At the recent Jeddah Economic Forum, Ray Irani, head of Occidental Petroleum, launched a withering attack on the Kyoto Accord, designed to cut global emissions of greenhouse gases and thereby reduce global warming. In fact, there are now serious questions of whether the accord will become international law. European states are certain to approve it, but the Bush administration may not do so; and if sufficient other countries refuse — all eyes are on Japan, Russia and Australia — the accord will fail. Furthermore, there are those who claim that compromises agreed at the end of last year in Marrakech has ripped the heart out of it. What Irani had to say is controversial and will excite passions either way. But he deserves to be heard. The following is what he said.
"Thank you for the opportunity to provide my perspective on the Kyoto Accord. Although I was trained as a scientist, I claim no expertise in the field of climate science. I’m here today as a businessman, and the climate with which I’m most familiar is the business climate.
"While I appreciate the importance and legitimacy of the potential risks inherent in climate change, I do not embrace the Kyoto approach — or any public policy formula with excessive restrictions in the face of great uncertainty. Those who believe the time has come to move from debate to action generally support vigorous measures by policymakers to reduce greenhouse gas emissions — and that means moving away from fossil fuels.
"The scientific basis underlying the climate change debate is critical because it helps define the magnitude of the risks and a range of actions to address them. The debate is far from settled. Rarely is the science on any subject settled — and certainly not on a subject this complex.
"What appears to be settled is quite limited. First, carbon dioxide levels in the atmosphere have risen over the past century, with most of the increase occurring since 1940. Second, average surface temperatures have increased, but most of the increase occurred before 1940. Third, there is general agreement that human activity has influenced climate change, but the magnitude of that influence is not known. Finally, temperatures in the lower atmosphere have not increased — and that’s contrary to the basic greenhouse theory that says human activity should have caused those temperatures to rise.
"What is settled is dwarfed by what remains unsettled or inadequately understood — this includes the behavior of clouds, oceans and the effect of other mitigating factors like water vapor, aerosols, solar activity and natural variability.
"Scientists have been debating the impact of human activity on the climate system for more than a decade in order to forecast future effects as far out as 2100. They appear no closer now to resolving the basic question than when the debate began. I find it hard to reconcile the willingness by some to support actions that assume great certainty, when the wide range of important physical processes influencing our climate system are so uncertain.
"Supporters of Kyoto-like actions, who argue that the burning of fossil fuels is primarily responsible for the current warming trend, focus on the correlation between carbon dioxide emissions and rising temperatures, while largely ignoring or discounting other important factors influencing climate. The debate has given rise to predictions of an environmental catastrophe if fossil fuel usage is not drastically curtailed.
"These predictions come from computer climate models, which climate experts — including modelers — acknowledge do not accurately reflect the full range of climate processes. Because of the wide range of uncertainties and the lack of good data, the models are driven primarily by estimates and hypotheses. In addition to well-documented deficiencies in the climate models limiting their ability to replicate past temperatures, we cannot know how changes in population, technology and energy resources over the course of this century will influence emission rates and levels. Without that knowledge, these forecasts are no better than educated guesses with a high probability for error.
"Predictions of a climate apocalypse based on computer models are reminiscent of the Club of Rome’s landmark report, ‘Limits to Growth,’ published about three decades ago. Relying on computer models, this report predicted that the world’s population would surpass seven billion by 2000, and set off a chain reaction of shortages and high prices resulting in the collapse of industrial societies sometime in the 21st century.
"The only way to avoid this outcome, we were told, was through strict government controls on just about everything — including restrictions on industrial output. The report went on to observe that ‘a decision to do nothing is a decision to increase the risk of collapse.’ Doesn’t that sound familiar?
"The Club of Rome’s predictions proved to be way off the mark. A recent study titled ‘The Skeptical Environmentalist,’ by a Danish scholar and former Greenpeace member, shows how the world is better off today than in 1970 by almost every measure of the quality of life — from life expectancy to infant mortality to per capita income.
