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After the Cancun Agreements: What is the Politically Feasible Path to Comprehensive Targets for Greenhouse Gas Emissions? Jeffrey Frankel Harpel Professor, Harvard Kennedy School Lecture, Boston College, March 28, 2011 • The recent Cancun Conference of the Parties to the UN Framework Convention on Climate Change (Dec. 2010) was considered a success, in part because expectations had been so low. • The preceding year’s Copenhagen meeting (Dec. 2009) was considered a failure, because expectations had been so high. 2 What is the definition of progress? It is useless to evaluate negotiations by whether they produce a sweeping communiqué, – such as Bali or G8 agreement to limit warming to 2°C • at L’Aquila, Italy, in 2009: • They are just words. – Modest targets, if short-term & credible, are worth far more than aggressive targets, if long-term & non-credible. 3 Definition of progress? • Keep in mind the Herculean tasks of bridging • the gap between rich countries & poor, • the gap between environmental aspirations & economic costs that people are willing to pay, • the gap between what leaders say, & what commitments are enforceable/credible. – • Progress ≡ steps toward specific credible commitments by a large number of countries. 4 Assume that the climate regime will continue to follow Kyoto • Features of the Kyoto Protocol worth building on -– Politics: Quantitative limits maximize national sovereignty – Economics: Market mechanisms, esp. international permit trading – Thus (2001) “You’re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto.” • What was sorely missing from Kyoto: – Participation by US, China, & other developing countries – A mechanism for setting targets further into the future, past 2012 – Any reason to expect compliance. 5 Progress • Most countries (>80) responded to the Copenhagen Accord in 2010 by submitting plans for reducing emissions. • By the time of Cancun, 21 countries had associated themselves with specific quantitative targets • counting the EU27 as one • and including 7 big non-Annex-I countries. • Of course some, like China or US, are vague • about seriousness of commitment. • Also India & China’s 2020 target ≈ BAU (Business as Usual). • But that is not a problem. 6 My Proposal: formulas for pragmatic targets, based on what emission 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? – Countries will not accept burdens they view as unfair. – Above certain thresholds for economic costs, they will drop out. 7 “An Elaborated Proposal For Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades” (2009) suggested a framework of formulas that produce precise numerical targets for CO2 emissions in all regions for the rest of the century, subject to political constraints: No country suffers loss (PDV) > Y=1% GDP, by signing up ex ante, nor in any one period suffers a loss > X=5% GDP, by abiding ex post. 8 “Is it economics?” • Define economics as maximization of objectives subject to constraints. • That applies not just to private agents maximizing expected utility subject to budget constraints, • but also to how policy-makers can maximize objectives subject to political constraints. • Not the same as what other climate modelers do: – cost-benefit analysis (Integrated Assessment models), – or minimizing economic costs subject to the constraint of attaining a given environmental goal. 9 Maximizing the credibility of agreement, for any given environmental goal Credibility of an agreement, Vs. probability that it will unravel because (e.g.) some key players find that complying imposes huge economic costs, relative to dropping out. Frankel (2009) • • • Bosetti & Frankel (2010) Some proposals 500 ppm | 450 ppm | • 350 ppm | Aggressiveness of targeted cut in CO2 concentrations by 2100 10 • Proposal Stage 1: • Advanced countries commit to the post-2012 targets that their leaders have already announced. • Others commit immediately not to exceed BAU. • Stage 2: When the time comes for developing country cuts, targets are determined by a formula incorporating 3 elements, designed so each is asked only to take actions analogous to those already taken by others: – a Progressive Reduction Factor, – a Latecomer Catch-up Factor, and – a Gradual Equalization Factor. 