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Does Northern Mitigation Affect the Developing World? Marco Sakai [email protected] Overarching question “How mitigative actions undertaken by developed countries could affect development in developing and emerging economies?” Hans Opschoor (2010) Overview • Background on climate change mitigation. • Consumption trends and consumption-based accounting. • Trade and impacts to the developing world. • Method • Results • Limitations and conclusions Climate Change • Strong evidence that rise in global average temperatures is due to the observed increase in anthropogenic GHG concentrations. • Currently global warming is at 0.7 ° C above pre-industrial levels . • Under a “business as usual” scenario, temperatures could rise 5 to 6°C by 2100. Source: (IPCC, 2007) Projected Impacts of Climate Change Source: Based on Stern Review (2006) Multilateral emissions reduction targets • Kyoto protocol: Some Annex B countries agreed to reduce emissions by 2012 relative to 1990 baseline (e.g. EU15 and other European nations -8%). • EU ETS: Cuts of at least 20% by 2020 and >80% by 2050 relative to 1990. • Cancun Agreements: Industrialized countries proposed reduction targets, including some developing countries (e.g. Brazil, China, Indonesia, Mexico, South Africa). What is mitigation? • “Technological change and substitution that reduce resource inputs and emissions per unit of output” (IPCC, 2007) • Strong focus on technological solutions. • • • • Low-carbon technologies Renewable energy Geoengineering Energy conservation Can technology save us? • 90% to 130% emission intensity improvement is required (Jackson, 2010) • 80% of projected 2020 emissions from the power sector are already locked in (IEA, 2011) • Window for cutting emissions (to 450 ppm - 2°) is closing fast (Stern, 2011) • Not enough just to rely on technology (HM Government, 2005) Other mitigation actions • Social and economic policies oriented towards emission reductions and enhancement of sinks (IPCC, 2007). • Beneficial aspects of creating synergies between developed and developing nations • Clean Development Mechanism (CDM) • Reducing Emissions Reducing Emissions from Deforestation and forest Degradation (REDD). Demand-side options • Demand-side options seek to modify directly or indirectly consumption patterns in order to achieve emission reductions. • Behavioural changes (business practices, individual lifestyles) • Instruments such as carbon taxes, border adjustments, subsidies, carbon labelling, awareness campaigns, etc. can have an effect on demand. • EU, US (Waxman-Markey bill) and Australia to implement BCA to address the issues of leakage and loss of competitiveness. Consumption • Climate change is the greatest symptom of excessive consumption levels. • Consumption in developed countries is the main driver for increasing emissions (Sanwal, 2009) • Consumption patterns also need to be modified (Agenda 21, 1992; Rio +20, 2012) • Northern consumption causes environmental impacts in the South. Final consumption expenditure (1970-2010) 40 Trillions of 2005 USD 35 30 Rest of the World 25 20 15 10 High Income Countries (15% of world population) 5 0 1970 1974 1978 1982 1986 1990 Year 1994 1998 Sourc e: Own graph bas ed on data by UN Stats . 2002 2006 2010 Sustainable World Population at Different Consumption Levels Per Capita Income, 2005 Biocapacity Used Per Person, 2005 Sustainable Population at this level (GNI, PPP, 2008 dollars) (global hectares) (billion) Low-income Middle-income High-income United States 1,230 5,100 35,690 45,580 1.0 2.2 6.4 9.4 13.6 6.2 2.1 1.4 Global average 9,460 2.7 5.0 Consumption Level Source: The Worldwatch Institute Humanity's Ecological Footprint (1961-2006) 1.5 1.4 Ecological Footprint Number of Planet Earths 1.3 1.2 1.1 World's Biocapacity 1.0 0.9 0.8 0.7 0.6 0.5 1961 1970 1980 1990 Year Source: Own graph based on data by the Global Footprint Network. 