Viewing the Montreal Protocol as a model for handling climate change may create expectations that will not be fulfilled. The Montreal Protocol is the exception and not the rule in international environmental policy. Oye provided a perspective on this by comparing a variety of international agreements on environmental issues.

Table 11.1 summarizes eight examples of transboundary environmental externalities. It summarizes the distribution of environmental and abatement costs, the uncertainty of estimates of environmental and abatement costs, and associated compensation mechanisms for each problem. Concentrated externalities cases were at the top and diffuse externalities cases were at the bottom. Levels of uncertainty over environmental and abatement costs were generally higher in more complex global cases than in local cases. The global cases were more difficult to handle than local cases because diffuse externalities raised risks of free riding and because uncertainty levels were higher.

The two riparian cases were the most straightforward, with environmental externalities (literally) channeled in predictable directions and with abatement options well understood. In the Rio Grande case, untreated waste water from Mexico threatened public health in both Mexico and the U. S.. It was in the U. S. interest to build sewage treatment plants in Mexico. Since the abatement costs would otherwise have been borne by Mexico, the role of compensation was significant. Financial transfers from the U. S. to Mexico made it possible for Mexico to build treatment facilities that reduced the threat of disease for both countries.

The case of chloride emissions on the Rhine involved the leaching of salts into the river from French mining facilities, many of which had ceased operating but were still leaching salt. This was a simple case of upstream emissions from France affecting downstream neighbors. The effects were well known, and the distribution of costs was private and focused. Rivers, unlike air, carry emissions in one direction. The solution involved the downstream victims paying the polluter, France, to reduce emissions. It was in the self interest of the downstream parties to do this, making it possible for those who can help to help.

The cases involving oceans are somewhat more complex, as the consequences of pollution were more regional than local. One such case is that of sewage and industrial waste in the Baltic Sea. This problem is regional in terms of both sources of pollution and those affected. Eastern European nations were the primary source of the problem. All nations on the Baltic coastline, including Finland, Sweden, Germany, Poland and the Baltic Republics, were adversely affected by pollution. Assistance to polluting countries helped to a limited degree. However, the modest scope of the program of international payments and the limited indigenous capacity of Eastern European nations have not been commensurate with the scale of problems.

Another regional sea case involved Russian dumping of radioactive waste into the Sea of Japan. Though this could have affected Korea, Russia and Japan, only Japan acted on the issue. This may have been due to understandable Japanese concern over radiation. In this case, the prospect of obtaining compensation may have encouraged the Russians to dump waste openly so as to encourage payments for ceasing the practice. Was this extortion? The fact that Russia could offer other reasons for the dumping ( i. e., it was the cheapest method of disposal) makes it less clear. Oye defines this type of environmental extortion as follows: If you demand payment for not taking an action that would provide no benefit to you while hurting someone else, that is extortion or blackmail. If you demand payment for not taking an action that benefits you while harming another, it's simple exchange or backscratching. The point here is that the Russians may have dumped waste in the Sea of Japan in order to secure payments from Japan. Oye noted that such examples of environmental extortion are very rare.

In the two acid rain cases, the effects of emissions of sulfur dioxide were concentrated downwind. (See Levy for a discussion of international acid rain agreements in Europe.) Sulfur emissions from China were deposited on Korea and Japan, as well as parts of China itself. Moderate payments of compensation were made, primarily in the form of demonstration plants financed by Japan in China. Was this a true win-win situation, providing environmental benefits to China and Japan and generating orders for Japanese producers of pollution abatement equipment? Was the level of technology appropriate to the application? Were there costs to the Chinese of operating the demonstration facilities? The environmental programs should be viewed as both environmental compensation and part of a larger program of foreign aid. In the past five years, Japanese loans, grants and export credits to China exceeded all multilateral aid to China.

If diffuse environmental externalities encourage free riding and undercut cooperation, then what made global cooperation possible in the case of Montreal? The Montreal Protocol case differs from other global cases in several respects.

First, uncertainty over the global environmental consequences of chlorofluorocarbon (CFC) discharges was lower than uncertainty over the consequences of discharges of green house gases (GHGs). Uncertainty declined between the mid-1970s and the conclusion of negotiations in 1988. Atmospheric observations in 1988 suggested that earlier models underestimated the magnitude of ozone depletion from CFC use.