11 The three factors in the formulas • Progressive Reduction Factor: – For each 1% difference in income/cap => target is γ % greater emissions abatement from BAU. • Latecomer Catch-up Factor: – Gradually close the gap between the latecomer’s starting point & its 1990 emission levels at λ per year. (Goal: avoid rewarding latecomers for ramping up emissions). – Baseline probably now moved from 1990 to 2005. • Gradual Equalization Factor: – In the long run, rich & poor countries’ targets converge in emissions per capita at δ per year. (Goal: equity) 12 Where do the parameters come from? • They would be negotiated. • But a good start is to use parameters implicit in targets that have already been agreed. • The degree of progressivity in the PRF can be estimated from observed pattern – in allocations among countries already agreed (γ=.14). • We estimated Latecomer Catch-up parameter from the speed with which US targets close the gap: current vs. 1990 emission levels – in Lieberman-Warner (2008) & Waxman-Markey bills (2009) => λ =.3 per 5-yr. period. • Initially we set speed of Gradual Equalization δ=.1, per 5-yr. budget period (which comes to dominate per capita targets toward the end of the century). 13 Cuts ↑ Percent reduction from 2010 business-as-usual . The targeted reductions from BAU agreed to at Kyoto in 1997 were progressive with respect to income. 50% 40% 30% 20% 10% γ =.14 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) 50,000 4.699 Incomes → 14 This is how we set the parameter in the Progressive Reductions Factor The resultant paths for emissions targets, permit trading, the price of carbon, GDP costs, & environmental effects are estimated by means of the WITCH model of FEEM, Milan, co-authored & applied by Valentina Bosetti. 15 ◙ In 2009 version, CO2 concentrations level off at 500 ppm in the latter part of the century. ◙ Constraints are satisfied: -- No country in any one period suffers a loss as large as 5% of GDP by participating. -- Present Discounted Value of loss < 1% GDP. W orld Industrial Carbon Emissions 25 bau 15 10 Sim ulated Em is s ions 5 0 20 05 20 20 20 35 20 50 20 65 20 80 20 95 GtC 20 Global peak date ≈ 2035 16 The last completed paper (2010) co-authored with Valentina Bosetti was an attempt to see if we could hit CO2 concentrations = 450 ppm – by assuming more aggressive parameters in the formulas. 17 Latest study, currently underway (2011) • updates all the estimates • to reflect recent developments in the economy, environment, & negotiations, – particularly the Copenhagen-Cancun country targets, – and to reflect new technologies, including • Wind, separate from solar • Carbon Capture & Storage (CCS) for gas • Bio-energy (BE) with CCS in most runs . • and again tries to attain more aggressive targets. • “A Politically Feasible Architecture for Global Climate Policy: Specific Formulas and Emission Targets to Build on Copenhagen & Cancun” – with Bosetti – for the UN. 18 EU27 + 20 other countries Country Pledge at COP15 Australia 1, 3 Belarus Canada Croatia Euro 27 Iceland Greenhouse Gases Emissions (GT CO2-eq) 11 Copenhagen Pledges 12 Excluding LULUCF LULUCF Total 1990 2005 2020 1990 2005 2020 1990 2005 2020 LC HC LC HC LC HC LC HC 0.02 0.00 0.02 0.00 