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A Proposed Global Climate Policy Architecture: Comprehensive Emission Targets from Specific Formulas Jeffrey Frankel Harpel Professor, Harvard Kennedy School Academic Seminar Series Resources for the Future, April 23, 2009 What successor to the 2008-12 regime? ideally in Copenhagen in December • Features of Kyoto worth building on -– Politics: Quantitative limits maximize national sovereignty – Economics: Market mechanisms – Thus (2001) “You’re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto.” • What is missing: – Participation by US, China, & other developing countries – A mechanism for setting targets far into the future – Any reason to expect compliance. J. Frankel, Harvard 2 Desiderata for the next stage, requirements for the next multilateral treaty • Comprehensive participation – getting US, China, India, et al, to join • Efficiency -- esp. trading • Dynamic consistency – a credible century path • Equity -- re poor countries • Compliance -- No country will join if the plan implies, ex ante, big economic sacrifice overall. • Robustness -- No country will stay in if compliance implies, ex post, huge economic cost in any given period. J. Frankel, Harvard 3 Proposed Architecture for Quantitative Emissions Targets • Unlike Kyoto, my proposal seeks to bring all countries in & to look far into the future. • But we can’t pretend to see with a fine degree of resolution at a century-long horizon. • How to set a century of quantitative targets? – A decade at a time, in a sequence of negotiations; – but within an overall flexible framework of formulas, – building confidence as it goes along. J. Frankel, Harvard 4 The formulas are designed pragmatically, based on what emissions paths are possible politically: • unlike other approaches based purely on: – Science (concentration goals), – Ethics (equal emission rights per capita), – or Economics (cost-benefit optimization). • Why the political approach? The usual proposed paths are not dynamically consistent: it is not credible that successor governments will abide by today’s leaders’ commitments. J. Frankel, Harvard 5 “An Elaborated Proposal For Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades,” March 2009 Suggests a framework of formulas that produce precise numerical targets for CO2 emissions in all regions in all decades. J. Frankel, Harvard 6 The formulas are driven by 6 axioms: 1. The US will not commit to quantitative targets if China & major developing countries do not commit to quantitative targets at the same time, due to concerns about economic “competitiveness” & carbon leakage. 2. China & other developing countries will not make sacrifices different in character from those made by richer countries who have gone before them. 3. In the longer run, no country can be rewarded for having “ramped up” its emissions high above the levels of 1990. 4. No country will agree to join if it costs more than, say, 1% of GDP throughout the century. 5. No country will abide by targets that cost it more than, say, 5% of GDP in any one period. 