quite cheap” measured by the cost per ton of emissions avoided. At the time, developing countries already accounted for half of global emissions—a share that was rising—and geographic flexibility was intended to create incentives to control these sources of pollution lest they keep growing unchecked.
Support for this market-oriented approach was seemingly bipartisan. Officials from the administration of George H. W. Bush, which before Clinton had negotiated the UNFCCC, celebrated the market-oriented approach of Kyoto; if anything, they were critical that Kyoto didn’t go far enough in making full use of markets.80 Yellen noted that these views had “long been championed by economists interested in increasing the efficiency of [climate] protection.” Some twenty-five hundred economists from academia, industry, and government had put forth a similar position in a letter calling for action on climate change the year before.81 It would have been discordant, amid the celebration, to observe that the very flexibility that made Kyoto efficient on paper removed the constraints to solve particular pollution problems—involving certain gases, in given industries, in various places, and under deadlines. It weakened the incentives to search for solutions beyond the lowest-hanging fruit.
Putting this all together, by about the year 2000, the Kyoto Protocol had reached a roughly similar stage in legal evolution as the Montreal Protocol had reached in 1988. A treaty was in place, and governments were beginning the process of ratification. The question of implementation now loomed. It is here where the divergences between ozone and the climate became most apparent, for the Kyoto treaty lacked the experimentalist mechanisms that would be needed to engage firms and governments as they tried to put commitments into practice. It lacked, in particular, the mechanisms needed to obtain, organize, and feed insights from implementation efforts—successes and failures—into the setting as well as adjustment of commitments. Instead, the architecture of Kyoto was based on the assumption that implementation would occur in the traditional sense: standards had been set in the treaty, and it was then a matter of governments and firms on their own to align their behavior and comply.
The setting of emission targets and timetables was designed to simplify implementation. Allowing for the trading of emission credits was intended to make implementation even easier by shifting the burden for decision-making away from bureaucrats and to the actors directly involved in projects; the market would settle questions of which activities would be controlled and where investments would flow. (For some countries, trading was merely a windfall to be maximized. Russia, in particular, sat on huge volumes of extra credits because the country’s emissions were far below its Kyoto limits thanks to post-Soviet economic collapse.82 Implementation for Russia involved no problem-solving, but just waiting for a surplus buyer to appear.)
The most revealing problems of implementation came with the CDM trading scheme involving developing countries. By design, the CDM assumed there would be no countrywide experimentation and no countrywide shift to the best-available technologies, such as occurred in China, Vietnam, and many other countries under the Montreal Protocol. Figuring out the volume of credits to be awarded required a calculation that seemed simple to implement, but in practice revealed why implementation in the traditional sense was unworkable. In particular, awarding CDM credits required figuring out the level of emissions from the country that would have occurred with and without a project. Credits were to be awarded in proportion to the difference. But since these two worlds—with and without a project—could never be observed simultaneously, in fact the CDM created incentives to hide information, and avoid economy-wide policies or shifts to the best-available technology. Only by inflating emissions in the counterfactual world was it possible to maximize the flow of credits. Both investors and host countries shared this interest in overestimating the baseline as well as exaggerating the reduction gains from each project.83 The market was soon flooded with credits of dubious integrity. Worse, this approach created perverse incentives for host countries to create the appearance of high emissions only to maximize credits when emissions were lower. Absent the institutions of experimentalism, which could scrutinize every project while shifting whole economies to lower emission trajectories, it was administratively impossible to distinguish real problem-solving from accounting tricks. This challenge of administering a system of complex project plans, overseen by incomplete third-party monitoring, and steeped in information asymmetries and perverse incentives, was alarmingly familiar to administrative lawyers.84
Countries responded to the CDM problem in many different ways, and as those responses accumulated, the unworkability of the Kyoto approach became apparent.
Japan turned to the CDM as a last resort, but embracing it came with disastrous industrial and political consequences. The country, which had hosted the Kyoto event, was making good faith efforts, sector by sector, to cut emissions—a challenging task because most of Japanese industry was already at the global technological frontier and thus very clean. Only when it was clear that these would not suffice to meet treaty obligations did the country resort to buying credits, mostly from China. In short order Japan realized it was subsidizing competitors, and the country’s industry soon soured on Kyoto. Japan remained a formal member of the treaty—leaving would be too costly diplomatically—but as a practical matter, Kyoto didn’t induce as much implementation as it did backlash.
In the European Union, too, the CDM’s conceptual appeal proved unworkable in practice. In tandem with Kyoto, the European Union had launched the ETS, which quickly became the world’s largest pollution market. For most of its history, the ETS failed to have much impact because prices were low—thanks in part to Kyoto-friendly rules that allowed EU firms to buy CDM credits to offset their obligations at home. As these cheap credits flooded in, the European Union soon learned of the huge variation in the quality of CDM projects. Fixing that problem would require the ability to inspect every project individually—a task that proved to be essentially identical (if not more onerous) than an administrative command-and-control system. So the European Union simply phased out the use of CDM credits; it took more direct control over the supply of permits into the ETS in order to drive prices higher.85 Years later, Europe did build a program for emission controls with many experimentalist elements; doing that, however, required insulating the European Union from Kyoto.
