Transcript Sustainable Development & Carbon Finance

Prices versus Quantities:
HOW DO DIFFERENT EMISSION REDUCTION STRATEGIES PERFORM IN
COUNTRIES AT DIFFERENT LEVELS OF DEVELOPMENT
Forging Closer Ties: Transatlantic Relations, Climate Change and Energy
Freie Universität Berlin
November 28 – December 5, 2009
Mark Purdon
PhD Candidate
Department of Political Science
University of Toronto, Canada
Email: [email protected]
Policy or Political Failure?
• Commonplace to hear criticisms of the
Kyoto Protocol
• If only we had the right “policy” in place
things, we’d be on the right track…
– Global carbon tax
– Increased international development financing
The more countries involved, the
lower the costs
(Carbon Group 2009)
Controlling Costs Will, Politically,
Be Important
3.0
2.5
% GDP
2.0
1.5
1.0
0.5
Costs
•Mitigation
$200 Billion USD/an
0.0
•Adaptation
$50 to 109 Billion USD/an
ODA
(OECD
Average)
ODA
(0.7%
Target)
Full ODA + Full ODA + British Anti- ODA +
ODA +
Adapt (Low) Adapt (High) Slavery Adapt (Low) Adapt (High)
+ Mit
+ Mit
Sources
British Anti-Slavery –Kaufmann & Pape 1999
ODA – WB 2008
Adaptation – IIED 2009
Mitigation – UNFCCC 2007
Kyoto’s Approach to Lowering Costs
• “Cap-and-Trade”
– Quota-based System
– Price of climate change policy to be “revealed” on
the carbon market
• Carbon Market
– “Emissions Trading”
• Only between industrialized countries
– “Joint Implementation”
• Only between industrialized countries
– “Clean Development Mechanism”
• Between industrialized and developing countries
“Offsets”
Location of CDM Projects
(Source: UNFCCC 2009)
Is the CDM a Success?
• A 4,763 des projets liés à 2,800 millions de tonnes de
crédits carbone (Oct 2009)
Impact of CDM on Emissions Trends of Kyoto Parties
105%
100%
95%
90%
85%
80%
75%
70%
65%
(Source: CDM - UNEP Risoe Centre 2008)
Kyoto Industrialized
Countries (no USA)
Kyoto Industrialized
Countries (no USA)
with CDM
Kyoto Annex B (no
USA)
Kyoto Annex B (no
USA) with CDM
Prices versus Quantities
Two Basic Options to Regulate Carbon
• Regulate QUANTITY of carbon
– Cap-and-trade
– Uncertainty surrounding the cost of reducing below
cap necessitates emissions trading as an escape
mechanism
• Regulate PRICE of carbon
– Carbon tax or carbon bounty
– Much easier to administer (theoretically)
– Uncertainty in effects on emissions
Symmetry of Prices and Quantities
Price = $5
Quantity = 10 tonnes
Climate Change Policy Under “Uncertainty”
Marginal Benefit Curve “Flat”
Marginal Benefit Curve “Steep"
If a patient’s health deteriorates only slowly,
care should be managed such that each day
the patient remains without treatment the
hospital should pay a fine.
If the medical condition is serious and prone
to deteriorate rapidly, then the hospital only
has d days to administer the treatment or the
patient dies
P
P
MC actual
MC actual
MC expected
MC expected
Pquantity
Pquantity
P*
P*
Ptax
Ptax
MB
Qtax Q*
Qquantity
MB
Q
Qtax
Q*
Qquantity
Q
Climate Change Policy Under “Uncertainty”
Marginal Benefit Curve “Flat”
Marginal Benefit Curve “Steep"
If a patient’s health deteriorates only slowly,
care should be managed such that each day
the patient remains without treatment the
hospital should pay a fine.
If the medical condition is serious and prone
to deteriorate rapidly, then the hospital only
has d days to administer the treatment or the
patient dies
P
P
MC actual
MC actual
MC expected
MC expected
Pquantity
Pquantity
P*
EQ
EQ
P*
Ptax
Ptax
MB
Qtax Q*
Qquantity
MB
Q
Qtax
Q*
Qquantity
Q
Climate Change Policy Under “Uncertainty”
Marginal Benefit Curve “Flat”
Marginal Benefit Curve “Steep"
If a patient’s health deteriorates only slowly,
care should be managed such that each day
the patient remains without treatment the
hospital should pay a fine.