6. If one major country drops out, others will become discouraged and the system may unravel. J. Frankel, Harvard 7 Building on existing commitments • Between now and 2050, the EU follows the path laid out in the 2008 EC Directive (50% below 1990), • US follows the path in the Lieberman bills (67% below 1990) , • and Japan, Australia & Korea follow statements that their own leaders have recently made. • China, India & others agree immediately to quantitative targets which at first merely copy their BAU paths, thereby precluding leakage. J. Frankel, Harvard 8 When the time comes for developing countries’ cuts, • their emission targets are determined by a formula that incorporates 3 elements, designed so they are only asked to take actions analogous to those already taken by others: – a Progressive Reduction Factor, – a Latecomer Catch-up Factor, and – a Gradual Equalization Factor. J. Frankel, Harvard 9 The targeted reductions from BAU agreed to at Kyoto Cuts ↑ Percent reduction from 2010 business-as-usual . in 1997 were progressive with respect to income. 50% 40% 30% 20% 10% 0% -10% -20% -30% 500 2.699 1,000 2,000 5,000 10,000 20,000 3.699 1996 GDP per capita (1987 US dollars, ratio scale) J. Frankel, Harvard 50,000 4.699 Incomes → 10 The three factors in the formulas • Progressive Reduction Factor: – For each 1% difference in income/cap => target is 0.14% greater emissions abatement from BAU (as also agreed at Kyoto). • Latecomer Catch-up Factor: – Gradually close the gap between the latecomer’s starting point & its 1990 emission levels, at the same rate as US. (Goal: avoid rewarding latecomers for ramping up emissions). • Gradual Equalization Factor: – In the long run, rich & poor countries’ targets converge in emissions per capita. (Goal: equity) J. Frankel, Harvard 11 The resultant paths for emissions targets, permit trading, the price of carbon, GDP costs, & environmental effects • estimated by means of the WITCH model of FEEM, Milan, co-authored & applied by Valentina Bosetti. J. Frankel, Harvard 12 Bottom line: • Concentrations level off at 500 ppm in the latter part of the century. • No country in any one period suffers a loss as large as 5% of GDP by participating. • Present Discounted Value of loss < 5% GDP. J. Frankel, Harvard 13 The 11 regions: • EUROPE = – Old Europe – New Europe + • US = The United States • KOSAU = Korea + S. Africa + Australia (3 coal-users) • CAJAZ = Canada, Japan & New Zealand • TE = Russia & other Transition Economies • MENA = Middle East + North Africa • SSA = Sub-Saharan Africa • SASIA= India & the rest of South Asia • CHINA = PRC • EASIA = Smaller countries of East Asia • LACA = Latin America & the Caribbean J. Frankel, Harvard 14 Two versions • (I) Cut developing country emissions only after thresholds. 1a: – China’s target is not cut below BAU until 2040 • => permit sales > 1 gigaton of Carbon in 2040. – SEAsia does not have to cut below BAU • => permit sales > 1 gigaton in 2080-2100; • and it registers big economic gains toward the century end. [1] – Africa similarly. • I judge such huge international transfers unsustainable politically. • (II) Instead, assign developing countries earlier targets. 1b: – Southeast Asia & Africa get targets below BAU after 2050; – move forward by 10 years the date China takes on cuts (to 2030), – and by 5 years the date MENA is asked to do so (to 2040). • An additional reason was to reduce the slackening in global targets—observable as a carbon price dip —that would otherwise occur around 2035. – Version (II) is presented here. Version (I) in Appendix. – [1] Figs. 2a-6a & Table 3a; or Fig.s 2-8 and Tables 1 & 2 – especially Fig. 7 -- in HPICA DP 08-08. J. Frankel, Harvard 15 Emissions path for rich countries Fig. 2b OECD Emissions 7 6 GtC 5 BAU Simulated Emissions 4 CAP 3 2 1 0 10 0 2 25 0 2 40 0 2 55 0 2 70 0 2 85 0 2 00 1 2 J. Frankel, Harvard Predicted actual emissions exceed caps, by permit purchases. 16 Emissions path for poor countries Fig. 4b NON OECD Emissions 20 BAU 13 GtC Simulated Emissions CAP 7 21 00 20 85 20 70 20 55 20 40 20 25 20 10 0 J. Frankel, Harvard Predicted actual emissions fall below caps, by permit sales. 