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Reducing Greenhouse Gas Emissions By Improving Economic Freedom in Developing Countries W. David Montgomery Charles River Associates, Inc Washington, DC National Press Club February 14, 2005 Increased Investment and Technology Transfer in Developing Countries Can Reduce Poverty and GHG Emissions Reasons for focus on developing countries in climate policy Projected rapid growth of developing country share of global CO2 emissions Untapped opportunities for cost-effective reduction of emissions in the near term through technology transfer and replacement of existing capital What developing countries will support Highest priorities are for economic development that will alleviate critical problems of poverty and disease Climate policy will be supported only if it provides improved standards of living and increased economic growth along with reduced emissions Enhancing economic freedom reduces poverty and emissions High developing country emissions are associated with systematic failings of their government and market institutions Policies toward developing countries should focus on fundamental economic reforms that make increased investment and technology transfer possible What Technologies Are Key Developing Countries Using Today? Million Metric Tonnes Carbon/Billion $1997 Greenhouse Gas Emissions Per Dollar of Output 0.7 0.6 0.5 0.4 Installed Base New Investment 0.3 0.2 0.1 0 China India U.S. Japan Cumulative Emission Reductions Possible In Developing Countries Could Exceed the Most Achievable through Kyoto To 2012 To 2017 (MMTCE) (MMTCE) Adopt US technology for new investment in China and India 2600 5200 Adopt US technology with accelerated replacement in China and India 4200 7700 Adopt continuously improving technology with accelerated replacement in China and India 5000 9800 EU under Kyoto Protocol (without hot air) 600 1400 All Annex B countries under Kyoto Protocol (including US and hot air) 2800 7300 Lack of Economic Freedom Explains Differences In Energy Intensity Economic Freedom Compared to Energy Intensity in 2001 (Btu per 1995 $ of GDP) 80000 Russia 70000 60000 y = 2E+06x-2.666 R2 = 0.3362 50000 Carbon / GDP 2001 China 40000 30000 India S. Korea Singapore 20000 USA 10000 Namibia 0 3.00 4.00 5.00 6.00 7.00 8.00 9.00 What Are the Market Distortions That Could Be Preventing Higher Investment and Technology Transfer? Pricing systems that make energy-efficient technologies less costeffective Distorted internal pricing mechanisms and lack of markets Subsidies administered through State-run enterprises Internal policies that make markets inhospitable to foreign investment with world class technology Bureaucracy and corruption Contract law and protection of property rights Protection of intellectual property Protection of inefficient industries Lack of investment in infrastructure, education and skills required for technology Framework for A New Approach to Global Action on Climate Change Different developing countries have different types of market imperfections so that one policy approach cannot fit all The U.S. can work with individual countries to Understand what produces a dysfunctional investment climate Agree on the highest priority reforms Focus ODA on helping to bring about reforms Use multilateral funding to correct serious infrastructure problems Provide incentives for R&D, investment and technology transfer on the part of global enterprises