If the medical condition is serious and prone
to deteriorate rapidly, then the hospital only
has d days to administer the treatment or the
patient dies
P
P
MC actual
MC actual
MC expected
MC expected
Pquantity
Pquantity
P*
P*
Ptax
EP
EP
Ptax
MB
Qtax Q*
Qquantity
MB
Q
Qtax
Q*
Qquantity
Q
Climate Change Policy Under “Uncertainty”
Marginal Benefit Curve “Flat”
Marginal Benefit Curve “Steep"
If a patient’s health deteriorates only slowly,
care should be managed such that each day
the patient remains without treatment the
hospital should pay a fine.
If the medical condition is serious and prone
to deteriorate rapidly, then the hospital only
has d days to administer the treatment or the
patient dies
P
P
MC actual
MC actual
MC expected
MC expected
Pquantity
Pquantity
P*
P*
Ptax
EP
EP
EQ
EQ
Ptax
MB
Qtax Q*
Qquantity
MB
Q
Qtax
Q*
Qquantity
Q
Clean Development Mechanism
(CDM)
CDM Criticisms
• Transaction Costs
– Complicated and bureaucratic project development system
often means only big projects make there way through
• Additionality
– A CDM project is additional if GHG emissions are reduced
below those that would have occurred in the absence of
the CDM
• Sustainable Development
– Is the CDM really making a contribution?
– “CO2lonialism”
Transaction Costs
• Complicated project cycle…
CDM Development Phase
PDD
Development
Letter of
Approval
Validation
Registration
Registration
CDM Implementation Phase
Monitoring
Verification
Certification
Issuance
Forwarding
Transaction Costs
• Complicated project cycle…
CDM Development Phase
PDD
Development
Letter of
Approval
Validation
Registration
Registration
CDM Implementation Phase
Monitoring
Project Developer
Host country DNA
3rd Party Auditors
CDM Executive Board
Verification
Certification
Issuance
Forwarding
Transaction Costs
• Project Developers, Brokers, Regulators
Transaction
Costs
Deadweight
Loss
Additionality
Carbon
Offset
Tonnes
CO2
Emissions
Year0
Year7
Crediting Period
Bogus credits?
Non-Carbon
Project Started
No Project
Bogus
Carbon
Offset
Tonnes
CO2
Genuine
Carbon
Offset
Emissions
Year0
Year4
Crediting Period
Year7
a) Project-based CDM
Sectoral CDM…
Currently, the CDM operates largely on a projectby-project basis. The demonstration of
additionality does not go much further than
project boundaries (green lines). Because little
environmental
the
about
information
performance of non-CDM projects operating in
the same sector is presented, regulators do not
have sufficient information to assess to what
extent the baseline identified by CDM project
developers is true.
b) Programmatic CDM
c) Sectoral CDM
Programmatic CDM is really an extension of
project-based CDM, seeking to reduce transaction
costs through economies-of-scale. While there is
more baseline information, there are still
substantial sectors of the economy which remain
outside regulatory purview.
Sectoral CDM would establish a sector-wide
performance benchmark, which would then
become the baseline for carbon finance.
« CO2lonialism »
E
Example of FACE reforestation project in Mt Elgon National Park, Uganda
2009 Fieldwork &
Preliminary Results
Where in the world….
• Tanzania
• Uganda
• Moldova
CDM reforestation project in Tanzania
Area: 13,450 ha planted (of 18,000 ha
acquired)
Carbon Credits: 6.4 million tCO2e
over period 2000-2019
Topography: grassland with the
landscape dominated by undulating
ridges with steep slopes.
CDM cookstove project - Tanzania
Location: Karatu District, Arusha
Region
Project Summary: The project
involves improved household
stoves and intends to build and
install stoves in 22,000 households.
On average 45,000 tCO2e annually
over 2009-2012.
