Russia holds the key to ratification of the Kyoto Protocol on climate change.

Russia holds the key to the Kyoto Protocol. With no prospect of ratification in the U.S. Senate, and Australian ratification unlikely, the United Nations agreement to impose mandatory emission reductions on developed nations will only come into force if adopted by the Russian government. To date, the Putin government has refused to ratify the treaty. The Russian Academy of Sciences concluded in May that the Protocol lacked “scientific substantiation.” And one of Putin’s key economic advisors, Andrei Illarionov, notes the Protocol is incompatible with Russia’s economic aspirations.

Increases in greenhouse gas emissions tend to correlate with economic development, and limits on one will tend to limit the other. Barring tremendous technological breakthroughs, Illarionov estimates that compliance with Kyoto’s targets would constrain Russia to less than two percent annual growth in domestic GDP through 2012, and negative economic growth thereafter. While some analysts note Russia would be in a good position to sell emission credits to growing industrialized nations for the first few years after ratification, Russia’s credit balance would turn negative after just a few years. Therefore continued growth would require substantial purchases of emission credits in the years to come.

While Putin’s advisors counsel him against ratification, the European Union, Canada and Japan are pushing the other way. Eager to see Kyoto enter into force, European diplomats have been pressuring the Putin government to fall into line, promising trade concessions and other international support. At one point, it even appeared the EU would condition its support for Russian entry into the WTO on Kyoto ratification. Thus far, their efforts have been unsuccessful.

Diplomatic enthusiasm for Kyoto ratification is not matched by the vigor of European implementation. Under Kyoto, EU greenhouse gas emissions are supposed to be 8 percent below 1990 levels in 2010. Yet, despite various efforts, EU emissions are currently projected to be 7.5 percent above 1990 levels by the target date. The prospect of more stringent emission controls is raising concerns in within the EU that draconian controls could come at the expense of international competitiveness. Already the EU and other nations supporting Kyoto implementation are experiencing substantially slower economic growth than comparably situated nations that reject the costly treaty.

Kyoto critics note that the costs of climate change policies pose a greater threat to future prosperity than climate change itself. The potential risks of a warmer world – variable weather, disease, and so on – are already with us, notes British economist Julian Morris of the International Policy Network. These risks are more readily addressed by economic growth and technological advance than efforts to control the global thermostat. Wealthier societies are healthier and more resilient than poorer societies. Hurricane Charley was a ferocious storm that killed approximately twenty people in Florida. When equivalent storms hit the developing world the death toll is far higher. A recent typhoon in China left over 150 dead and an estimated 1,800 seriously injured. Limiting economic growth through international controls on greenhouse gases condemns less developed countries to continued vulnerability from climate disruptions, natural or human-induced. Similarly, the spread of disease is more a function of wealth and medical technology – products of economic development – than marginal changes in temperature.

If the aim is to reduce the potential threat of climate change without sacrificing economic development, David Montgomery and Roger Bate suggest another way forward. In a recent paper for the American Enterprise Institute, Montgomery and Bate note that population and economic growth in the developing world will result in a dramatic increase in greenhouse gas emissions – such that global concentrations will continue to climb even if all developed nations meet their Kyoto targets. Yet developing nations are not covered by Kyoto and will reject any future limits on their emissions that inhibit economic growth.

The increase in developing nation greenhouse gas emissions will be particularly dramatic, in part, because developing nations’ economies are far more energy- and emission-intensive than those of developed nations. That is, producing a given level of output requires far more energy – and produces far more emissions – in poorer, less-developed countries than in the industrialized world. Thus, as the nations of the developing world grow, they will generate far greater emission increases than would similar economic expansion in the developed world. Were developing nations to use energy as efficiently as the industrialized world, they could grow without increasing their emissions of greenhouse gases. As Bate and Montgomery note, “there is significant potential for reducing emissions from developing countries by increasing the rate of investment to speed the process of modernization and capital turnover, which is even now reducing emissions intensity and improving the technology used in new investment to a level comparable to that in developed countries.” At the same time, increased economic growth would provide such nations greater natural security from the risks of climate change, whatever the human contribution.

Transferring more efficient technology from the developed to the developing world could produce both economic and ecological benefits. Yet how best can this be done? Bate and Montgomery note that industrialized nations are not only more wealthy and efficient, they also are often more free. Indeed, Bate and Montgomery find a correlation between the energy intensity of nation’s economy and its level of economic freedom: Those nations with freer economies produce more, and emit less, than those countries where freedom is more restricted. Moreover, economic freedom also provides greater incentives for economic development and the adoption of new technologies. As things stand, however, “Lack of economic freedom is one of the important factors that stands in the way of improving standards of living for developing countries, and that lack of economic freedom is also a major obstacle that hinders technology transfer.”

Bate and Montgomery’s research suggests economic freedom is far more important to the reconciliation of economic and environmental concerns than many suggest. Their approach to the potential, albeit uncertain, threat of climate change does not require a new government program or environmental regulation, but market-driven economic development. Not only will this facilitate the transfer of less energy-intensive technologies to the developing world, it will help improve living conditions and generally better the lives of those in poorer nations. Yet such an approach is in conflict with the restrictionist philosophy embodied by Kyoto. The Kyoto Protocol would inhibit development and economic growth, and therefore offers little for the developing world.

Russian opposition to binding emission limits, and the “Kyoto-ist” thinking upon which such policies are based, is grounded on a desire for development and economic growth. After decades of economic deprivation under Communist rule, Russians are eager to taste the fruits of economic prosperity, and adoption of Kyoto could stand in the way. Yet Russia’s refusal to ratify Kyoto not only benefits the Russian people. It helps protect economic freedom for the rest of the world, as well. So long as Kyoto is not in force, and policy makers are forced to consider other policy options like that suggested by Bate and Montgomery, there is one less threat to increased economic prosperity. For that, the world owes the Russians a world of thanks.