Tuesday, December 8, 2009

The climate change imperative

The Global Climate Change summit at Copenhagen involving 192 nations is underway amidst intense speculation about the prospects of binding commitments by the biggest economies on greenhouse gas emission reductions and financial aid for developing countries to more aggressively climate change.

Encouragingly, in the days leading upto the summit several countries, including China, Brazil, United States, India, Indonesia and South Africa, have announced new voluntary, unilateral, non-legally binding, quantitative emissions targets. However, instead of committing to either direct emission reduction targets, as in the Kyoto Protocol, or peak emission dates, the developing countries, who will form the major share of new emission in the coming years, they have sought the cover of the more debatable emission intensity targets.

It is debatable about whether emission intensity targets, to be achieved through measures like mandatory energy efficiency standards for vehicles and appliances, compulsory green building code, switch to clean coal technology, afforestation etc, can achieve the purpose of limiting carbon emissions in a meaningful manner. Total emissions can keep increasing as emissions intensity improves, especially in the case of emerging economies whose economy and emissions are likely to grow much faster than any improvements (or rate of decrease) in emissions intensity. For example, it has been found that while since 1990 the carbon dioxide intensity of the US economy fell by 20%, its GDP (and presumably emissions) grew by 46% over this period, leaving a net increase of 17% in carbon dioxide emissions.

While China has pledged to reduce its emission intensity (or the amount of carbon emissions per unit of GDP) by 40-45% and India by 20-25% of 2005 levels by 2020. Brazil has committed to a 36 per cent decrease in emissions from a "business as usual" projection by 2020, while South Africa has said its emissions will peak by 2025. In a proposed new domestic climate law, the US seeks to reduce emissions by about 17% for the same period.

Martin Wolf, one of the most incisive commentators on global economic issues brilliantly sums up the global warming challenge facing world leaders before the Copenhagen summit,

"Tackling the risk of climate change is the most complex collective challenge humanity has ever confronted. Success requires costly and concerted action among many countries to deal with a distant threat, on behalf of people as yet unborn, under unavoidable uncertainty about the costs of not acting."

He gets in a few numbers from the International Energy Agency's (IAE) World Energy Outlook (WEO) and the European Climate Foundation's assessment of the pre-Copenhagen pledges to place the greenhouse gas emisssion mitigation challenge in perspective.

1. The WEO talks about the need to "decarbonise" growth to limit atmospheric concentrations of CO2 equivalent to 450 parts per million, the level believed consistent with a global average temperature increase of about 2°C.

2. It notes that energy-related CO2 emissions have increased from 20.9 gigatonnes (Gt) in 1990 to 28.8 Gt in 2007, and forecasts CO2 emissions, on this "reference scenario", at 34.5 Gt in 2020 and 40.2 Gt in 2030 (at an average rate of growth of 1.5% a year over the period). The developing and emerging countries are expected to account for all the projected growth in energy-related emissions to 2030, with 55% of the increase coming from China and 18% from India alone.

3. In order to stabilize emissions at a ceiling of 450 parts per million of CO2 equivalent, the total emissions will have to be kept at just 26.4 Gt by 2030, instead of the 40.2 Gt of energy-related emissions under the reference scenario. A briefing paper from the European Climate Foundation shows that even on the most optimistic view, the pledges made in advance of Copenhagen falls short by about a third of the reductions needed by 2020 for a pathway to a ceiling of 450 parts per million of CO2 equivalent.

4. About the costs of delaying abatement action, the IAE argues that if the aim is to limit greenhouse gas concentrations to 450 parts per million, every year of delay in moving towards the required trajectory adds an extra $500bn of costs to the estimated global cost of $10,500bn.

5. The reductions in emissions secured by switching the US fleet of sport utility vehicles into cars with European Union fuel economy standards would cover the emissions from providing electricity to 1.6bn people now without access.