Improved Cookstove Project
70% Emissions
Reduction
Sugarcane “bagasse” bioenergy - Uganda
Location: Jinja District
Project Summary:
•The project involves increasing
bagasse co-firing of the
sugarworks, sending extra power
generated back into the grid and
thereby displacing fossil fuel
generated electricity
• Extra sugarcane purchased from
outgrowers who grow cane on
their own land
Reforestation Project - Moldova
Area: 20,000 ha
Project Summary:
• Reforestation of degraded forest
land spread out across the country
• Degraded lands identified
scientifically and managed in a
nation-wide cadastral system
• 594 villages involved
Project
Project
…………………….Additionality………………….
…………………….Additionality………………….
Sustainable
Development
Sustainable
Development
Additionality:
Preliminary Assessment
Non-Carbon
Project Started
No Project
Non-Carbon
Project Started
Tonnes
CO2
Bogus
Carbon
Offset
No Project
Genuine
Bogus
Carbon
Carbon
Offset
Offset
Tonnes
CO2
Emissions
Genuine
Carbon
Offset
Additional Projects
Y0 Y1
Year7
Emissions
Crediting Period
What’s
Y Y the matter with additionality?
Year
0
1
7
Crediting Period
What’s the matter with additionality?
Tanzania – Improved
Cookstoves
Carbon
Offset
Tonnes
CO2
Carbon
Offset
Emissions
Tonnes
CO2
Year0
Year7
Emissions
Crediting Period
Bogus
credits?
Year
Year7
0
No Project
Non-Carbon
Project Started
Bogus
Carbon
Offset
No Project
Bogus
Genuine
Carbon
Carbon
Offset
Offset
Tonnes
CO2
Emissions
Genuine
Carbon
Offset
Year4
Year7
Emissions
Crediting Period
Moldavia – Reforestation
What’s
the matter
Year
Year with additionality?
Year
4
7
Crediting Period
Carbon
Offset
Tonnes
CO2
Carbon
Offset
Emissions
Tonnes
CO2
Year0
Year7
Emissions
Crediting Period
Government would not have had
money to undertake the scale of
reforestation without carbon finance
Year7
Crediting Period
Tonnes
CO2
Bogus
Carbon
Offset
No Project
Genuine
Bogus
Carbon
Carbon
OffsetOffset
Tonnes
CO2
0
Year7
1
Emissions
Genuine
Carbon
Offset
Emissions
Crediting Period
What’s
the matter with additionality?
Y Y
Year
1
Appears
have gon
Appears pr
not as big
have gone
as early
not as big
as early
7
Did expand
What’ssugarcane
the matter with additionality?
Project
in Tanzania’s
forest
Appears project
would undertaken
demand and
thus
Did
expand
sugarcane
belt;but
therefore
likely to
haveon
gone ahead
have gone ahead,
benefited
farmers
Appears project would
demand and thus
without carbon
but maybe not as
CDM accelerated
the finance
region. But
have gone ahead, but
benefited farmers on
implementation
questions
for
early nor asthe
large
CDM accelerated
region. But
Carbon
Offset
Tonnes
CO2
Carbon
Offset
Emissions
Tonnes
CO2
Year0
Year7
deforestation.
questionsBogus
for credits?
Uganda – Bioenergy
deforestation.
Bogus credits?
Communities
not
Without CDM financing,
benefitting
Communities not
lands would not have
economically. Only
Without CDM financing,
benefitting
been reforested
benefit is to prevent
lands would not have
economically. Only
land degradation.
Year
been reforested
benefit is toYearprevent Year
land
degradation.
Carbon finance
only
aWhat’s
fraction
of
the total
the matter
Year
Year with additionality?
Year
implementation
Emissions
Crediting Period
Year0
Year7
No Project
Non-Carbon
Project Started
Tonnes
CO2
Bogus
Carbon
Offset
No Project
Bogus
Genuine
Carbon
Carbon
OffsetOffset
Tonnes
CO2
Emissions
Genuine
Carbon
Offset
0
4
7
Emissions
Crediting Period
0
Appears
because
Appears ad
governm
because no
sector ac
governmen
sector acti
Non-Carbon
Project Started
Crediting Period
What’s the matter with additionality?
Year0
No Project
Non-Carbon
Project Started
Important benefits in
terms of women’s
Important benefits in
livelihoods, health as
terms of women’s
well as environment
livelihoods, health
as
Y Y
well as environment
Crediting Period
Bogus credits?