0.02 0.00 0.02 0.00 0.00 0.00 0.06 0.00 0.00 0.07 0.89 0.44 0.14 0.62 0.03 5.59 0.00 1.29 0.36 0.06 0.05 3.38 0.05 0.93 6.18 1.61 0.48 0.13 0.65 0.03 4.47 0.00 0.98 0.31 0.06 0.03 2.83 0.04 0.74 5.90 1.68 0.37 0.13 0.65 0.03 3.91 0.00 0.98 0.31 0.05 0.03 2.50 0.04 0.74 5.90 1.61 11% -6% 6% -5% -20% -30% -24% -16% -9% -32% -16% -23% -20% -5% 4% -15% -11% 6% -5% -30% -30% -24% -16% -19% -42% -26% -32% -20% -5% 0% -11% 56% -16% -2% -13% -36% -29% 29% -28% -36% 31% -22% 75% -17% -34% -32% 48% -16% -2% -24% -36% -29% 29% -36% -46% 16% -31% 75% -17% -37% -23% 29% -26% -20% -27% -44% -38% 18% -37% -44% 22% -32% 44% -28% -37% -41% 22% -26% -20% -36% -44% -38% 18% -44% -52% 8% -40% 44% -28% -40% -26% -6% -34% 19 -30% -41% -30% -34% -30% Brazil -0.97 / -1.05 GtCO2-eq wrt BaU China 2, 6 reduce carbon intensity of output by 40-45% wrt 2005 3.72 7.61 10.75 0.04 0.03 -0.28 3.76 7.64 10.47 10.47 10.47 179% 179% 37% 37% 2, 8 reduce carbon intensity of output by 20-25% wrt 2005 1.33 2.05 2.59 0.05 0.04 0.01 1.38 2.09 2.60 2.60 2.60 89% 89% 24% 24% Indonesia 1 Mexico 1 South Africa 1 South Korea 1 -26% / -41% wrt BaU 0.45 0.45 0.34 0.30 0.41 0.03 0.00 0.00 0.86 0.48 0.35 0.30 1.20 0.82 0.34 0.55 40% 71% -2% 84% -24% 26% -23% -18% -17% wrt 2005 -5% wrt 1990 -20% / -30% wrt 1990 -30% wrt 1990 1 -25% wrt 1990 Japan Kazakhstan 4 New Zealand 1 Norway Russian Federation Switzerland Ukraine United States India -15% wrt 1992 -10% to -20% wrt 1990 -30% / -40% wrt 1990 1 -15% / -25% wrt 1990 -20% / -30% wrt 1990 -20% wrt 1990 -17% wrt 2005 -51 Mt CO2-eq / -30% wrt BaU -34% wrt BaU -30% wrt BaU 0.73 0.61 0.44 0.67 1.13 0.84 0.51 0.79 0.02 0.00 0.04 0.00 0.01 0.00 0.02 0.00 0.00 0.00 0.04 0.00 0.00 0.03 1.45 0.84 0.04 0.00 0.00 0.01 0.00 0.04 0.00 0.02 0.00 0.02 0.00 0.00 0.00 0.01 0.00 0.00 0.00 1.13 0.49 0.03 0.00 0.00 0.54 0.09 0.77 0.03 5.13 0.00 1.38 0.24 0.08 0.05 2.16 0.05 0.42 7.13 2.56 1.57 0.65 0.44 0.67 0.63 0.10 0.88 0.04 6.15 0.00 1.57 0.26 0.09 0.06 2.32 0.06 0.52 8.23 2.66 wrt 2005 (%) 1, 7 -5% / '-10% wrt 1990 0.62 0.10 0.83 0.04 6.13 0.00 1.54 0.26 0.09 0.06 2.31 0.06 0.52 8.23 1.53 wrt 1990 (%) 0.42 0.14 0.59 0.03 5.57 0.00 1.27 0.36 0.06 0.05 3.32 0.05 0.93 6.11 0.72 -5%, -15% to -25% wrt 2000 0.53 0.08 0.73 0.03 5.12 0.00 1.35 0.24 0.08 0.05 2.12 0.05 0.42 7.10 1.11 Target 2011 1.62 0.87 0.51 0.79 0.96 0.61 0.34 0.55 12% 27% -2% 84% -39% -6% -23% -18% wrt BaU (%) Progressivity in the Cancun numbers 2011 setting “hot air” to 0 for 6 FSU countries % cut wrt baseline Cuts ↑ The implicit progressivity coefficient is almost exactly the same as the one we had been using: .13 ≈ .14 ! 60% => external validation of the political economy of approach a 50% 40% 30% a γ =.13 t =3.9 20% Emissions 10% targets for 2020 expressed 0% vs. BAU 500 R2=.44 Regression line 5,000 50,000 (WITCH model) GDP per capita 20 Our 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 • LAC = Latin America & the Caribbean 21 Figure 2: Global emission targets resulting from the formulas & parameters under the 500 ppm goal Using Cancun targets, near-term cuts are bigger than in our earlier work. 80.00 70.00 BaU 60.00 50.00 40.00 Proposed Architecture no BECCS 30.00 20.00 10.00 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Energy related CO2 Emission (Gton CO2) 90.00 22 Fig.3: Targets & emissions by OECD countries under the 500 ppm goal 20.00 BaU Actual Emissions 15.00 Assigned Amount 10.00 5.00 } Predicted actual emissions exceed caps, by permit purchases. 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Energy related CO2 Emission (Gton CO2) 25.00 23 Fig.4: Targets & emissions, developing countries under the 500 ppm goal 60.00 50.00 BaU Actual Emissions 40.00 Assigned Amount 30.00 20.00 } Predicted actual emissions fall short of caps, by permit sales. 