Transcript International Agreements on Climate Change

Climate Change
Estimates of Economic Costs of
Climate Change
Copied from Tol 2009 p.31
Interpreting these estimates
• Most studies assume a doubling of GHG
concentrations
– akin to what happened over last half of 20th
century
• Most studies find relatively small effects: “a
few percentage points of GDP.” (Tol 2009 p33)
Small?
• “it’s roughly equivalent to a year’s growth in
the global economy—which suggests that
over a century or so, the economic loss from
climate change is not all that large.” (Tol 2009
p33)
Copied from Tol 2009 p.35
Note: some global warming might
be beneficial (on average)
Estimates of the Marginal Social
Cost of Carbon
• Based on a survey of extant analysis of the costs of
climate change, Tol (2009; p46) concludes that “A
government that uses the same 3 percent discount
rate for climate change as for other decisions should
levy a carbon tax of $25 per metric ton of carbon
(modal value) to $50/tC (mean value).”
• Current carbon prices:
– EU January 2009: $78/tC ; March 2014: 7euro/TC?
– RGGI Jan 2014: $4/tC
• BC: $30/tC ...
Copied from http://www.fin.gov.bc.ca/tbs/tp/Carbon_tax_rates_by_fuel_type_from_Jan_2010.pdf
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History of International Climate
Change agreements
Rio 1992
• “The United Nations Framework Convention
on Climate Change (UNFCCC or FCCC) is an
international environmental treaty produced
at the United Nations Conference on
Environment and Development (UNCED),
informally known as the Earth Summit, held in
Rio de Janeiro from 3 to 14 June 1992.”
(Wikipedia)
UNFCCC
• doesn’t set emission targets
• does require yearly Conference of the Party
(COP) meetings, which yielded Kyoto Protocol
(1997) and Copenhagen Accord (2009)
UNFCCC assigns countries to three
groups
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Annex I countries (industrialized countries and countries in transition): Australia,
Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan,
Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, Netherlands, New Zealand,
Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain,
Sweden, Switzerland, Turkey, Ukraine, United Kingdom, United States of America
(40 countries and separately the European Union)
Annex II countries (developed countries which pay for costs of developing
countries)
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, United Kingdom, United States of America
(23 countries and separately the European Union; Turkey was removed from the
annex II list in 2001 at its request to recognize its economy as a transition
economy.)
(Non-Annex I countries – Everyone else)
Kyoto Protocol
Kyoto Protocol
•
1997 (entered into force in 2005)
•
Covers 6 greenhouse gases.
•
Requires variable reductions (relative to 1990 emissions) during 2008-2012 for
Annex-I countries:
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E.g. of required reductions:
EU (-8%)
US (-7%)
Canada (-6%)
Japan (-6%)
Russia (0%)
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•
Some countries allowed to increase their emissions:
Australia (+8%) Iceland (10%)
Digression
• How has Canada actually done at meeting its
Kyoto commitment?
• According to Greenpeace, Canada’s emissions
at time of Copenhagen meetings were about
34% above its Kyoto target
• TheStar.com reports Canada will exceed its
commitment by ~1billion tonnes of CO2 (“by
far the worst breach of any nation”)
2011
• Canada officially pulled out of the Kyoto
Agreement
• Federal Environment Minister Kent “said
staying in Kyoto would force Canada to spend
about $14-billion buying carbon credits
abroad because the country is so far behind in
meeting its targets.” (Globe and Mail Dec 12,
2011 http://www.theglobeandmail.com/news/politics/canada-formallyabandons-kyoto-protocol-on-climate-change/article2268432/)
Problems with Multilateral
Agreements
Free riding
It’s hard to get every country to ratify
Solution
• Treaty doesn’t take effect unless (almost)
everyone signs
– Kyoto protocol didn’t go into effect until it was
ratified by industrialized countries accounting for
at least half the world’s greenhouse gasses
• By 2008, 183 countries had ratified
Kyoto, including EU, Russia, Canada,
China, India, Japan.
Famously, the United States
never ratified Kyoto
• Reasons given:
– China and India aren’t required to reduce own emissions
• “The world's second-largest emitter of greenhouse gases is the People’s
Republic of China. Yet, China was entirely exempted from the
requirements of the Kyoto Protocol. India and Germany are among the top
emitters. Yet, India was also exempt from Kyoto ...” (Pres. Bush 2001)
– Cost
• Stern Review estimated “one percent of global GDP is required to be
invested in order to mitigate the effects of climate change” (Wikipedia)
– Waiting for the successor to Kyoto
• "it doesn't make sense for the United States to sign [the Kyoto Protocol]
because [it] is about to end" (Pres. Obama, April 2009)
Successor to Kyoto: Copenhagen
2009
December 2009, UNFCCC COP 15
– Countries unable to arrive at a new protocol
– Instead, they “noted” a 3 page accord
Highlights
– goal: cap rise in global temperature to <2 degrees
Celsius
– Countries remain divided into Annex I and NonAnnex I countries (as per designations under
Kyoto)
• Annex I countries must state country-wide reduction
targets; actual reductions to be certified by an
international agency
• non-Annex I countries only need to list mitigation
strategies; actual mitigation can be certified
domestically
• poorest non-Annex I countries don’t have to do
anything (all voluntary)
Highlights continued
– market based measures o.k. (but unspecified)
– NO mention of competitiveness concerns,
leakage, or the use of border-tax-adjustments
– Countries are to state their intentions (target
reductions) by Jan 30, 2010
Digression
• What commitments have countries made?