0
Non-Carbon
Project Started
Tanzania – Reforestation
Appears additional
because no other
Appears additional
government or private
because no other
sector activity on stoves
government or private
sector activity on stoves
0
No large-scale government or
private sector policy for improved
cookstoves
Year0
Non-Additional Projects
Non-Carbon
Project Started
Crediting Period
Tonnes
CO2
Appears project would
Significant employmet
have gone ahead, maybe benefits and important
Appears project would
Significant employmet
not as big or maybe not
investments in
have gone ahead, maybe benefits and important
as early
community services
Project
not as big or maybe not
investments…………………….Additionality……
in
as early
services
Projectcommunity…………………….Additionality……
4
7
project financing; therefore
project would
What’s the matter with additionality?
have gone ahead but probably not as soon.
Crediting Period
Carbon
Appears
have gon
Appears pr
CDM acce
have gone
impleme
CDM accel
implement
CDM Administration
• Bureaucratic bottle-necks in Africa
 “Cork in the bottle” syndrome
• CDM authorities often in small “units” in the
technical wing of Ministry of Environment
 Do not appear to have the authority for nationwide changes that could be necessary for CDM
 Might be other govt agencies (planning) that are
better equipped to address the issues sectoral
CDM requires
Price-mechanism Alternatives to
the CDM
Price-mechanism
• Carbon Tax
– Taxation already difficult in developing countries
– Unconscionable  high incidence on the poor
• Carbon Bounty
– Payment for carbon abatement at a set price
– Would be important to set the correct price for the
bounty in different sectors
– Could use Carbon Cost Efficiency (CCEff), which measures the
costs in $/tCO2e
– CCEff could be used to determine the price at which to set a
carbon bounty in order to achieve a desired emission
reduction for a specific project or programme
Carbon Cost Effectiveness
(McKinsey & Co. 2009)
Carbon bounty?
• Tanzania example
– Ministry of Natural Resources & Tourism sets the price
of forest products
• Government plantations (Sao Hill) are largest player
domestic market and determine price
• Price of forest products coming from government
plantations is not determined by the market but a result an
act of Parliament – “totally political”
– Recent price increase
• 2002: royalty rates set under Forestry Act
• 2006: unsuccessful attempt by MNRT to raise prices
• 2007: “New Royalty Rates for Forest Products”
Reforestation effort in Mufindi District, Tanzania
12,000
Hectares (ha)
10,000
Big leap in
reforestation
8,000
6,000
4,000
2,000
0
1995
1997
1999
2001
2003
2005
2007
Limits on a price strategy
• Many sources of emissions are non-monetized
and not amenable to a price change policy
– African Firewood
• Often collected from forest commons which are unregulated
• Price manipulation and supply shocks
– Low fossil fuel prices disincentive to bioenergy in
Moldova
• Russian gas subsidized
• Gas viewed as “modern” energy source
Conclusion
Ditch the CDM?
• Sometimes prices, sometimes quotas
• Price strategies are more appropriate in
developed countries because prices for fossil
fuels are relatively stable and predictable
• Need to reform the post-Kyoto agreements in
a manner that adds price-based instruments
in addition to, not in replacement of, the
current quota-based design.
Moral Limits of Climate Change
Policy?
Another thought…Climate Realism
• Response from industrialized countries to climate
change will be based on a political calculation
that weighs the costs of mitigation versus those
of domestic adaptation in industrialized
countries
• Disquieting hypothesis: it is not necessarily in the
interest of the industrialized countries to prevent
a level of climate change that is “dangerous” for
least developed countries.
– UNFCCC ultimate objective: “Stabilization of
greenhouse gas concentrations in the atmosphere at a
level that would prevent dangerous anthropogenic
interference with the climate system.”
Moral Limits of Climate Change Policy
Horizon of thought on climate change policy
World
Socialism
Neoliberalism
If not the CDM, then what?
Moral Limits of Climate Change Policy
Horizon of thought on climate change policy
World
Socialism
Neoliberalism
Climate
Realism
Thank you!!
This research has been made possible with funding from the
International Development Research Council (IDRC) and SSHRC
Mark Purdon
PhD Candidate
Department of Political Science
University of Toronto, Canada
Email: [email protected]