Second, the distribution of costs of abating CFCs contrasts markedly with the distribution of costs of abating emissions of GHGs. The phaseout of CFCs may have actually benefited producers of CFCs. Dupont and ICI were the major producers of CFCs and had also invested heavily in the development and production of substitutes including HCFCs. Demand for simple CFCs was falling even before the Montreal Protocol's phaseouts. Even before the U. S. ban on CFCs in aerosols, companies were making the switch to alternative propellants. These voluntary shifts, the U. S. aerosol ban, and entry of other producers of CFCs contributed to the development of worldwide excess capacity in CFCs. The Montreal Protocol and London revision had the effect of forcing consumers to substitute more specialized, higher cost HCFCs which Dupont and ICI were well-positioned to produce for standard CFCs that many could produce.

Oye noted that this coincidence of producer interests and a ban is unusual. More commonly, producers of a regulated substance are harmed by bans and lobby against regulations. On the other hand, those who would benefit from regulation may not know that they would benefit and will have no trade associations or other organizations to represent their interests. For example, the creators of new technologies or substitutes for a regulated product may not even exist at the time of a regulatory change. This produces a bias toward resistance to regulation. In the case of the Montreal Protocol, this bias was absent since the major CFC producers, Dupont and ICI, also had an interest in switching to substitutes. In the case of restrictions on carbon emissions, the resistance of coal and oil suppliers is only partially offset by nuclear and soft energy suppliers.

Compensation played a role in the Montreal case. A strategy of using "selective bribery" to bring on board those who would be harmed helped move things along. The phase-out of CFCs came at the expense of developing countries that would have produced and used the cheaper CFCs. So stretching out the phaseout schedule for developing countries and providing compensation to those countries, especially under the London revision's more stringent standards, was critical. But the sums of money being provided to developing countries are low not enough to help them make the switch. The National Environmental Protection Agency (NEPA) of China claims to have over 100 CFC abatement projects ready to go, but anticipates external funding for only a handful. NEPA hopes that pilot projects will have strong demonstration effects. For example, a Chinese-German joint venture plant in China may produce high quality CFC-free refrigerators. If quality comes to be associated with these newer technologies, then other private producers may develop a private interest in following the lead of the pilot project. But the combination of limited international funding and modest national enforcement authority in a decentralized provincial and municipal system will make progress difficult in China.

Under current conditions, it is unlikely that we will see substantial resources flowing into a strong multilateral response to the problem of global climate change. Uncertainty over global environmental effects and costs of abatement and tendencies toward free riding cut against effective multilateral action. To what extent can bilateral agreements take the place of what would ideally be global responses? There are possibilities, particularly when parties have a parochial interest in taking actions that would also protect general environmental concerns. It may be possible to identify ways of reducing greenhouse gases (GHGs) and also serving the self interest of parties. Identifying private win-win situations and exploiting them could help on the climate issue.

In discussion, the group divided over the wisdom of accepting nationalistic political criteria and private market criteria in allocating resources. Some argued for pursuit of environmentally optimal as distinct from politically and economically optimal policies. Others noted that we should not allow the search for the best to rule out the acceptance of second best technologies or projects that could advance the cause at least somewhat. Oye asked the group to search for regional and bilateral packages that might reduce GHGs. He suggested that much attention is being paid to multilateral funds, global quotas, and joint implementation and not enough to regional and bilateral deals.

"Minilateral" approaches to climate change were suggested in discussion. Oye countered that this was simple re-labeling - that people use terms like "minilateral" because they feel uncomfortable using "bilateral." This may be because of a tendency to avoid "bilateralism" with its connotations of discrimination and exploitation. But bilateral agreements can provide second best solutions to global problems. These piecemeal approaches are imperfect, but are better than nothing.

In further discussion, it was noted that piecemeal approaches are alright unless they lock in an infrastructure with a lifetime of a generation or more, making the problem even worse over time (for example, locking in coal power plants in China instead of gas). Discussion turned to how either piecemeal bilateral or global multilateral means might alter Chinese incentives to invest heavily in coal.

It was also argued that an unconventional set of lessons from the Montreal Protocol are relevant to the climate issue and that the lack of participation and an undemocratic process was for the better in the case of the Montreal Protocol. Under the multilateral fund, donors gave up political power to manage the fund. The benign autocracy of experts produced effective projects to reduce emissions of CFCs because experts were insulated from narrow economic and political forces.

Oye disagreed, noting that insulation may have perverse side effects. A lack of donor participation may have the effect of reducing total contributions. Programs that serve the parochial interests of donors will be better supported than programs that do not serve the interests of donors. The greater effectiveness of each dollar disbursed from the fund may be offset by fewer dollars contributed to the fund. This is a real tradeoff.