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Towards a Global Deal on Climate Change Nicholas Stern Singapore, April 2008 1 Part One Risks and Targets 2 Projected impacts of climate change 0°C Food Water Global temperature change (relative to pre-industrial) 1°C 2°C 3°C 4°C 5°C Falling crop yields in many areas, particularly developing regions Falling yields in many Possible rising yields in developed regions some high latitude regions Small mountain glaciers disappear – water supplies threatened in several areas Significant decreases in water availability in many areas, including Mediterranean and Southern Africa Sea level rise threatens major cities Ecosystems Extensive Damage to Coral Reefs Rising number of species face extinction Extreme Rising intensity of storms, forest fires, droughts, flooding and heat waves Weather Events Risk of Abrupt and Increasing risk of dangerous feedbacks and Major Irreversible abrupt, large-scale shifts in the climate system Changes 3 ‘Probabilities’ (in %) of exceeding a temperature increase at equilibrium Stabilisation level (in ppm CO2e) 2°C 3°C 4°C 5°C 6°C 7°C 450 78 18 3 1 0 0 500 96 44 11 3 1 0 550 99 69 24 7 2 1 650 100 94 58 24 9 4 750 100 99 82 47 22 9 Source: Hadley Centre: From Murphy et al. 2004 •Monte Carlo estimates from Hadley Centre •Model ‘fairly cautious’ •Those who argue e.g. for stabilisation levels of 650ppm CO2e and above are accepting very big risks of a transformation of the planet •Figures similar to IPCC AR4 (no probabilities in TAR) 4 Structure of argument on mitigation objectives (I) • Risk of going above 5°C increase are very severe: e.g. would induce massive movements of population • On basis of implied probabilities of temperature increase, dangerous to go beyond 550ppm CO2e • Stabilisation to 550 or 500ppm CO2e ‛buys’ sharp reduction in probabilities of dangerous temperature increases relative to BAU • Cuts of 30-50% by 2050 required for target of stabilisation range 550- 500ppm CO2e • Cost of action to get in range looks acceptable relative to reduction of risks and damages avoided 5 Structure of argument on mitigation objectives (II) • Whilst considerations of risk steer quantity targets (i.e. cuts), efficiency requires use of market mechanism to keep down costs • These cuts would need a carbon price of $30 plus per tonne of CO2e; thus we have a “take” on marginal abatement costs • This is in range of marginal social cost (MSC), for paths associated with 500-550ppm CO2e but MSC is very sensitive to ethical and structural assumptions • Equity demands that rich countries take much bigger targets for cuts than poor. Trading can then provide flow 6 of finance to developing countries Part Two Flows, Costs and Stern Review One Year On 7 Delaying mitigation is dangerous and costly 100 450ppm CO2e Global Emissions (GtCO2e) 90 500ppm CO2e (falling to 450ppm CO2e in 2150) 80 70 550ppm CO2e 60 50 Business as Usual 40 50GtCO2e 30 65GtCO2e 20 70GtCO2e 10 0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: Stern Review 8 Cost estimates • Review examined results from bottom-up (Ch 9) & top-down (Ch 10) studies: concluded that world could stabilise below 550ppm CO2e for around 1% of global GDP • Subsequent analyses Edenhofer/IPCC top-down have indicated lower figures • So too have bottom-up IEA and McKinsey • Starting planning now with clear targets and good policies allows measured action and keeps costs down. Delayed decisions/actions (or “slow ramp”), lack of clarity, bad policy will increase costs • Associated co-benefits (energy security, reduced pollution) and opportunities (innovations, new markets) 9 Reflections on damages in Stern Review analysis after one year • Emphasis on risk avoidance rather than formal modelling well-founded • Modelling without making risk central misses the point – both ethics and risk crucial • Probably under-estimated emission growth (growth of emissions from China and India particularly) • Probably under-estimated risks of high-temperatures (omitted features in climate science modelling) and damages from high temperatures (implausible ‛overly linear’ extrapolations) • Thus magnitude of avoided damages under-estimated10 Part Three Emissions and Technologies 11 Reducing emissions requires action across many sectors 12 Where energy emissions are headed • Garnaut. Emissions will greatly exceed the highest of the SRES scenarios if current trends continue • IEA. Reference scenario: energy emissions increase by 57% between 2005 and 2030 – Coal now bigger source than oil – China and India account for more than half of increase – China’s emissions 2-3 times as high as India’s; both more than double by 2030 • Country ‘responsibility’ a difficult concept – consumers round the world demand products 13 Oil/coal running out? • Years of production left in ground with proven reserves and current consumption leaves Oil : 45 years Gas : 72 years Coal : 252 years • These reserves are enough to take GHG concentrations to very dangerous levels: e.g. if used all the coal it might add around 400ppm to concentrations • Have to find alternatives this century in any case – better to do it sooner rather than later 14 Many options: policy matters and prices crucial 2030 Cost of abatement EUR/tCO2e 40 30 20 10 0 -10 0 -20 -30 -40 -50 -60 -70 -80 -90 -100 -110 -120 -130 -140 -150 -160 Smart transit Small hydro Industrial non-CO2 Airplane efficiency Stand-by losses 1 2 3 4 5 Industrial feedstock substitution Forestation Livestock/ Wind; CCS