Wolf outlines three criteria for effective climate change policies that span the full range of mitigation alternatives - reduce demand, expand renewables, invest in nuclear power, develop carbon capture and storage, switch from coal to gas and protect forests

1. Carbon must be flexibly priced as a function of events that affect global warming and over a long time horizon. He favors a tax over cap-and-trade for this in view of its relative stability.

2. In view of the facts that the marginal cost of abatement is smaller in developing economies and that they cannot be made to bear the burden of those abatements, it is important that in any policy "where the abatement occurs must be separated from who pays for it".

3. All available technological innovations must be adopted. However these technologies may need large-scale subsidies, since merely raising carbon prices would only reinforce the position of established technologies.

A policy brief by the Bruegel think-tank comes to the similar conclusions about the challenge ahead on climate challenge, especially on technology use

1. Both public intervention and private initiative are indispensable - governments must initially redirect market forces towards cleaner energy before market forces can take over;
2. climate change policy should combine a carbon price with high initial clean-innovation R&D subsidies - the carbon price would need to be much higher if used alone;
3. policymakers must act now - delaying clean innovation policies results in much higher costs;
4. developed countries must act as technological leaders in implementing new environmental policies and should smooth access to new clean technologies for less-developed countries.

Robert Stavins has an op-ed where he draws attention on the need to stabilize the total stock of emissions by around 2050 by following a gradually tightening emissions stadards regime that relies on technologies that are less energy intensive and through long-lasting global institutions. He advocates a policy of "common but differentiated responsibilities" that acknowledge the fact that developed countries are responsible for the accumulated stock of historic emissions and emerging economies will be responsible for the major share of newer emissions. He favors "an international portfolio of domestic commitments, whereby each nation would commit and register to abide by its domestic climate commitments, whether those are in the form of laws and regulations or multiyear development plan".

See also this (current levels and impact of Kyoto), this (positions of major members), and this (scince and politics of climate change over time).

Update 1
See this debate on assistance to developing countries for adopting cleaner technologies.

Update 2
See this nice summary of the four views on climate change - denialists, sceptics, warners and calamatists.

Update 3 (10/4/2010)
Excellent essay by Paul Krugman that captures all dimensions of the climate change debate. He classifies the debate on action to combat climate change as that between those like William Nordhaus (with their Dynamic Integrated Model of Climate and the Economy, DICE) who argue in favor of a gradually tightening emission standards and those led by Martin Weitzman and Nicholas Stern who advocate immediate action in view of the non-negligible possibility of catastrophic consequences if things continue unchanged.

The former, which combines models of climate change with models of both the damage from global warming and the costs of cutting emissions, have been described as advocating a "climate policy ramp" of increasing controls. Krugman calls the later "climate policy big bang" - Nicholas Stern, an economist at the London School of Economics, argued in 2006 for quick, aggressive action to limit emissions, which would most likely imply much higher carbon prices. He writes,

"The policy-ramp advocates argue that the damage done by an additional ton of carbon in the atmosphere is fairly low at current concentrations; the cost will not get really large until there is a lot more carbon dioxide in the air, and that won’t happen until late this century. And they argue that costs that far in the future should not have a large influence on policy today. They point to market rates of return, which indicate that investors place only a small weight on the gains or losses they expect in the distant future, and argue that public policies, including climate policies, should do the same.

The big-bang advocates argue that government should take a much longer view than private investors. Stern, in particular, argues that policy makers should give the same weight to future generations’ welfare as we give to those now living. Moreover, the proponents of fast action hold that the damage from emissions may be much larger than the policy-ramp analyses suggest, either because global temperatures are more sensitive to greenhouse-gas emissions than previously thought or because the economic damage from a large rise in temperatures is much greater than the guesstimates in the climate-ramp models."

About Krugman's own position,

"So what I end up with is basically Martin Weitzman’s argument: it’s the non-negligible probability of utter disaster that should dominate our policy analysis. And that argues for aggressive moves to curb emissions, soon."

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