The Centre for Development and the Environment, University of Oslo

SUM 3000

International Climate Policy, Economy and Justice

Dr. Asbjørn TorvangerCICERO Center for International Climate and Environmental Research - Oslohttp://www.cicero.uio.no

11 May 2006

Topics

• The challenge of man-made climate change• The aim of climate policy• Greenhouse gas emission scenarios• An efficient climate policy• Climate agreements• Emissions trading• Costs of mitigating emissions• Post 2012 climate policy – fairness?

Why is the handling of man-made global warming such a big challenge?

A long-term problem A number of important uncertainties: rate of change, scale of changes,

abrupt changes, impacts on ecosystems, impacts on societies Long delays in the climate system. Energy system, political and cultural

inertia It is a global problem that requires global participation to solve;

incentives for countries to shirk from efforts Fossil fuels vital, but need to de-carbonize our economies The interests of countries vary substantially according to national

circumstances; anticipated emission mitigation costs and impacts-related costs

What is a “fair” contribution from a country, e.g. Norway, the USA and India?

Most costs today and most benefits in the future (next generations)

The temperature will increase long after emissions are reduced

IPCC Third Assessment Report Summary (2001)

”An increasing body of observations gives a collective picture of a warming world and other changes in the climate system.”

”The global average surface temperature has increased over the 20th century by about 0.6°C.”

”There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.”

Figure 1: Causal chain of climate change from emissions to damages.

Source: Fuglestvedt et al. (2003)

Potential climate changes impact

What is going on?

Endringer i maksimal smeltesone på Grønland 1992-2002

The aim of climate policy

UNFCCC: ”... Prevent dangerous anthropogenic interference with the climate system.”

Constraint on temperature increase:• per decade• per 2100 (e.g. EU: max 2 °C)• implications for allowable global emissions

Limit climate impacts:Choose indicators, e.g.:• Bleaching of coral reefs• West Antarctic Ice Shelf collapse

Emission paths:Reach a target through many different paths. Early or delayed action.

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Efficient global climate policy

The global optimum:Reduce net emissions of greenhouse gases and invest in

adaptation measures until the cost of the next policy option and investment option is equal to the benefit in terms of reduced damage from climate change.

Minimization of global (national) costs:Implementing policy options and investment options according

to increasing cost per unit greenhouse gas until the target is met. Options with highest abatement effect and lowest cost should be implemented first.

M

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CO2 equivalent reduction (mill. tons)

An illustration of a marginal abatement cost curve(abatement options listed according to increasing cost)

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Greenhouse gas abatement – options• Increase energy efficiency - new and more efficient (energy) technologies

• Substitute high-GHG energy sources for low-GHG energy sources: coal → oil → gas → heat pumps → hydropower/solar/wind

• Develop renewable energy sources: biomass, solar (heating, thermal and photovoltaic), wind and wave, geothermal, etc. • Substitute high-GHG goods and services for low-GHG goods and services

• Change products and production processes

• Longer-term: reduce transportation needs through area planning

Greenhouse gas abatementNational level:

• General: taxes, tradable quotas• Sector-specific: direct regulation, environmental agreements (voluntary agreements)• Technology: Energy efficiency standards; R&D programs

International level:• Tradable quotas• Joint implementation• Clean Development Mechanism (CDM)

Policy tools: benefits and drawbacks

Policy tool

Tax

Emissions trading

Joint implementation

and CDM

Benefits

Cost-effectiveness

Well-known policy tool

Replacement of other taxes may give additional benefits

Cost-effectiveness

Emission reduction target achieved with certainty

Inexpensive projects in other countries

Drawbacks

Uncertain emission reduction

The state may have fiscal objectives reduced cost-effectiveness

Unilateral use can lead to migration and ‘carbon leakage’

Uncertain quota price

Not much experience with use

Could conserve industry structure –reduce rate of technological progress?

Unilateral use can lead to ‘carbon leakage’

Information and verification problems

The Kyoto Protocol

• The Kyoto Protocol is a historical treaty: first legally binding climate policy treaty, but only a first small step in a process towards more ambitious targets later.

• Only a marginal step towards the long-term target of UNFCCC Art. 2). Effect depends on participation and reductions after 2012.

• Entered into force 16 February 2005

The Kyoto Protocol

Industrialized countries reduce their aggregate GHG emissions by 5.2% in the period 2008–2012 compared to the base year 1990. (USA and Australia declined to join KP).

Differentiated targets ranging from –8 to +10%. DCs exempted.

Six gases are included: CO2, CH4, N2O, HFC, PFC, and SF6.

Sequestration of CO2 in forests and soils.

Three flexibility mechanisms: International emissions trading (IET), Joint Implementation (JI), the Clean Development mechanism (CDM).

Reporting and verification system. Compliance system

 

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Annex B-land

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The Kyoto Protocol – national targets 2008-2012

Mechanisms for greenhouse gas emissions trading

  

Mechanism Unit Participants Features

Domestic emissions trading

Quota Firms and other national agents

Link to international emissions trading

International emissions trading

QuotaAssigned amount unit (AAU)

Annex B countries (industrialized countries); private agents

Supplementarity

Joint Implementation

CreditEmission reduction unit (ERU)

Annex B countries (industrialized countries); private agents

SupplementarityMonitoring and verification

Clean Development Mechanism

CreditCertified emission reductions (CER)

Annex B countries (industrialized countries) and non-Annex B countries (developing countries); private agents

SupplementarityMonitoring and verificationTax as share of proceeds

 

Source: CICERO

Illustration of emissions trading between two countries

Kyoto target for both countries

Country ALow abatement cost

Country BHigh abatement cost

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uiva

lent

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Quotas sold

Quotas purchased

Emissions 2010

Emissions 2010

• Norwegian emission trading system; 2005-2007.