EOR; soils low New coal Solar Forestation pen. Nuclear 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Cellulose Industrial ethanol non-CO2 Sugarcane biofuel Fuel efficient vehicles Water heating Soil CCS; coal retrofit Avoid Coal-todeforestation gas shift WasteAsia Co-firing biomass CCS; new coal Avoided deforestation America Industrial motor systems Industrial CCS Abatement GtCO2e/year Air Conditioning Lighting systems Fuel efficient commercial vehicles • ~27 Gton CO2e below 40 EUR/ton (-46% vs. BAU) • ~7 Gton of negative and zero cost opportunities • Fragmentation of opportunities Insulation improvements Source: McKinsey 15 Trade/tax/standards • Trade/quotas give greater quantity certainty and incentives to bring in developing countries; ambition, transparency, credibility are key • Tax may be simpler for some countries and/or sectors • Tax or trade: identify single policy instrument for sector • With appropriate periodic revisions (and auctioning) tax and trade can be fairly similar • Regulation may accelerate change and lower costs by reducing uncertainty and achieving economies of scale • But complications of interactions e.g. renewables targets and size of carbon market 16 Public-private partnerships for technology Public energy R&D investments as a share of GDP 0.1 8 % 0.1 6 % F ra n c e 0.1 4 % G e rm a n y J a pa n 0.1 2 % U n ite d K in g d o m 0.1 0 % U n ite d S ta te s 0.0 8 % 0.0 6 % 0.0 4 % 0.0 2 % 17 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 0.0 0 % Part Four A Global Deal 18 Basic Criteria for a Global Deal • Effectiveness: the scale must be commensurate with the challenge • Efficiency: we must keep down the costs of emissions reduction • Equity: the rich countries must take the lead 19 Commitments: percentages • G8 Heiligendamm – 50% by 2050 (consistent with stabilisation around 500ppm C02e) • California (and US under e.g. Obama/Clinton) 80% from 1990 levels by 2050 • France – 75% by 2050 (Factor 4), relative to 1990 • EU Spring Council: 60-80% by 2050 and 20-30% by 2020, relative to 1990 • Germany – 40% by 2020, relative to 1990 20 Target: stocks, history, flows • Current 40-45 GtCO2e p.a. Current stocks around 430ppm CO2e; pre-industrial stocks 280ppm • The United States and the EU countries combined accounted for over half of cumulative global emissions from 1900 to 2005 • 50% reduction by 2050 requires per capita global GHG emissions of 2-3T/capita (20-25 Gt divided by 9 billion population) • Currently US ~ 20+, Europe ~10+, China ~5+, India ~2+ T/capita • Thus 80% reductions would bring Europe, but not US, down to world average. Many developing countries would have to cut strongly too if world average of 2-3 T/capita is to be achieved • Requires close to zero carbon electricity and surface transport 21 The GHG ‘reservoir’ • Long-term stabilisation at 550ppm CO2e implies that only a further 120ppm CO2e can be ‘allocated’ for emission, given that we start at 430ppm CO2e (or further 70ppm if targeting 500ppm) • Can view the issue as the use of a “collective reservoir” of 270ppm (i.e. 550 minus the 280ppm of 1850) over 200 years. Over half of reservoir already used mainly by rich countries. Or could “start the clock” at XT, the stock when problem was first recognised at T (e.g. around 20 years ago) • Equity requires a discussion of the appropriate use of this reservoir given past history • Thus convergence of flows does not fully capture the equity story, from emissions perspective • Equity issues arise also in adaptation, given responsibilities for past increases 22 Key elements of a global deal / framework (I) Targets and Trade • Confirm Heiligendamm 50% cuts in world emissions by 2050 with rich country cuts at least 80% • Rich country reductions and trading schemes designed to be open to trade with other countries, including developing countries • Supply side from developing countries simplified to allow much bigger markets for emissions reductions: ‘carbon flows’ to rise to $50-$100bn p.a. by 2030. Role of sectoral or technological benchmarking in ‘one-sided’ trading to give reformed and much bigger CDM market 23 Key elements of a global deal / framework (II) Funding Issues • Strong initiatives, with public funding, on deforestation to prepare for inclusion in trading. For $10-15 bn p.a. could have a programme which might halve deforestation. Importance of global action and involvement of IFIs • Demonstration and sharing of technologies: e.g. $5 bn p.a. commitment to feed-in tariffs for CCS coal would lead to 30+ new commercial size plants in the next 7-8 years • Rich countries to deliver on Monterrey and Gleneagles commitments on ODA in context of extra costs of development arising from climate change: potential extra cost of development with climate change upwards of $80bn p.a. 24 Nature of deal / framework • Combination of the above can, with appropriate market institutions, help overcome the inequities of climate change and provide incentives for developing countries to play strong role in global deal, eventually taking on their own targets. • Within such a framework each country can advance with some understanding of global picture. • Individual country action must not be delayed (as e.g. WTO) until full deal is in place. • Main enforcement mechanism, country-by-country, is domestic pressure. • If we argue that, “it is all too difficult” and the world lets stocks of GHGs rise to 650, 700 ppm or more must be clear and transparent about the great magnitude of these risks 25