2000 2006 Carbon accounting • Production-based (territorial) approach: “Greenhouse gas emissions that take place within the national territory and offshore areas over which a country has jurisdiction” (IPCC, 2006). • Consumption-based emission inventories consider total emissions occurring from economic consumption within a country (Peters and Hertwich, 2008). Consumption-induced emissions as a percentage of territorial emissions 20% 15% Percentage 10% 5% 0% -5% -10% -15% High-income countries ROW -20% 1990 1993 1996 1999 2002 Source: Own graph based on data by Peters et al. (2011) 2005 2008 Consumer emissions as a percentage of territorial emissions, 2004 Source: Carbon Trust Analysis, CICERO/SEI/CMU GTAP 7 MRIO model (2004) Income-Emissions Relationship • Panel data regressions using fixed and random effects, between-groups and differences including 113 countries. • From a consumption-based perspective, evidence rejects the EKC inverted-U hypothesis. • CO2 emissions increase monotonically with income*. higher income → higher consumption → higher emissions Sakai and Hubacek (forthcoming) Projected CO2 UK Household Emissions Business as usual (1990-2050) 650,000 Total (Δ50%) 550,000 kt CO2eq 450,000 Imports (Δ250%) 350,000 250,000 Domestic (Δ-20%) 150,000 50,000 1992 1998 2004 2010 2016 2022 2028 Year Source: Own graph based on data by SEI. 2034 2040 2046 Scenarios for Total UK Household Consumption-Based CO2 Emissions (1990-2050) 650,000 Business as usual 550,000 kt CO2eq 450,000 80% cut 350,000 250,000 150,000 50,000 1992 1998 2004 2010 2016 2022 2028 Year Source: Own graph based on data by SEI. 2034 2040 2046 Scenarios for Total UK Household Consumption-Based CO2 Emissions (1990-2050) 650,000 Business as usual 550,000 kt CO2eq 450,000 80% cut 350,000 80% additional cut in imports 250,000 150,000 50,000 1992 1998 2004 2010 2016 2022 2028 Year Source: Own graph based on data by SEI. 2034 2040 2046 Source: Carbon Trust Impacts on the developing world • Changes in consumption patterns (as mitigation actions) have been largely analysed from a developed-country perspective. • The consequences of these actions in the developing world have not been sufficiently explored. • ECLAC has recently expressed concerns in Latin America, especially to policies like border adjustments and carbon labelling. International Trade • Trade has grown three times faster than world GDP since 1990: increasing globalisation of markets. • The geographical fragmentation of production has created a new trade reality. • Rise of global production chains and the profound interdependency imply that exogenous changes in one country may induce effects in several other economies. Fragmentation of production Source: WTO (2011) and Meng and Miroudot (2011) The Method • Increasing use of environmentallyextended MRIO Analysis to understand environmental effects caused by consumption. • Shows the underlying structure of several economies. • Capture the interdependencies between different industries located in diverse regions. • 113 countries and 57 sectors – GTAP7 a11DD DD a 21 DD a 1 A iED a11 ED a 21 a ED i1 a12DD a1DD n a11DE a12DE DD a 22 a 2DD n DD DD ai 2 ain a12ED a1ED n DE a 21 aiDE 1 EE a11 DE a 22 aiDE 2 EE a12 ED a 22 aiED 2 EE a 21 aiEE 1 EE a 22 aiEE 2 a 2ED n ainED a1DE n DE a2n ainDE a1EE n a 2EEn ainEE FD (6441*113) Total Outputs The MRIO Model Technology matrix (6441*6441) Value Added Total Inputs 𝑋 = (1 − 𝐴)−1 𝑌 𝑇𝐼𝑀𝑆 = 𝐶𝑂2𝑖 𝑋𝑖−1 1 − 𝐴 −1 𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑎𝑛𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 = 𝑇𝐼𝑀𝑆 ∗ 𝑌 CO2 emissions Import matrices CO2 embodied in trade 100% 80% 60% Percentage 40% 20% 0% -20% -40% -60% -80% -100% USA EU 15 Other Other China high- Annex I income Agriculture, hunting, forestry and fishing Light industry Transport and communications EiT G20 Other Low emerg Middle- Income ing income Mining and quarrying Heavy industry Value added embodied in trade 100% 80% Percentage 60% 40% 20% 0% -20% -40% -60% -80% -100% USA EU 15 