10.00 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Energy related CO2 Emission (Gton CO2) 70.00 24 Figure 8: Effect on energy prices, under 500 ppm goal 400 350 300 250 200 Carbon price climbs steeply in 2nd half of century, but < earlier estimates, presumably due to new technologies. Carbon Price per ton CO2 (LHS axis) 3 2.5 $ per gallon motor gasoline (RHS axis) 2 1.5 150 1 100 0.5 50 0 2000 3.5 0 2020 2040 2060 2080 2100 25 Figure 5: Global economic costs (% of income) 500 ppm goal (without BE-CCS) 2100 2095 2090 2085 2080 2075 2070 2065 2060 2055 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 Global cost < 1% of income 0.5% 0.0% GWP Losses -0.5% -1.0% -1.5% Economic losses Contemporaneous Series1 value Series2 Discounted at 5% -2.0% -2.5% -3.0% -3.5% 26 Economic cost to each country/region (Net Present Value of income losses) • Regional Cost measured with respect to baseline (no global climate policy) USA EU KoSAu CaJaZ TE MENA SSA SAsia China EAsia LAm India 0.7% 0.3% 0.7% 0.9% 1.6% 3.1% -0.2% -0.3% 1.2% 0.5% 0.8% 0.2% • Regional Cost measured with respect to case where individual country free rides, but coalition continues. USA EU KoSAu CaJaZ TE MENA SSA SAsia China EAsia LAm India 0.8% 0.4% 0.9% 0.7% 1.2% 1.2% -0.2% 0.1% 1.2% 0.9% 0.7% 0.5% Cost is particularly high to oil producers – even if they drop out. But it is almost down to 1% even for them. 27 Figure 7a: Economic losses of each region, relative to dropping out alone (% of income) under 500 ppm goal, 2010-2045 0.40% 0.20% USA 0.00% EU -0.20% 2005 2010 2015 2020 2025 2030 2035 2040 2045 KOSAU -0.40% CAJAZ -0.60% TE -0.80% MENA -1.00% SSA -1.20% -1.40% Costs stay under 2% of income during the 1st half of the century. SASIA CHINA -1.60% EASIA -1.80% 28 Figure 7b: Economic losses of each region, relative to dropping out alone (% of income) under 500 ppm goal, 2050-2090 3.00% USA 2.00% EU 1.00% KOSAU 0.00% -1.00% CAJAZ 2050 2055 2060 2065 2070 2075 2080 2085 2090 MENA -2.00% SSA -3.00% SASIA -4.00% -5.00% -6.00% TE CHINA For every country in every year, costs stay under 5% of income. EASIA 29 Figure 11: Path of concentrations hits the 500 ppm CO2 goal 800 600 500 400 300 200 BaU Proposed Architecture with BECCS 100 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 CO2 concentrations (ppm) 700 First environmental goal is achieved 30 Figure 12: Rise in Temperature under the 500 ppm CO2 goal 4.00 3°C vs. 4° C under BAU 3.50 3.00 2.50 BaU 2.00 1.50 Proposed Architecture with BECCS 1.00 0.50 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Temperature increase above preindustrial levels (°C) 4.50 31 Summary • Our framework allocates emission targets across countries in such a way that every country feels it is doing its fair share: – corresponding to what others have done before it, • taking due account of differences in income, – and avoiding that any country will bear a cost above threshold. • Specifically, every country expects cost < 5% GDP in every year, – and PDV of costs of participating (almost) < 1% of GDP. • Otherwise, announcements of distant future goals would not be credible, will not have the desired effects. – This framework—in providing for a decade-by-decade sequence of emission targets, each determined on the basis of a few principles and formulas— – is flexible enough to accommodate changes in circumstances during the century, by changes in the formula parameters • as more is learned about climate, economic growth, & technology. 