17 Emissions path for the world Fig. 5b World Industrial Carbon Emissions bau 25 15 Sim ulated Em is s ions 10 5 0 20 05 20 20 20 35 20 50 20 65 20 80 20 95 GtC 20 J. Frankel, Harvard Global peak date ≈ 2035 18 Price of Carbon Dioxide Fig. 6b Price of Carbon Permits 1000 600 rises slowly over 50 years, then rapidly. FRANKEL Architecture 400 200 0 2005 2020 2035 2050 2065 2080 2095 Zoom on Price of Carbon Permits $/tCO2e $/tCO2e 800 180 160 140 120 100 80 60 40 20 0 FRANKEL Architecture 2005 J. Frankel, Harvard 2015 2025 2035 2045 19 Concentrations stay below 500 ppm goal Fig. 7b Carbon Conce ntrations (CO2 only) bau 800 750 700 FRANK EL Archite cture 600 550 500 450 400 350 300 20 05 20 15 20 25 20 35 20 45 20 55 20 65 20 75 20 85 20 95 21 05 ppmv 650 J. Frankel, Harvard 20 Temperature rises 3° rather than 4° Fig. 8b Temperature increase (above pre-industrial) 4 bau 3.5 3 °C 2.5 FRANKEL Architecture 2 1.5 1 0.5 0 05 0 15 0 25 0 35 0 45 0 55 0 65 0 75 0 85 0 95 1 05 0 2 2 2 2 2 2 2 2 2 2 2 J. Frankel, Harvard Yes, I know. The pay-off is a let-down. 21 The next paper (co-authored with Valentina Bosetti)… • (1) See if we can hit concentrations = 450 ppm – Answer, so far: yes, but not within the constraints. • (2) See if the emission target trajectories suggested by others violate our constraints (e.g., 5% of GDP in some periods), and how badly. Of the eventual extensions I hope to do, • the most important will be to introduce uncertainty, especially in the form of stochastic growth processes. – Robustness will require: • Possible decadal updates of BAU & formula parameters; • within-decade indexation of targets to GDP. J. Frankel, Harvard 22 Preliminary results from target cuts severe enough to reach a 450 ppm target by 2100... 800 750 700 650 600 550 500 450 400 350 300 bau 20 95 20 80 20 65 20 50 20 35 FRANKEL Architecture 20 20 20 05 ppmv Carbon Conce ntrations (CO2 only) J. Frankel, Harvard 23 …show GDP losses of 6-7% for most countries in the later decades, to hit 450 ppm. GWP Losses wrt BaU in 450 CO2 only Scenario USA OLDEURO 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 2.00% NEWEURO KOSAU CAJAZ 0.00% TE MENA -2.00% SSA SASIA -4.00% CHINA EASIA -6.00% LACA -8.00% WORLD -10.00% J. Frankel, Harvard 24 Appendix I: Commitments recently made by country leaders European Union • The EU emissions target for 2008–2012 was agreed at Kyoto: 8 % below 1990. • Brussels in 2008: – – In the 2nd 2015–2020 period, target = 20 % below 1990. For the 3rd period (2022–2027), and thereafter up to the 8th period (2048–2052), the EU targets progress in equal increments to a 50 % cut below 1990. Japan • PM Fukuda in 08: Target = 60 % below 2000 by 2050. The United States (Now way above Kyoto targets) • (Assume equal increments over 2010- 2050.) We assume average annual emissions growth rate is cut ½ during 2008–12, – to 0.7 % per year, so that emissions in 2012 are 31.5 % above 1990; • and flat over 2012–2017. • Then we implement the Lieberman–Warner formula • emissions in 2050 reach 67 % below 1990 => 98.5 % below 2012. => Reductions of 2.6 % per year. Australia PM Rudd in 08: plans to cut emissions to 60 % below 2000 by 2050 Korea (Would be the first non-Annex I country to take a target.) • Pres. Myung-bak Lee, March 2008: “tabled a plan to cap emissions at current levels over the first Kyoto period” and “vowed his country would slash emissions in half by 2050,” – Emissions have risen 90 % since 1990. • It is hard to imagine applying