Other Other China G20 Other Low high Annex I emerg Middle- Income -income ing income Agriculture, hunting, forestry and fishing Light industry Transport and communications Mining and quarrying Heavy industry EiT Value added embodied in exports and imports according to region 1600 Billions USD 1400 1200 1000 800 600 400 200 0 USA China EU 15 Exports Other Other Annex I highincome EiT Low G20 Other Income emer- Middleging income Imports Share of consumption-based value added (domestic + imports) Other Middleincome 6% Low Income 1% EiT 2% G20 emerging 8% USA 31% Other highincome 3% Other Annex I 17% China 4% EU 15 28% Skilled labour embodied in trade 100% 80% 60% Percentage 40% 20% 0% -20% -40% -60% -80% -100% USA EU 15 Other Other China Annex I highincome Agriculture, hunting, forestry and fishing Light industry Transport and communications EiT G20 Other Low emerg Middle- Income ing income Mining and quarrying Heavy industry Unskilled labour embodied in trade 100% 80% 60% Percentage 40% 20% 0% -20% -40% -60% -80% -100% USA EU 15 Other Other China Annex I highincome Agriculture, hunting, forestry and fishing Light industry Transport and communications EiT G20 Other Low emerg Middle- Income ing income Mining and quarrying Heavy industry Total intensity (GHGs/$), low-income countries, GHGs Total intensity (wages/$), low-income countries, skilled and unskilled labour 16 0.5 0.45 14 0.4 12 10 USD Kg. CO2 eq/$ 0.35 8 0.3 0.25 0.2 6 0.15 4 0.1 2 0.05 0 0 Agriculture Mining L-industry GHGs H-industry Transport Agriculture Mining Skilled labour L-industry H-industry Unskilled labour Transport Total intensity (GHGs/$), other middle-income countries, GHGs Total intensity (wages/$), other middle-income countries, skilled and unskilled labour 6 0.4 0.35 5 0.3 USD Kg. CO2 eq/$ 4 3 0.25 0.2 0.15 2 0.1 1 0.05 0 0 Agriculture Mining L-industry GHGs H-industry Transport Agriculture Mining Skilled labour L-industry H-industry Unskilled labour Transport Limitations • Static model. Data for only one year. • Price effects, production functions, elesticities, etc. not included. (started working on CGE modelling). • Developing countries are very heterogeneous. • Additional factors not captured by the model (climate variables, extreme climate events, etc.). Conclusions • Need to lower consumption and change patterns, especially in wealthy countries, but this may cause alterations in the structure of global trade. • Poor countries are vulnerable to changes in structure of trade. • Negative consequences on welfare in the developing world aggravating adaptation costs. • Need for financial and technological transfers and strengthening absorptive capacities. • Policies should be regarded from an inclusive viewpoint that considers the needs of both developed and developing nations. [email protected] Projected structure of emissions for UK households according to consumption category 100% 90% 5.2% 80% Percentage 70% 10.8% 8.3% 11.9% 17.3% 23.7% 60% 50% 40% 42.2% 34.6% 26.8% 30% 20% 10% 17.9% 16.5% 16.2% 0% 2025 2007 1992 Food & beverages Alcohol & tobacco Clothing & footwear Water, energy Maintenance Health Transport Communication Recreation & culture Education Rest. & hotels Misc. goods & services 30% domestic and 15% import improvements in energy emission intensity Source: Own projections based on data by SEI Total intensity (GHGs/$), China, GHGs Total intensity (wages/$), China, skilled and unskilled labour 9 0.5 8 0.45 0.4 7 0.35 USD Kg. CO2 eq/$ 6 5 0.3 0.25 4 0.2 3 0.15 2 0.1 1 0.05 0 0 Agriculture Mining L-industry GHGs H-industry Transport Agriculture Mining Skilled labour L-industry H-industry Unskilled labour Transport Total intensity (GHGs/$), emerging G20, GHGs Total intensity (wages/$), emerging G20, skilled and unskilled labour 9 0.4 8 0.35 7 0.3 USD Kg. CO2 eq/$ 6 5 0.25 0.2 4 0.15 3 0.1 2 0.05 1 0 0 Agriculture Mining L-industry GHGs H-industry Transport Agriculture Mining Skilled labour * L-industry H-industry Unskilled labour * Transport