In the United States, the CDM had been a major selling point for Kyoto: it was the embodiment of the systems that Yellen imagined in her testimony. As it turned out, even with the purchase of cheap credits (partly from the CDM and mainly from even lower-cost suppliers, the Russians, it was hoped), there was no practical way the United States could comply.86 But that worry was soon moot. In 2001, the treaty was caught up in the new Bush administration’s growing skepticism of international institutions, especially those that might constrain US energy policy.87
BEYOND KYOTO
Evidence mounted that Kyoto was not working.
Emissions from developing countries were rising faster than expected. The CDM had little impact on those emissions, and by some assessments it actually raised baselines and thus increased emissions. The use of targets and timetables, wrongly thought to be the lesson from Montreal, was being questioned—precisely because meaningful targets and timetables were unknowable ex ante, and thus implementation in the traditional sense could not occur.88 The differences between implementation in the traditional sense and real problem-solving were becoming apparent. But it is one thing to raise concerns, and quite another to find institutional solutions under conditions of consensus.
Formally, the opportunity for a fresh approach was offered by the fact that the Kyoto emission targets were scheduled to run over the years 2008 to 2012. Hence a new treaty would need to be in place well before 2012, and a new diplomatic process was launched with the goal of having that treaty adopted by late 2009 at the annual COP meeting hosted that year in Copenhagen.
Awareness of troubles had led, in the run-up to Copenhagen, to many new ideas that might improve problem-solving. Yet the ideas were inchoate and often speculative—far from commanding the consensus needed to chart a decisive new course. On the problem of engaging developing countries, it was widely agreed that more funding would be needed; at Copenhagen, most deliberation focused on a pledge for $100 billion per year of new climate finance. But agreement splintered when it came to how those funds would be counted, let alone spent. New ideas for framing emission control pledges—by developed and some developing countries alike—were also in the air, but no plan had emerged for codifying or checking into those pledges, let alone their legal status. And on many other fronts, the same story emerged—agreement that the existing approaches were not working, but not on a plan for reform.
In the end, Copenhagen proved an anticlimax. The goal was to set a new framework for cooperation that included bigger commitments for developing countries along with bigger funds to help them pay the cost. The visions were partial and conflicting, though, and the package deals harder to put together. Diplomats got close to reaching a deal in Copenhagen, but their ambition was limited to securing a deal on what was agreeable rather than achieving a vision for Montreal-style problem-solving that could be implemented in the case of climate change. Ironically, it was a small group of the least developed countries—upset at not being “in the room” when the major deals were done in Copenhagen, yet largely irrelevant to the global emissions picture—that formally blocked the consensus needed for Copenhagen. But for their pique, climate diplomats might have succeeded again in maintaining what was seen, increasingly, as the illusion of progress.89
Copenhagen was nevertheless cathartic. The hard line between developed and developing countries, politically expedient in the 1990s, had become untenable. By then, developing countries were responsible for essentially all the growth in global emissions; for most, development strategies had become more reliant on energy-intensive heavy industry.90
The shock of Copenhagen opened the door for other options to be explored—not so much as a matter of strategy, but by default. Only after Copenhagen did it become widely accepted that so much effort had been invested in just one idea, and that idea didn’t work.
The Opportunity of Crisis
Analytically, our recounting of the histories of ozone and the climate turns on two comparisons.
The first comparison is of the behavior of firms producing and using ODS before and after they were subjected to the experimentalist regime of the Montreal Protocol. This comparison lacks the rigor of a natural experiment, but it is highly suggestive. The abrupt improvement in problem-solving capacity follows directly on the introduction of the experimentalist elements of the Montreal regime—the incentives that disrupted the status quo, and required a search for new solutions or the adoption of improvements along with methods for evaluating alternatives and updating goals. Searches that ended in an impasse before Montreal was in place, or never began, produced striking results once the regime was in operation. These results were evident not just in advancing the frontier of ozone-benign technologies but also in ensuring rapid widespread adoption as whole industries and countries shifted to the best-available technologies.
The second comparison is between the effectiveness of direct problem-solving in Montreal and the ineffectiveness of the climate regime. Comparisons across regimes, where so many factors are in flux, are necessarily blunt and speculative, of course. But like the before-and-after comparison with the creation of Montreal, the comparison of regimes points to the effectiveness of experimentalist mechanisms. The architects of the climate regime separated goal setting from implementation and tried to put the latter under the direction of markets. The assumption was that this would make each part of the process easier. In fact it made both harder. As the goals were to be binding and fixed, they had to be precise, but precision was elusive and contentious. By the same token, execution by markets presumed the availability of information that proved hard to come by. Trickery flourished in its absence. By contrast, the experimental approach of setting general goals to encourage a broad search, and using the search itself to generate a shared understanding of what was becoming possible, made it easier to reach initial agreement and consensually adjust commitments while executing them.
To crystallize the lessons of Montreal’s success—and the failures of Kyoto—we need a firmer grasp of why experimentalism works and the incentives that encourage it. To that end, we turn in the next chapter to the theory of experimentalism as a distinct kind of decision-making under uncertainty.