the brakes so sharply as to switch from 5 % annual growth to 0. • My interpretation: emissions flatten between 2007 and 2022 China • Reportedly announced plans to start cutting emissions in 2030, presumably vs. BAU (ahead of the 2007 G8 summit, according to Germany’s environment minister -- FT 3/12/07.) J. Frankel, Harvard 25 Appendix II: More on hitting 450 ppm • Our 1st pass at attaining 450 ppm concentrations entailed: – negative emissions allocated to W. Europe by 2065 ! – Very big purchases of permits from developing countries. Seems unlikely. – And even then does not quite hit 450 ppm. • At a 2nd pass, we tightened parameters & moved up further the dates at which developing countries start cutting below BAU. J. Frankel, Harvard 26 Next step • EU: – in 2015-2020, EU target is 30 % below 1990 levels, rather than 20 %. • Developing countries start cutting below BAU still earlier than before: – – – – – MENA starts making cuts in 2020 LACA starts in 2020 China starts in 2020 South Asia in 2030. East Asia in 2035 J. Frankel, Harvard 27 450 ppm goal with even earlier starting dates for developing countries, so they peak ≈ 2030 NON OECD Emissions { 20 GtC 13 7 0 10 0 2 20 0 2 30 0 2 BAU 40 0 2 50 0 2 60 0 2 70 0 2 80 0 2 Simulated Emissions J. Frankel, Harvard 90 0 2 00 1 2 CAP 28 450 ppm goal with even earlier starting dates for developing countries OECD Emissions 6 5 4 3 2 { 1 0 20 10 20 20 20 30 20 40 20 50 20 60 20 70 20 80 20 90 21 00 GtC => permit purchases by rich countries are smaller. 7 BAU Simulated Emissions J. Frankel, Harvard CAP 29 450 ppm goal with even earlier starting dates for developing countries Global emissions peak ≈ 2025 World Industrial Carbon Emissions 25 GtC 20 15 10 5 0 05 015 0 2 2 25 035 0 2 2 bau 45 055 065 0 2 2 2 75 085 0 2 2 95 105 0 2 2 Simulated Emissions J. Frankel, Harvard 30 Environmental Effectiveness Concentrations actually level off at 450 ppm by 2050 ! Carbon Concentrations (CO2 only) bau 700 650 600 FRANK EL Architec ture 550 500 450 400 J. Frankel, Harvard 2105 2095 2085 2075 2065 2055 2045 2035 2025 2015 350 300 2005 ppmv 800 750 31 Environmental Effectiveness Temperature increase (above pre-industrial) 4 3.5 bau 3 °C 2.5 2 FRANKEL Architecture 1.5 1 0.5 20 05 20 15 20 25 20 35 20 45 20 55 20 65 20 75 20 85 20 95 21 05 0 Even though the 450 ppm target is achieved by mid-century, the pay-off in further temperature moderation, relative to 500 ppm, is not large. There are diminishing returns to CO2 abatement in two senses: The marginal cost of abatement rises in dollar terms, and the marginal cost of temperature moderation rises in terms of CO2. J. Frankel, Harvard 32 Price of Carbon for 450 ppm case Price of Carbon Permits Reaches $100 / ton already by 2010 2000 1000 (=> ≈ 25¢/gal. of gasoline or heating oil); FRANKEL Architecture $1,800 / ton by 2100. 500 0 2005 2020 2035 2050 2065 2080 2095 Zoom on Price of Carbon Permits $/tCO2e $/tCO2e 1500 800 700 600 500 400 300 200 100 0 FRANKEL Architecture 2005 J. Frankel, Harvard 2015 2025 2035 2045 33 Resulting Per Capita Emissions Thanks to the beyond-2050 convergence rule, emissions/capita again nicely converge. Per Capita Emissions 6 USA OLDEURO NEWEURO 5 KOSAU CAJAZ 4 TE MENA 3 SSA SASIA CHINA 2 EASIA LACA 1 World 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 2105 J. Frankel, Harvard 34 But again the 5% of GDP loss constraint is violated during the latter decades, for at least 3 regions GWP Losses wrt BaU in Stricter Beyond 2050 Scenario USA 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 8.00% OLDEURO NEWEURO 