This week President Bush presented the US with a new environmental policy. For a long time, Bush has been criticized for his rejection of the Kyoto Agreements when there was broad international support for the reforms. At the time, the President promised instead to seek domestic policy to help curb environmental damage from the world's largest contributor. President Bush had a decent amount of support among domestic academics who recognized that indeed the Kyoto Agreements represented a significant domestic cost which some considered too steep. Last week's policy was Bush's domestic answer to the Kyoto Pact. At first glance, Bush's new policy looks like a step in the right direction. Unfortunately, it's not.

     The use of market solutions to solve environmental problems is proven. A stark reduction in acid rain in North America at a dramatically reduced cost stands as testament to tradable permits. I doubt that any future pollution control legislation will be made forsaking these principles, and they shouldn't. The President was key to harp upon his plan's use of market oriented policies to control emissions. That said, despite its use of market-based solutions, his plan is "fatally flawed," to use Mr. Bush's own jargon against himself. It is set to limit emissions intensity and not greenhouse gas emissions themselves. What does this mean?

   Controlling or limiting emissions intensity means limiting the amount of emissions relative to the level of economic activity. The President's plan calls for an 18% reduction over the next 10 years. But wait, isn't the economy likely to grow over the next decade? Yes, and by a much larger amount than 18%. That is, given this economic growth, total emissions may not even be reduced in meeting the target. There are structural reasons why the use of an intensity measure is virtually meaningless anyway. For example, if the economy continues its transition from a manufacturing to a services economy, as is likely, emissions intensity should fall absent of any effort to reduce emissions. So it looks as if the plan is actually paving way for companies to increase their carbon emissions, thought to be the primary constituent of Global Warming, free of cost. Good news for coal power plants and SUV manufacturers.

     Supporters might argue that the plan has a tougher trading scheme which could be implemented, should the less stringent current policies fail to perform. That's all well and good, but the plan doesn't even call for any of this sort of action for at least a decade. Long enough for environmental conditions to worsen, and long enough for Mr. George Bush to leave office. It's one thing to just attack the plan. It is another thing entirely to propose alternatives. One American think-tank, RFF or Resources for the Future, proposes a mix of both a carbon cap and a carbon trading scheme. Setting an initial tax of something like $25/ton on carbon emissions would cost Americans something like 6 cents on the gallon at the pump. Others argue for higher and more active constraints. Foreign nations especially are suffering from US policy. We certainly didn't make any friends by passing on the Kyoto pact, and we won't make friends by remaining inert now.

     Perhaps the President perceives the need to keep oil prices low in the United States. Won't a lower domestic price help save the economy from a recession? Possibly, but if the President really cared about the domestic economy, maybe he would think twice before threatening Middle East nations such as Iraq and Iran. For someone who clearly understands the markets, he should have known that increasing uncertainty would lead to supply fears and higher oil prices. After all, it certainly wasn't a jump in demand that spurred oil prices to rise 7% in two months. The national average for gas at the pump has climbed to around $1.10, and a new method of financing some serious environmental protection is starkly evident. Why not just tone down the threatening international rhetoric? The amount saved from a lower commodity price would more than cover the costs of some much more effective proposed environmental plans. Heck, while saving the environment, it may even gain some international friends for the President; two things which would certainly make the world a safer place for Americans.