32 Papers available at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm On Climate Change Appendix 3: More on the current results (2011) • Details on updating • Details on the 500 ppm case • A more aggressive climate mitigation goal – ≈ 440 ppm 34 Revisions in the WITCH model • OIL MARKET: is now fully represented. This increases the cost for oil exporters, & so globally. • TECHNOLOGIES: – Gas with CCS is now a technological option, – Wind is now modeled given latest numbers, – Bioenergy with CCS can be included. • DATA: The model has been recalibrated to reproduce most updated dataset for economy & technology. • CLIMATE: The climate module has been updated. – We account better for aerosols. 35 Progressivity in the Cancun numbers 2011 letting the 6 FSU countries keep their “hot air” Cuts ↑ 60% a 40% % cut wrt baseline γ =.16 Emissions targets for 2020 expressed vs. BAU (WITCH model) 20% t =3.7 a R2=.42 0% 500 Regression line 5,000 50,000 -20% -40% -60% GDP per capita 36 How targets are assigned (500 ppm case) 2020 2011 2050 EU .-30% below 1990 emissions progress to a 50% below 1990 USA .-17% below2005 .-83% below 2005 Australia, SAf & SK .-34% below baseline .-50% below baseline Japan, NZ & Canada) .-25% below 1990 as before TE .min(-25% below 1990 or BAU) .min(-50% below 1990 or BAU) LAM BAU Cap based on parameters India BAU BAU EASIA BAU Cap based on parameters SASIA BAU, with REDD BAU CHINA .-8.5% wrt BAU Cap based on parameters SSA BAU, with REDD BAU MENA BAU Cap based on parameters 37 Figure 6: Global economic costs (% of income) 2011 under 500 ppm goal (with BE & CCS) -0.5% 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 0.0% GWP Losses -1.0% -1.5% -2.0% Present value Losses Discounted Losses (5%) -2.5% -3.0% -3.5% 38 Figure 10: Global emissions if only one country drops out, but cooperation otherwise continues 50 2011 Full Cooperation 45 USA EU 40 OLDEURO 35 NEWEURO 30 KOSAU CAJAZ 25 TE MENA 20 SSA 15 SASIA 10 CHINA EASIA 5 LACA 0 INDIA 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 39 2011 How targets are assigned in the aggressive case (to attain CO2 concentrations of 450 ppm) 2020 2050 EU .-30% below 1990 emissions progress to 50% below 1990 USA .-17% below2005 .-83% below 2005 Australia, SA and SK .-34% below baseline .-50% below baseline Japan, NZ & Canada .-25% below 1990 as before TE .min(-25% below 1990 or BAU) .min(-50% below 1990 or BAU) LAM BAU Cap based on parameters India BAU Cap based on parameters EASIA BAU Cap based on parameters SASIA BAU, with REDD Cap based on parameters CHINA .-8.5% wrt BAU Cap based on parameters SSA BAU, with REDD BAU MENA BAU Cap based on parameters 40 2011 Figure 15: Global emission targets under the more stringent goal 120.00 All GHG Emissions Gton CO2 eq 100.00 80.00 60.00 BaU Proposed Architecture 40.00 20.00 0.00 2005 2015 2025 2035 2045 2055 2065 2075 2085 2095 41 Figure 13: Targets & emissions among OECD countries 2011 under the more stringent goal 20.00 BaU 15.00 Actual Emissions 10.00 Assigned Amount 5.00 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Energy related CO2 Emission (Gton CO2) 25.00 42 Figure 14: Targets & emissions among developing countries 2011 under the more stringent goal 80.00 70.00 60.00 BaU Actual Emissions 50.00 Assigned Amount 40.00 30.00 20.00 10.00 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Energy related CO2 Emission (Gton CO2) 90.00 43 2011 Figure 16: Emissions in per capita terms, country by country, period by period USA OLDEURO NEWEURO 20 KOSAU CAJAZ 15 TE MENA 10 SSA SASIA 5 CHINA EASIA 0 2095 2085 2075 2065 2055 2045 2035 2025 2015 LACA 2005 Per capita Emissions (ton CO2eq per capita) 25 INDIA 44 2011 Figure 19: Energy costs in stringent case 1400 12 1200 10 1000 8 800 6 Proposed Architecture without BECCS 4 $ per gallon motor gasoline RX-Axes 600 400 200 2 0 0 1 3 5 7 9 11 13 15 17 19 45 2011 Figure 17: Global economic costs (% of income) with BE & CCS 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 under stringent goal 1.0% 0.0% GWP Losses -1.0% -2.0% Present Values Losses Discounted Losses (5%) -3.0% -4.0% -5.0% -6.0% 46 2011 Fig.18a: Economic losses of each region (% of income) under stringent goal, 2010-2045 2.00% USA 0.00% EU -2.00% 2005 2010 2015 2020 2025 2030 2035 2040 2045 KOSAU CAJAZ -4.00% TE -6.00% MENA -8.00% SSA -10.00% -12.00% SASIA CHINA EASIA -14.00% LAM -16.00% INDIA -18.00% 47 2011 Figure 18b: Economic losses of each region, (% of income) under stringent goal, 2050-2090 20.00% USA 15.00% EU KOSAU 10.00% CAJAZ 5.00% TE 0.00% -5.00% -10.00% -15.00% MENA 2050 2055 2060 2065 2070 2075 2080 2085 2090 SSA SASIA CHINA EASIA -20.00% LAM -25.00% INDIA -30.00% 48 Figure 21a: Concentrations of CO2 2011 under the more stringent goal (including Bioenergy with Carbon Capture & Storage) 800 BaU 600 Proposed Architecture with BECCS 500 400 300 200 100 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 0 2005 CO2 Concentrations (ppm) 700 49 Fig.21b: Concentrations of all 6 greenhouse gases under the more stringent goal (including Bioenergy and Carbon Capture & Storage) 1000 800 BaU Proposed Architecture with BECCS 600 400 200 0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 GHGs Concentrations (ppm) 1200 50 2011 Figure 22: Rise in Temperature under stringent concentrations goal, with BE & CCS 4.50 3.50 3.00 2.50 2.00 1.50 BaU 1.00 0.50 Proposed Architecture with BECCS 0.00 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Temperature Increase 4.00 51 Fig. 20: Size of the international emission permit market 6.00 8.00 7.00 5.00 6.00 4.00 5.00 3.00 4.00 3.00 2.00 2.00 1.00 Carbon market size (GtCO2) Carbon market value (US$ Trillion) RX axis 1.00 2095 2085 2075 2065 2055 2045 2035 2025 2015 0.00 2005 0.00 52 Fig.20b: Permit trade never exceeds 1/3 of baseline for any country, a desirable property 35% 30% USA OLDEURO 25% NEWEURO KOSAU 20% CAJAZ TE 15% MENA SASIA 10% CHINA LACA 5% INDIA 0% 20052010201520202025203020352040204520502055206020652070207520802085209020952100 53 Appendix 4: Future research • Most important extension: introduce uncertainty, re: – Economic growth rates – Technological progress (carbon intensity at a given price) – Weight placed by political process on enviro objective • Robustness in design of framework regarding losses: – Periodic renegotiation of parameters – & within-decade indexation of numerical targets to GDP. • Show that the approach is desirable even if the model’s cost estimates turn out to be too pessimistic – (or too optimistic), – because early steps will be very similar regardless. 54 Appendix 5: Trade • Will the global climate regime collide with the global trade regime? 55 Leakage and lost competitiveness = what “unfairness” means in rich countries Could border measures (tariffs, permit requirements for imports…) give non-participants an incentive to join, and level the playing field in the meantime? – Yes, in theory. – If properly designed, they could even be WTO-consistent, • building on precedents: Montreal Protocol, shrimp-turtle decision, Brazil tires, and D-G Lamy speeches (2 Nov., 2009). – In practice, however, border measures written by politicians will almost certainly be discriminatory, WTO-inconsistent, and undermining of climate goals. 56 What form should border measures take? 1. Best choice: multilateral sanctions. (Not likely.) 2. Next-best: national sanctions adopted under multilateral guidelines 1. Penalties can only be applied by participants-in-good standing 2. Judgments to be made by technical experts, not politicians 3. Penalties only in 6 or 8 of the most relevant sectors (aluminum…). 3. Third: No border measures. 4. Each country chooses carbon tariffs as it sees fit. 5. Worst choice: national measures are subsidies (e.g., free permits) to adversely affected firms. 57