6.00% KOSAU 4.00% CAJAZ 2.00% TE 0.00% MENA SSA -2.00% SASIA -4.00% CHINA -6.00% EASIA -8.00% LACA -10.00% WORLD -12.00% J. Frankel, Harvard 35 The PDV of cost, as share of GDP, also exceeds the 1% threshold (discount rate = 5%) • The global cost is 1.8% of GWP. PDV of cost as share of GDP to attain 450 ppm concentrations target (discount rate = 5%) USA W. Europe 1% C&E Europe 2% ME&NAfr S-S Afr. S.Asia China SE Asia Lat.Amer. 0% 4% 1% 2% 2% 3% -1% Kor.SAfr.A Can.Jpn. ustra. NZ 1% 1% J. Frankel, Harvard Transtn. Ec.s 2% 36 Appendix III • Version (a), where developing countries are not asked to cut emissions below BAU until they cross certain thresholds. – MENA 2030 – China 2040 – SEAsia 2100 – Africa never J. Frankel, Harvard 37 Targets for emission per capita, by region Fig. 2, HPICA DP 08-08 7 USA 6 OLDEURO NEWEURO KOSAU 5 CAJAZ TE 4 MENA SSA 3 SASIA CHINA EASIA 2 LACA World 1 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 J. Frankel, Harvard 2080 2085 2090 2095 2100 2105 38 Emissions path for industrialized countries Fig. 2a OECD Emissions 7 6 5 4 Simulated Emissions 3 CAP 2 1 0 20 10 20 20 20 30 20 40 20 50 20 60 20 70 20 80 20 90 21 00 GtC BAU J. Frankel, Harvard Predicted actual emissions exceed caps, by permit purchases. 39 Emissions path for poor countries Fig. 3a NON OECD Emissions 20 BAU 13 GtC Simulated Emissions CAP 7 21 00 20 85 20 70 20 55 20 40 20 25 20 10 0 J. Frankel, Harvard Predicted actual emissions fall below caps, by permit sales. 40 Fig. T1: Permit Trade 2010-2035 (late LDC targets) Net Import of Permits 0.8 0.6 0.4 GtonC 0.2 0 --- 2010 2015 2020 2025 2030 2035 -0.2 -0.4 -0.6 -0.8 USA OLDEURO NEWEURO KOSAU CAJAZ TE MENA SSA SASIA CHINA EASIA LACA -1 J. Frankel, Harvard 41 Fig. T2: Permit Trade 2040-2090 (late LDC targets) Net Import of Permits 1 0.5 0 Gton C 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 -0.5 -1 USA OLDEURO NEWEURO KOSAU CAJAZ TE MENA SSA SASIA CHINA EASIA LACA -1.5 J. Frankel, Harvard 42 Emissions path for the world, in the aggregate Fig. 4a World Industrial Carbon Emissions 25 bau 15 10 Simulated Emissions 5 20 95 20 80 20 65 20 50 20 35 20 20 0 20 05 GtC 20 J. Frankel, Harvard 43 Price of Carbon Dioxide Rises Slowly Over 50 Years, then Rapidly Fig. 5a 800 700 600 500 400 300 200 100 0 FRANKEL Architecture 2005 2020 2035 2050 2065 2080 2095 Zoom on Price of Carbon Permits 140 120 $/tCO2e $/tCO2e Price of Carbon Permits 100 80 FRANKEL Architecture 60 40 20 0 2005 J. Frankel, Harvard 2015 2025 2035 2045 44 Loss of Aggregate Gross World Product by budget period, 2015-2100 with later targets for developing countries Fig. 6 GWP loss 20 95 20 85 20 75 20 65 20 55 20 45 20 35 20 25 -0.1% 20 15 20 05 0.0% -0.2% -0.3% -0.4% FRANKEL Architecture -0.5% -0.6% -0.7% -0.8% J. Frankel, Harvard 45 Concentrations almost hit the 500 ppm goal Fig. 7a (Fig. 9, HPICA DP 08-08) Carbon Concentrations (CO2 only) 800 750 bau 700 600 550 FRANK EL Archite cture 500 450 400 350 300 20 05 20 15 20 25 20 35 20 45 20 55 20 65 20 75 20 85 20 95 21 05 ppmv 650 J. Frankel, Harvard 46 Temperature rises 3° rather than 4° Fig. 8a (Fig. 10, HPICA DP 08-08 ) Temperature increase (above pre-industrial) 4 3.5 3 bau °C 2.5 2 FRANKEL Architecture 1.5 1 0.5 20 05 20 15 20 25 20 35 20 45 20 55 20 65 20 75 20 85 20 95 21 05 0 J. Frankel, Harvard 47 Harvard Project on International Climate Agreements; Thanks to Valentina Bosetti directed by J.Aldy & R.Stavins. Paper: http://ksghome.harvard.edu/~jfrankel/SpecificTargetsHPICA2009.doc Available at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm#On%20Climate%20Change