Climate Change is a Global Problem that needs a Global Solution

Implications: If the U.S. taxpayer knew the bill he or she would face if the politicians in Washington get their math wrong on climate change legislation the results of the New York Times poll might well have been different.

- If the U.S. had ratified Kyoto the cost would have been on or about $34 billion

- On the other side of the coin, properly crafted federal climate change policy would not only address the financial risks inherent in climate change but allow U.S. companies to better compete in what will be a global $1 trillion annual market for alternative energy by 2020

- The key to US policy success is to ensure not only well crafted domestic legislation but the participation of China and India as part of any new global, greenhouse gas emission reductions treaty. Anyone who has been to Beijing, Shanghai, Hong Kong or Bangalore, would know you can only see the sun on certain days of the week.

Analysis: - In 2006,  the United States emitted approximately 7.1 billion tonnes of greenhouse gases expressed in units of one metric tonne of Carbon Dioxide equivalents (CO2e).

- The baseline year for the Kyoto Protocol is 1990.  US emissions were about 6.1 billion CO2e in 1990.  If the US had ratified Kyoto, she would have been mandated to reduce her emissions by 7% from the 1990 baseline. That is a total reduction of 1.42 billion CO2e by 2012.

- The current futures price of a 2008 vintage emission credit in Europe to offset one metric tonne of CO2 is €17.80 ($23.80)

- So a starting point of the cost of U.S. emission reductions based on Kyoto methodology would be 1.42 billion * $23.80 = $33.8 billion

Of course, the U.S. voter would not countenance such a cost, passed through in the form of higher energy bills, and the above $33.8 billion number is only meant as a worst case scenario of what not to do.

The sensible approach would be for the U.S. to have less stringent emission reduction requirements, although still meaningful reductions, and for China and India to be mandated to have caps on their emissions too.

The cost could be amortized across the US, the EU, Japan, Canada, China and India such that the price of an internationally recognizable, fungible emission credit would be $10 or less.

Global, policy certainty on emissions regimes and prices would allow alternative energy developers and suppliers to achieve the 20% goal by 2020.

Companies such as GE , Flour , Bechtel, would be big winners in the wind turbine and power plant construction businesses; Silicon Valley venture funds in PV would provide liquidity to the solar and other sectors; and coal miners such as Arch and utilities such as AEP would benefit from clean coal systems.

XOM would be able to exploit its carbon capture and sequestration technologies; and coal-to-liquids, gas-to-liquids and coal-to-gas would become economically and environmentally viable.

Addressing climate change requires global cooperation as it is a global problem.

The geopolitical benefits to the US of a 20% reduction in dependence upon foreign oil found in hostile lands and eliminating the silliness of using corn based ethanol as a solution to her energy needs far overcomes the initial outlays needed to set up a carbon-cap and trade system.

The devil, as always, will be in the detail.