Global Climate Policy: An Agenda For Effective Action

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"Rules must be binding; Violations must be punished; Words must mean something."

(US President Barack Obama)

The negotiations currently taking place at Copenhagen at the fifteenth Conference of the Parties (COP-15) of the United Nations Framework Convention on Climate Change (UNFCCC) aim at the fundamental objective of the UNFCCC, namely to stabilize atmospheric greenhouse gas concentrations at non-dangerous levels. It is argued that the existing institutional tools at our disposal – international treaties and in particular the Kyoto protocol – are insufficient to achieve this goal. Furthermore, the framework put in place at Kyoto suffers multiple and fundamental flaws which fatally undermine its effectiveness; any new treaty must have a structure which mostly evades these flaws if it is to be effective. Treaties, legal structures, and other institutions more commensurate with the scale of the climate change challenge are suggested to inform discussions around the structure of any future climate agreement. An agenda for effective global action is outlined here:

  1. Strong global institutions – e.g. a world environmental agency – including an agreed framework (such as coordinated carbon taxes) for collective policy, to replace national commitments.
  2. A framework action plan to eliminate carbon emissions sector-by-sector, region-by-region, over the next two to three decades. In particular a plan to develop, transfer and deploy the safe, responsible, and very large-scale use of enhanced energy efficiency, renewable-electric, nuclear, and carbon capture and storage energy technologies; and to encourage responsible land use and agriculture, including the sustainable use of water1.
  3. A significant ($100-$200/tCO2e), sectorally complete, substantially geographically complete, agreed, and guaranteed minimum carbon price, levied upstream at the national level (including embodied carbon from any regions not otherwise carbon-constrained), with revenues used at national discretion. It is possible that a carbon tax may have net economic benefits at the national level if used to replace taxes with higher 'deadweight' costs. The removal of fossil fuel subsidies has already been agreed as part of the Kyoto protocol, but has not been fully implemented.
  4. A plan to protect forests and other natural carbon stores.
  5. A plan to keep high carbon fuels in the ground (following Hansen et al. 2008).
  6. An enabling framework for enforceable state-corporation climate contracts (e.g. guaranteeing the carbon price for investors) (Ismer & Neuhoff 2006).
  7. An enabling framework for the use of trade sanctions to enforce state-state climate commitments, such as border tax adjustments (Ismer & Neuhoff 2007).
  8. Unimpeachable monitoring and verification of all commitments.

Why The 'Kyoto' Approach Fails

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The structures for climate change mitigation agreed at Kyoto were flawed in a number of different ways. The most obvious flaw was the lack of effectiveness – it is not clear that the Kyoto treaty has reduced emissions at all. There are three main reasons for this lack of effectiveness:

Firstly, the treaty does not give binding commitments for all major emitters – in particular, the developing countries has no binding commitments and the United States signed but did not ratify the treaty.

Secondly, among the countries that implemented the agreement, many did not achieve the Kyoto targets. Little real action was noticeable – those who have achieved the targets (such as the UK and the former Soviet states) seemed to do so largely by accident rather than design.

Thirdly, the targets, although binding in international law, included no enforcement mechanism, beyond a threat that future targets would be more stringent for those countries that failed to achieve the target. There are also the following problems with international treaties in general:
  • Countries can in principle withdraw from treaties once signed, although this is rare.
  • Treaties face significant barriers in the US congress, with two thirds of United States senators required for ratification.

The Kyoto approach requires national emissions targets, negotiated country-by-country. It is possible that emissions reductions, whilst key to the end goal, are a politically and psychologically negative way of 'framing' commitments. (In other words, if commitments are expressed in different, but likely equivalent, terms, the balance of perceived national benefits may be different, for a given level of expected stringency). Countries may not know if they are able to reduce emissions by a large amount. Fast developing countries such as China or India may wish to play safe, avoiding emissions targets, whereas a more practical action plan (see below) may be perceived more positively by nations.

The Kyoto treaty and the actions since the treaty encourage downstream emissions trading. There are a few fundamental flaws to this approach:
  • Low coverage of sectors (the European Emissions Trading Scheme (EU-ETS) covers only 40% of the EU domestic emissions, and none of the net emissions embodied in its net imports);
  • An emissions trading scheme gives a volatile price for structural reasons related to the short-run price insensitivity (inelasticity) of fuel demand and the fact that carbon based fuels are ubiquitous in a modern economy (and so fuel demand is sensitive to the economic cycle and the weather). This volatility can lead to delayed investment and higher economic costs;
  • Emissions trading schemes encourage 'quota seeking' behaviour by nations in any original agreement and by companies in the political process of allocation rights to emit;
  • Perverse incentive to avoid stringent commitments – the structure of the agreement with national emissions caps fails to transform incentives of nation states;
  • The use of 'offsets', such as the Clean Development Mechanism (CDM) has multiple problems in addition to the lack of a developing country cap. Most fundamentally, it encourages 'double counting'. Offsets provide perverse incentives to developing countries to inflate expected emissions in order to demand payment to reduce them back to more reasonable levels.
  • No incentives to preserve existing forests and other natural carbon stores.

More fundamentally, none of the major powers (with the possible exception of the EU) have agreed to cede any sovereignty to a global institution. There also seems to be a fundamental difference in opinion between developed countries – which expect developing countries to accept binding commitments – and developing countries, who seek financial assistance from the developed world.

Finally, there is a lack of any necessary or direct connection between a treaty being agreed, and any real action to reduce emissions. We need a new treaty that has an 'action plan' to reduce emissions.

Make a deal or go home?
Given the multiple flaws in a possible Copenhagen agreement, there are two possible approaches. Firstly, the countries could avoid making a deal; Secondly, the countries could make a flawed deal that is ineffective. Both outcomes have major drawbacks. We might not get a better opportunity to reduce emissions, yet a flawed treaty would be little better than none at all. I think the best that could be expected would be a global agreed target and then leave implementation of those targets to a further treaty