"I mention the ‘Limits to Growth’ example because there are lessons that can help us in our thinking about global warming. We need to recognize the limits of even the most advanced computer models to replicate highly complex systems, the benefits of market forces and the process of innovation.
"Second, the ‘Limits to Growth’ experience also exposes the serious flaw in the so-called ‘precautionary principle’ which suggests that if we are uncertain about the seriousness of an environmental risk, we should err on the side of great caution. That means that even if global warming isn’t certain, the risks of doing nothing are far greater than the risks of taking action. Such an approach shows a lack of understanding of market forces, the impact of new technologies and how to incorporate uncertainty into learning and decision-making processes.
"I don’t think many people would be confident in predicting the price of oil much beyond a few days or weeks, let alone 10 years from now. Nonetheless, we make large capital investments that reflect a belief that oil and gas will be the dominant fuels for decades to come. Apart from what we may believe, there are certain objective realities that justify optimism about the future of petroleum. Petroleum is the lifeblood of economic growth. This is unlikely to change in the foreseeable future because there are no economically viable alternatives.
"As the debate over the Kyoto Accord has evolved and its potential consequences are better understood, there is an emerging consensus that implementation of this agreement will have little impact on climate change. There also is growing agreement that the solution to global warming will depend on technology, not curtailing energy use and drastically changing living standards. Continued technological progress aimed at improving energy efficiency and developing new energy sources requires strong, robust economies. That means having access to abundant, affordable energy supplies.
"There also is increased realization that the economic consequences of implementing the Kyoto Accord would be punishing to both industrialized and developing countries. For the US, achieving its Kyoto target would require a 30 percent reduction in fossil fuel usage in the 2008-2012 time frame. That’s roughly the equivalent of idling all existing US manufacturing facilities or removing all cars from the highways. Clearly, there is no practical way for the US to meet this goal.
"President George W. Bush clearly took the right step in rejecting the Kyoto Agreement and pledging to develop a science-based approach to US policy on climate change. The Japanese appear to have reached similar conclusions in dropping mandatory new restrictions on greenhouse gas emissions. According to a recent Wall Street Journal report, ‘The Japanese... are beginning to understand why President Bush pulled the US out of the treaty last year and why the Senate unanimously rejected it in 1997.’ The cost is simply too high, especially for a nation struggling with economic stagnation.
"If this means that Japan will not ratify the Kyoto Accord, it’s hard to see how it will be implemented — especially since it’s uncertain whether Australia and Russia will endorse the agreement. If Japan does proceed with ratification, it’s difficult to imagine how they can achieve a reduction of emissions to six percent below their 1990 level.
"At Occidental our business strategy is based on the fact that there is no economically viable substitute on the horizon for fossil fuels. In the US alone, fossil fuels account for 80 percent of the energy consumed. Accordingly, we see no credible scenario in which consumers — or governments for that matter — will turn away from reasonably priced fossil fuels to embrace costly alternatives and economic stagnation. That objective reality is the basis for our investment strategy and our optimism about the future of the petroleum sector.
"Our optimism does not mean that we dismiss the risk of serious climate change as totally without merit. Nor does it mean that we do not support actions related to climate change that make economic sense — and are consistent with our state of knowledge. We simply do not believe the climate change risk justifies actions based on a catastrophic vision of 2100. As the debate evolves, it appears likely that political and economic realities will slow the implementation of a Kyoto-like approach to global warming with minimal impact on global markets.
"When political rhetoric is put aside, the proper course of action becomes clear. Based on the current state of knowledge, the most realistic course of action requires focusing on research and development, filling knowledge gaps and removing barriers to the development and deployment of new technology. Action based on ever-improving knowledge is the best approach to maintaining a strong, vibrant economy that is essential for continued environmental progress. This requires sound judgment and leadership.
"Policy driven by reliance on computer models, questionable science and rhetoric smacks of political expediency — not leadership. Wise leadership is about making difficult choices, explaining the basis for those choices and being willing to change course based on new information. Responsible leadership takes counsel from strength, not weakness — and from hope, not fear. These qualities have long served the United States well, and they can serve all of us well in addressing climate change."
