INTERNATIONAL CLIMATE CHANGE AGREEMENTS: AN OVERVIEW

Ann ChouApril 14, 2010Professor NordhausECON 331b

THE KYOTO PROTOCOL Objective:

Annex I countries commit to a 5% average decrease in 1990 global greenhouse gas emission levels during 5-year commitment period (2008-2012)

Current Standing: 36 of 37 Annex I countries

have ratified Kyoto U.S. has not ratified

Other UNFCCC members have ratifed but have no emission commitments

THE KYOTO PROTOCOL Characteristics:

Binding targets for Annex I countries “Common but differentiated responsibilities” “Bank and Borrow” Flexibility Mechanisms

International Emissions Trading Joint Implementation Clean Development Mechanism

Consequences of non-compliance

Country Base Year Emissions

Kyoto Target (%)

2003 Emissions, % by which above or below Kyoto Target

Australia 423.4 +8.0 +20.3Austria 78.5 -13.0 +34.0Belgium 146.1 -7.5 +9.3*Bulgaria 141.8 -8.0 -47.0Canada 595.9 -6.0 +32.1Croatia 31.6 -5.0 -0.5*Czech Republic

192.1 -8.0 -16.7

Denmark 69.6 -21.0 34.6*Estonia 43.5 -8.0 -46.6EU 15 4238.0 -8.0 +7.2EU 25 5212.0 -8.0 +2.7Finland 70.5 +0.0 +21.5*France 568.0 +0.0 -1.8Germany 1248.3 -21.0 +3.2*Greece 111.7 +25.0 -1.4*Hungary 122.2 -6.0 -27.6

Country Base Year Emissions

Kyoto Target (%)

2003 Emissions, % by which above or below Kyoto Target

*Iceland 3.3 +10.0 -14.6*Ireland 54.0 +13.0 +10.8Italy 510.5 -7.5 +19.4Japan 1187.2 -6.0 +20.0*Lithuania 50.9 -8.0 -63.2Netherlands 212.0 -6.0 +7.9New Zealand 61.5 0.0 +22.5*Poland 564.4 -6.0 -27.9*Romania 265.1 -8.0 -41.4*Slovakia 72.1 -8.0 -22.1Spain 286.1 +15.0 +22.3*Sweden 72.1 +4.0 -5.8Switzerland 52.4 -8.0 +8.3*Ukraine 978.2 +0.0 -46.1UK 751.4 -12.5 -1.0USA 6088.1 -7.0 +21.9

MODELING KYOTO: IS IT COST-EFFECTIVE? Manne and Richels use MERGE 3.0, Model for

Evaluating Regional and Global Effects of greenhouse gas reduction policies An intertemporal market equilibrium model that

maximizes discounted utility over nine regions Assumptions

Endogenous technological diffusion Autonomous energy efficiency improvement rate

of 40% of the rate of growth of GDP Try to answer…

What is the problem of “carbon leakage?” What are the efficiency gains from flexible

mechanisms?

KYOTO: “CARBON LEAKAGE” What is “carbon leakage”?

The reduction in emissions by Annex I countries is offset by actions of non-Annex I countries

Carbon leakage through… Price Comparative advantage

Remedy: Subject everyone to emissions limits

KYOTO: WHY HAVE FLEXIBILITY MECHANISMS?

Cost Effectiveness “Where” flexibility allows cost of mitigation to decrease significantly Allows countries to mitigate where the marginal costs are lowest

Manne and Richels also find that any limits to carbon emission purchase results leads to inefficiency

Best Solution: Allow full global trading without any carbon emission purchase constraints

KYOTO: WHY HAVE FLEXIBILITY MECHANISMS? Joint Implementation

Earn credit allowances through emission reduction units (ERU) when Annex I countries collaborate on emission removal or emission reduction project

Clean Development Mechanism Earn credit allowances through emission

reduction credits (CERs) when Annex I country finances emission removal or emission reduction projects in non-Annex I projects

Jury is still out… Unclear rules and regulations—transaction costs CDM assumes that abatement or mitigation is

cheaper in developing countries

THE BIGGER PICTURE: Objective:

“…stabilization of greenhouse-gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system…”

THE PROBLEM OF NON-PARTICIPATION AND NON-COMPLIANCE Non-participation

High economic costs Inefficiencies Notions of fairness E.g. United States passes Byrd-Hagel Resolution

to not sign Kyoto 95-0 in the U.S. Senate. Non-compliance

No enforcement measures Tragedy of the commons without full

participation Challenges of international governance

COPENHAGEN ACCORD A letter of intent…

No deadline for renewal of binding international agreement

No hard-and-fast rules to play by Long-term plans—2 degree Celsius target Developed countries pledged financial resources

to developing countries Annex I and non-Annex I countries submit

emissions reduction targets by Jan 2010 Non-Annex I/non-LDC must engage in nationally

appropriate mitigation actions Non-Annex I/LDC under voluntary mitigation

measures

COPENHAGEN ACCORD Carbon Leakage

Developing countries are involved in mitigation Moving towards full participation

Cost-effectiveness by trading Still not trading NAMA and guaranteed funding from developed

countries Decrease in transaction costs

Non-participation/non-compliance U.S. and China participation Still no compliance measures

CONCLUSION Findings from MERGE 3.0 study

Greater trading is more cost-efficient and JI/CDM does not mirror trading

Trading hould not be limited Carbon leakage Kyoto forever is, in the long-term, less stable for

emissions mitigation and more costly Changes found in Copenhagen

Participation of developing countries Incremental movement toward full global trading

Weaknesses of long-term cost assessment All efficient solutions rely on full participation and

full compliance—is this possible?