From Kyoto to Bali: A new framework for the climate

 

“Climate change is the first civilization-scale challenge that humans have yet faced” – Bill McKibben

Humans have been changing the atmosphere since the introduction of agriculture ten thousand years ago. In recent times we have created smog, acid rain, and holes in the ozone layer. These problems are considered fixable because of how rapidly the pollutants are cycled out of the atmosphere. CO2 pollution occurs on a vastly greater scale. CO2 is by far the largest waste stream that humans produce, and it stays in the atmosphere for hundreds of years.

Breathing Earth shows where CO2 emissions are coming from in real-time. Maplecroft’s climate change map shows which countries will be most affected by climate change. A World Health Organization study estimated 150 000 deaths in the year 2000 due to an increase in climate events. Climate refugees already outnumber political refugees, fueling ongoing conflicts in vulnerable areas. The world is alert to the climate crisis.

The recent IPCC report (summarized here) details how our choices in the near future will affect the climate over the long term. As comprehensive as the report is, the IPCC’s recommendations do not prescribe a path to take. Individuals and governments must decide what constitutes a “dangerous anthropogenic interference”1 in the climate. The decision of how much risk to pass on to the inhabitants of the earth in 10, 20, or 100 year's time lies with the current generation.

John Schellnhuber - The two degree challenge
“Confining global warming to two degrees is absolutely imperative. Beyond that we run into an unmanageable domain.”

Two degrees of warming in 2100 has been recognized as a meaningful target because it reduces our exposure to runaway events. There has already been 0.7ºC of warming due to human activity and another 0.6ºC is in store as the climate ‘catches up’ to previous emissions. Two degrees translates to a range of 450 to 550 ppm CO2e, but we are not even committed to hitting the high end of the range.

The two degree target can be met by spending 1% or less of global output.2 The necessary investment will support economic growth in the long term, as other environmental policies have been shown to do.3 Economy, energy, and emissions have been tightly correlated in the past, but they can be separated. A tempered approach is needed to avoid carbon blindness, which would compel us stabilize the climate at the expense of other pressing needs. Stephen Schneider explains the art of striking a balance in the talk below.

Stephen Schneider drives home the point that mitigating climate change is about value-based risk assessment. The Stern Review is such an assessment, comparing side by side the cost of mitigation, the cost of adaption, and the cost of doing nothing about climate change. The Stern Review goes beyond the precautionary principle by applying a type of decision-making under uncertainty called expected utility.4

The 1% figure for the cost of mitigating climate change is an average number that obscures the massive imbalance in the cost to human development. The impasse over climate policy is one of economic equity, emphasizing the need for a progressive framework.5 Enter greenhouse development rights, the right to develop in a carbon constrained world. The main GDR paper is an attempt to address the complex issue of climate equity. As a reference for all other frameworks, GDR makes an important distinction: “we see this right to development … as belonging to poor people, not poor countries.”

The total emissions of rapidly developing countries like India and China will soon surpass those of the developed countries. They will have to accept responsibility, although their contribution will be a lower percent of their total emissions because of their lower per capita emissions. The climate framework must include developing nations to enable emissions trading, which will in turn prevent the outsourcing of energy intensive activities by wealthy countries.

The hesitation of some politicians to tackle climate change has everything to do with public opinion. A recent poll on the cost of regulation shows why the United States has not joined any international agreements to date. Replacing the politics of competition with the politics of consensus is the key to bridging the gap, an area in which Norwegian group CICERO is providing leadership.

Negotiations that lead to binding agreements on long-term emissions reductions will relieve the pressure from the short cycle of politics. Jeffery Sachs’ article Moving beyond Kyoto is a clear statement on where consensus is needed for the next major climate framework. Visit “A Nobel Cause – Potsdam Memorandum on climate change” to view a round of discussions that set the stage for the next round of climate talks in Bali.

Choosing the best framework

Three basic frameworks are being considered for tackling emissions: a carbon tax, cap and trade, and prescriptive standards. A carbon tax would rely on the market to de-centralize decision making. Prescriptive standards would use government bodies to choose a mix of energy technologies to invest in. A cap and trade system falls somewhere in between, sharing the decision-making between business and government.

There are policy tradeoffs that have to be examined for each framework.

• Regulatory overhead: All frameworks require government oversight, but not to the same extent.
• Income distribution neutrality: Blanket policies would place a different burden on poor and rich people.
• Efficiency versus competitiveness: The most efficient regulations would affect certain industries disproportionately.
• Penalties for missed targets: The efficacy of methods for regulation and enforcement within nations and between nations.
• Tax shifting and spending: Some frameworks would generate funds for governments, potentially offsetting other forms of tax such as income tax. Alternatively, these funds may be allocated for basic research into clean energy.
• Predictability: A stable carbon price is needed for  energy companies to know what infrastructure to build and which energy technologies to develop.

Climate Pricing 101 is a great primer that explains these and other tradeoffs.

Carbon tax

Jeffrey Sachs - Practical Approaches to Climate Change (full lecture)
Sachs explains the economic similarities and differences between a carbon tax and cap and trade schemes.

A carbon tax requires less regulation than other frameworks, and achieves reductions in an economically favourable way. Carbon emissions can be managed to create the conditions that markets need to operate efficiently. All that is needed is a well-defined product, reliable suppliers, robust demand, trusted and transparent exchange, and sufficient volume to ensure competition and liquidity.

Where a carbon tax loses points is on social and geographical equity. If implemented directly it would act as a flat tax, creating anything but a level playing field. Regions that use coal would become unlivable due to dramatically higher energy prices. The equity argument shows that a straight carbon tax is not nearly as feasible as simple economic reasoning would suggest.

Cap and trade

Attorney David Hayes looks back at first year of European Emissions Trading Scheme
There will be a 1.1 billion tonne deficit from developed countries each year under Kyoto, all of which the clean development mechanism will have to absorb.

Cap and trade is the basis for the EU trading scheme. Absolute reductions in emissions are guaranteed by ‘capping’ the number of permits available. Permits are allocated either as hand-outs or by auction, after which they can be traded at market prices. In addition, the Kyoto Protocol allows countries to buy permits via the Clean Development Mechanism. EU members have found that implementing leapfrogging technologies in developing countries is a cheap alternative to making reductions at home.

The Kyoto Protocal was only the first try at formulating a cap and trade framework. It will see much more refinement over the 2008-2012 period when targets come into effect.

Prescriptive standards

Mark Jaccard – Hot Air
A serious criticism of Canada’s weak climate policy.
Canadian energy and enviro official Jim Prentice discusses post-Kyoto legislation
The political perspective on why Canada and the US have been avoiding caps on emissions.

Prescriptive standards are regulations on specific industries and incentives for consumers. A group of standards can be implemented to reach energy intensity targets. Politicians have used intensity targets as a mathematical trick to boast large reductions without actually regulating emissions. Energy intensity (Joules/GDP) decreases by about 1% per year in developed countries and 1.5% per year for the whole world, as the chart below shows. These returns come from industry innovation and technology at large in the absence of emissions regulations.

Sustaining a habitable planet is about balancing social equity, economics, and the environment. The challenge of climate change is noteable for bringing together the whole balancing act. In the next ten years there is a window of opportunity for serious action to minimize the economic and human cost of climate change. The clear path forward is to create a stable carbon market that the whole world participates in.

The next section The energy transition challenge brings attention to the innovators who are ready to respond to climate legislation with a host of new technologies.

 

Add a comment or offer suggestions to improve this section.

References

Resources

MIT OpenCourseWare - Global Climate Change: Economics, Science, and Policy - Spring 2007

 

 

---