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–
–
–
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Canada: -17% relative to 2005 levels by 2020
US: -17%
Australia: -5%
Japan: -25% (relative to 1990)
EU: -20% (relative to 1990), with willingness to expand
reductions to -30% if others make substantial commitments
– China: since China is a non-Annex I country, it doesn’t have to
declare reduction targets, but rather its “mitigation” goals
(1) reduce its carbon intensity by 40-45% by 2020 from 2005 levels,
(2) increase the share of non-fossil energy in its primary energy
consumption to around 15% by 2020
(3) increase forest coverage by 40 million hectares and forest stock
volume by 1.3 billion cubic meters by 2020 from 2005 levels.
Is UNFCCC the only way forward?
• Maybe not
– The US Deputy National Security Advisor for
International Economic Affairs chairs meetings
between 17 countries: Australia, Brazil, Canada, China,
the European Union, France, Germany, India,
Indonesia, Italy, Japan, Korea, Mexico, Russia, South
Africa, the United Kingdom, and the United States.
– Called the “Major Economies Forum on Energy and
Climate” (MEF)
– Since these 17 countries and regions account for
about 90% of global emissions, some think MEF will
replace UNFCCC as main forum for climate change
negotiations.
A few of the many problems with
Copenhagen Accord
• Non-binding
• commitments thus far aren’t sufficient to
reach goal (of <2%C rise in global
temperature)
• …
• world still divided into two groups
• no mention of how to address
competitiveness concerns
Cancun 2010
Cancun 2010
• Copenhagen Accord finally adopted.
• Establishes Green Climate Fund
– World Bank to serve as interim trustee
– goal: “developed countries to mobilize $100
billion annually by 2020 to support mitigation and
adaptation in developing countries” (Stavins
http://www.robertstavinsblog.org/2010/12/13/successful-outcome-of-climatenegotiations-in-cancun/)
Durban 2011
• Nov 28 – Dec 11 2011
– 17th COP of UNFCCC in Durban South Africa
• Goal: establish a new treaty to limit carbon
emissions
Outcomes:
1. countries reached a non-binding agreement
to produce a legally binding treaty by 2015, to
take effect in 2020.
2. Agreed to extend Kyoto by 5 years
• 3. Fine tuned components of the Cancun
Agreements
– includes
• “work done on the Green Climate Fund to help
mobilize public and private funding of climate change
mitigation and adaptation in developing countries;”
• “more specifics on technology transfer mechanisms;”
• “mechanisms to enhance the transparency of national
commitments under the Cancun Agreements;”
• “an international scheme to reduce deforestation,
which – importantly – includes market mechanisms.”
(Stavins http://www.robertstavinsblog.org/ Dec 12, 2011)
The important part
• language regarding “common but
differentiated responsibilities” and a division
of world into Annex I and non-Annex 1
countries has disappeared
• Of course, since Durban Platform doesn’t
actually identify specific targets for developing
contrires, this is merely an `opening of the
window’ (Stavins http://www.robertstavinsblog.org/ Jan 1, 2012)
to the idea that all countries have to reduce own
emissions
Why does it matter that some countries aren’t
constrained?
• Hard to get an agreement if some countries
feel they are doing all the work and others
reaping the benefits
• But even if the ones undertaking all the cuts
didn’t care, there’s the leakage problem
Warsaw 2013
• “the key task of this COP was essentially to
pave the way for the negotiations next year at
COP-20 in Lima, Peru, as a lead-up to the real
target, reaching a new international climate
agreement at the 2015 negotiations in Paris to
be implemented in 2020” (Stavins’ blog )
Carbon Leakage
Carbon Leakage
• If Annex I countries reduce their own
emissions, by how much will non-Annex I
countries raise their emissions in response?
Channels through which carbon leakage
works
1. emissions in Annex I countries lowers
country i’s MD from its own emissions
– assumes MD from global emissions is increasing
Digression – Finding Domestically Optimal
Pollution Level
$
Pollution
Now consider global pollutant
•Suppose Annex I emissions from ROW are originally at e-i0
• Draw country i’s MCA curve using e-i0 as vertical axis
•Country i will emit ei0 units
$
MDi
MCAi
e-i0
e-i0+ei0
eW=ei+e-i
•Now suppose Annex I emissions from ROW fall to e-i2
•In eW,$ space, country i’s MCA curve shifts left (new vertical axis is at e-12)
•Country i will now emit ei2 units
•ei2>ei0
•Why?
•Because the reduction in ROW emissions effectively shifts down i’s MD curve
•i raises emissions as a result
$
MDi
ei2
MCAi
e i0
e-i2
e-i2+ei0
e-i2+ei2
e-i0
MCAi
e-i0+ei0
eW=ei+e-i
2a. Change in the price of fuel (fuel
market leakage)
• Suppose Annex I countries use a fuel tax to
reduce their fuel use
• tax reduces Annex I country demand for
imports of fuel (or reduces export supply)
• result: world fuel price falls
• non-Annex I countries respond to lower global
fuel prices by increasing own consumption
(i.e. simply move SE along own demand curve)
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2b. Product Market Leakage
• Suppose Annex I countries use an emission tax
to reduce their territorial emissions
• tax reduces Annex I country supply of carbonintensive goods (e.g. steel, aluminium)
• Increases import demand
• result: world prices for carbon intensive goods
rise
• non-Annex I countries respond to higher
global prices by increasing own production
(i.e. simply move NE along own supply curve)
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