Integrated Assessment II: Kyoto Protocol & Post-2012

Kyoto and Post-2012 Options • The concept of agreement “architecture” • Review – FCCC and Kyoto – Were we are now • Alternative approaches • Venue and process The Challenge: Per Capita Emissions to Meet a 550 ppmv Target 4.0 Emissions Intensity (tC/ca 3.5 3.0 2.5 OECD Economies in Transition 2.0 No Policy 550 ppm target 1.5 1.0 0.5 China & India 0.0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Needed: An “Architecture” for Managing a Global Commons • A unifying structure that restricts potential agreements in ways that simplify negotiations and point them toward common goals. • Why? • Criteria – Effective – Cost efficient – Equitable (gain participation) – Flex to new info – Verification & compliance – Simple – Continuity with Kyoto (?) UN General Assembly Framework Convention on Climate Change COP Conference of Parties Treaty Bureaucracy First Try at a Comprehensive Architecture 2012 2008 1st commitment period 2d commitment period MOP Kyoto Ä Tightening Accession Protocol Ratif’n by 55% Legal Force Annex B (OECD, Econs. In Transition) Non-Annex B (Developing Countries) Review of Kyoto Terms • Targets for Annex B only (average = –5.2%) – Reductions by 2008-12, 1st commitment period – From 1990 base (implications for FSU) – Six gases and carbon sinks • Flexibility mechanisms – International emissions trading – Joint implementation (JI) – Clean development mechanism (CDM) – Carbon sinks (limited) • Compliance Stringency with & without the U.S. Review of Prospects for the 2008-12 Kyoto Targets • Key parties – EU and its individual members – Japan – Canada – Russia • Important influences – CDM – Russia trade – Economic growth EU Trading System Credits Internal target Heavy industry (dn) Electric power (dn) Limited Credits /t 10.0 7.5 5.0 2.5 0.0 20/11/06 19/12/06 19/1/07 19/2/07 EUA 2007 Historical Closing Prices 19/3/07 Transport, commercial, household, gov’ment Kyoto target • Trial period – Coverage – Target – Allocation – Banking – Price history • 1st Kyoto – Coverage – Target – Allocation – Future price Recent Action in the COP/MOP • Settling final Kyoto details – Sinks (e.g., credit for stopping deforestation?) – CDM bureaucracy (lower transactions cost) • 2d period (post 2012) commitments – Many details (e.g., length of period) – No serious discussion yet – No deadline but COP-15 (2009) is a crucial point – Continuation not certain • “Dialog” on long-term cooperative action – US participating Allowance Allocation: Congressional Bills Leading U.S. Policy Proposal: Cap-&-Trade 9,000 Emissions, mmt of CO2-e . 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1990 Also likely: CAFE, portfolio standards, other regulatory 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Year Bingaman-Specter Draft 2007 Lieberman-McCain 2007* Udall-Petri 2006 Waxman 2007 Sanders-Boxer 2007 Kerry-Snow e 2007 Feinstein August 2006 2050 Unfortunate Timing • The US – 2007 & spring 2008: completed bill (20%) – Spring 2009: Bill with Presidential support (70%) – In 2010: Congress passes a bill (65%) – By 2013-2015: New policy goes into effect • China, India and others (?) • Kyoto parties – Key negotiations at COP-15 in Nov. 2009 • The gap – What could lead the U.S. to move faster – What assurance could new president send ahead of Congress? Instruments in Use • Prices – Cap-and-trade systems – CO2 & fuel taxes • • • • • Regulations and standards Subsidies to low CO2 energy Controls on non-CO2 gases R&D and technology demonstration Flows to non-Annex B countries – Development assistance – Technology transfer programs • Voluntary programs EU EU & Japan Everybody Everybody Some US, others A Few A Few Everybody Architectural Options • Quantity targets and timetables – Linked trading systems • • • • • • Common policies and measures Trade restrictions R&D, standards & network effects Sector agreements Aid-based proposals Other?? Not mutually exclusive: the solution may involve a mix Quantity Targets and Timetables • Target definition – % below base-year emissions (Kyoto) – Growth linked (CO2 intensity) • Wealth trigger or other simple equity rule • Safety valve • Compliance Emissions Growth/yr +2% – Legally binding – Pledge and review – Loose guide only $12,000 0% $4,000 –2% • Historical basis vs. per capita target GDP/Cap Accession by Trade Linkage • Organic market growth (vs. one-time deal) – Arbitrage through CDM – Mutual recognition of individual systems • Challenges – Non-Annex B accession & “headroom” – Difficulties in coordination & limits on $$ flows – Complications added by a safety valve • Current evolution – Financial market actors – Role of the World Bank – Russian deals (Gasprom use of JI & CDM) Common Policies and Measures (PAMs) • Carbon or fuel taxes – Issues in implementation • Regulatory measures – Auto design regulations (e.g., US CAFE) – Portfolio standards • Electric power • Others? – Appliance standards • Compliance? Trade Restriction • Use of countervailing tariffs – How calculated – Rules under the WTO – Override by other international agreement (e.g., Montreal Protocol) • Difficulties – Complex set of winners and losers – Retaliation • Recent proposals . . . & likely use R&D, Standards & Network Effects • R&D to on low-CO2 technologies, seeking – Economies of scale – Domestic-related benefits – Network externalities • Strategic plan for diffusion – Cost reduction by scale and network effects • The goods themselves (e.g., car type) – Standards enforced by leader countries • Manufacturing methods used in producing imports (e.g., emissions of industrial gases) Sector Agreements • Agreements by industrial sector – World Semiconductor Council PFC target – US SF6 Emissions Reduction Partnership – Others • Agreement on methane – Methane to Markets Partnership – A possible protocol? Aid-Based Proposals • Re-directed Overseas Direct Assistance (ODA) and private investment incentives • Global emissions reduction fund – Direct finance by wealthy countries, used to buy reductions in poor countries • Adaptation aid – Existing funds under the FCCC and GEF – A broader agreement – Liability law suits • Aid for capacity development Post-2012: A Personal View • FCCC and the COP – Continued support from current Kyoto parties – But simultaneous negotiation in other venues • Kyoto Protocol – Handling of likely non-compliance?? – Survives post-2012 as a softer commitment – National measures (e.g., ETS) are maintained • CDM – Transactions costs keep CER quantities small (attempts to loosen threaten credibility) – Post-2012 uncertainty weakens projects – Maintained by demand from ETS & national systems and World Bank caretaking Venue and Process: What Next? • Venue – FCCC (UN context and rules) – G-8 (summit of heads of state – Informal settings (e.g., Greenland dialog, L-20) – Bilateral and multilateral deals • Build on existing agreements • US (and/or EU) with China and/or India • Complexities – Interaction with other treaties? – Calculation of relative burdens • Likely outcome: gradual harmonization of Kyoto & domestic policies (climate “favela”)