• EU emission trading system; I: 2005-2007; II: 2008-2012.

Free or auctioned allowances: Equity vs. efficiency

Only (mostly) free allowances in EU ETS and Norway: higher political feasibility – more acceptable to business

Auctioning of allowances more efficient (but lower feasibility)

Problems of free allowances:* Conflict between efficiency and equity* Disincentive to reduce emissions if tied to activities

(which is difficult to avoid completely)* Weaker long-term price signal – not consistent with

polluter pays principle* Possible barrier to new entry* Exposure to lobbyism (rent-seeking)* Loss of potential tax income to the state

How can broad and long-term collaboration be combined to achieve deep emission cuts?

Deep cuts

Long-term strategyBroad participation

28 %

16 %

Greenhouse gas emissions in 2000 and projected for 2050:

Kyoto countries’ share of global emissions is almost halved

≈ +2 °C

Factors determining countries’ position

Expected costs of future climate changes in the country

Expected costs of reducing the GHG emissions in the country.

Political conditions and culture/lifestyle in the country. One example is the US resistance against taxes in environmental policies and other areas.

Position of other countries. It will be easier to get a country to stretch further if it expects other countries to do likewise. However, the benefits of free riding when other countries implement measures can be large.

A long-term climate strategy Agreement on long-term (medium-term) target can provide important

guidance for short-term policies – but difficult to reach

More emphasis on moving in right direction than on meeting short-term emission targets

Establish clear and long-term incentives for countries, industries and households to reduce emissions (e.g. quota obligation or tax)

Ascertain flexibility to adjust strategy according to new scientific knowledge, etc.

Emphasis on R&D to develop GHG-free/lean technologies

Gradual involvement of developing countries according to capacity to participate. Climate-friendly development strategies

Combine adaptation and mitigation policies

Factors that increase/decrease the probability of climate policy success (deep cuts)

Clearer indications of change: large impacts; costly consequences; extreme events

Reduced mitigation costs: clear, long-term incentives; better technology

“Fair” distribution of costs across countries and sectors

Convergence with other policy areas: energy supply/security; development

Higher than expected inertia: capital stock; political; cultural

High mitigation costs

Delayed signs of global warming; abrupt change

“Unfair” distribution of efforts

Conflict with other policy areas

Uncertainty? Emphasis on adaptation?

Success Failure

Beyond Kyoto

Architecture

• Close to the Kyoto Protocol or not?• Coordination at global, regional, or sector level?• Modes of participation – equal for all states?

Illustration of regions/countries choosing different modes of participation

Emission cap (Kyoto)

Emissions/GDP

Technology standards; transfer

R&D

The USA

The EU

Russia

Developing countries

Beyond Kyoto policies

1. More flexibility than in the Kyoto Protocol needed: each country choose policy and measures based on national circumstances.

2. Valuable Kyoto Protocol elements: flexibility mechanisms, GHG basket, reporting and verification system, differentiated targets.

3. Processes parallel to UN. Coalition of the willing. Regional agreements - climate and air pollution (climate measures → less NOx, SO2).

4. Bottom up policies: technology; bilateral agreements.

5. Sector-based agreements (e.g. aviation and ship traffic).

Broad participation in emission mitigation - Developing countries

Reach compromise on what a “fair” involvement of developing countries means

Gradual involvement of developing countries according to capacity, such as a staged approach

More emphasis on adaptation as part of a comprehensive climate policy

Seek development strategies that are 4 x win: development, energy supply, local/regional air pollution, and climate

“Pull and push” policies for deep emission cuts

Pulling emission reductions: A long-term strategy with clear incentives to reduce emissions.

Gradual replacement of capital equipment keeps costs down Reduce costs through broad national participation in mitigation

efforts, and through use of market-based policy instruments (e.g. emissions trading and tax)

Broad international participation – reduce danger of loss in competitiveness (and “leakage” of emissions)

Pushing emission reductions: Emphasis on technology development through long-term R&D

programs: renewable energy; more efficient technologies International collaboration on technology development and

deployment: public good features; economics of scale; technology spill-over reduce costs

Possible benefits of first movers in mitigation and technology development: new products and industries - future markets

CO2 capture and geological storage

Differentiation between countries- Fairness:

1. Need: Equal per capita emissions (convergence period)

2. Ability to pay (capacity): GDP per capita.

3. Responsibility: past GHG emissions or temperature effect of these.

4. Multi-stage:a. No reduction;b. Reduced emissions/BNP;c. Reduction. Most developed DCs get a more active role.

CO2 emissions by region 1860-2000. Future emission paths to

stabilize concentration at 450 ppmv given per capita convergence by 2050

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Annex 1 (excl OECD)

OECD (excl. USA)

USA

Source: Kolshus (2000)

• Period:

1890-2000

• Evaluation year:

2000

• Gases:

CO2, CH4, N2O

Attribution of temperature change in 2000

OECD9038 %

Africa & Latin America

22 %

EEUR & FSU14 %

ASIA26 %

Responsibility approach: differentiate commitments based on blame for climate change

Analysing countries’ contribution to climate change: Scientific uncertainties and methodological choices (submitted)

den Elzen, Fuglestvedt, Höhne, Trudinger, Lowe, Matthews, Romstad, de Campos, Andronova