The Economics of a Lost Deal

This paper examines compromise spaces between competing perspectives on four key climate change issues: costs, level of domestic action, environmental integrity, and developing world involvement. Based on extensive simulations of a model integration tool, SAP12 (Stochastic Assessment of Climate Policies, 12 models), the analysis considers options for fine-tuning the Kyoto Protocol, such as concrete ceilings or levies on carbon imports; restoration payments to be made on excess emissions; credits for sequestration activities in Annex B countries; and others. It shows the critical importance of the baseline against which the performance of each tool has to be assessed in the absence of direct economic penalties for noncompliance. The restoration payment option (also known as a safety valve) emerges as a superior means of addressing the core policy issues, including environmental integrity, and provides a large compromise space between payments of $35 to$100 per ton of carbon.limate negotiations, 2010 carbon markets, uncertainty about abatement costs

The Economics of a Lost Deal : Kyoto - The Hague - Marrakesh

This paper examines prospects for compromise between competing perspectives on four key climate change issues: costs, level of domestic action, nvironmental integrity, and developing world involvement. It focuses on the policy issues stemming from the uncertainty about abatement costs. Based on extensive simulations of a model integration tool, SAP12 (Stochastic Assessment of Climate Policies, 12 models), the analysis considers options for fine-tuning the Kyoto Protocol, such as concrete ceilings or levies on carbon imports; "environmental restoration payments" to be made on excess emissions; and credits for equestration activities in Annex B countries. It demonstrates that the restoration payment (implemented through a safety valve) emerges as a superior means of addressing the cost uncertainty issue. The paper concludes that had this approach been taken at the COP6 climate negotiations, there would have been substantial room for compromise on payments of $35 to$100 per ton of carbon. Examining the Marrakech climate accord, it derives some lessons for attempts at completing Kyoto's unfinished business or at moving on to a new framework.climate negotiations; 2010 carbon markets; uncertainty about abatement costs

Mitigation factors

The debate over the costs of GHG emission reduction has become more com-plex recently as disagreements over the existence of economic and environ-mental double dividents have been added to discussions over the existence of a negative cost potential. We argue that basic assumptions about economic effi-ciency, the (sub-)optimality of the baseline and the rate of technical change are more important than model structure, and we underline the importance of the timing of decisions for determining the costs. Moreover the use of a single baseline ‘no policy' scenario and several policy intervention scenarios may be fundamentally misleading in the longer term simply because the very idea of a business as usual scenario is deeply problematic. Ultimately the debate turns on political judgments about the desirability of alternative development paths. Copright© 1996 Elsevier Science Ltd.Greenhouse gas emissions;Costs of GHG reduction; Mitigation options

Viable Responses to the equity-responsability dilemna : a consequentialist view.

This paper aims at clarifying some conceptual flaws blurring the equity-efficiency debates involved in the setting of objectives of GHGs emissions control beyond 2012. To this end, it carries out numerical experiments that test the viability of agreements grounded on two contrasting target allocation rules: a "Soft Landing" rule prolonging a Kyoto-type agreement; and a "Convergence" rule progressively re-directing Kyoto towards a per capita emissions endowment. The paper demonstrates the sensitivity of the impact to the metric used to assess it and to assumptions regarding the interaction between the cap and trade system and accompanying measures such as domestic policies (characterised as simple fiscal reforms) and international public funding. In a third step it derives some lessons about how to reconcile two political imperatives: (a) an ex-post or "consequentialist" approach to equity, which however cannot fully avoid relying on ex-ante rules, and (b) the necessity of an agreement on such stable ex-ante rules to set up emissions targets and efficient emissions trading. The latter step suggests a coming back to the environment/development "Gordian Knot", which underpins all global environmental affairs since the Stockholm Conference in 1972. We argue that the equity-efficiency dilemma has to be set in a broader sustainable development perspective whereby climate policies are integrated with development priorities of the poorest countries so as to create a leverage effect on development.Equity; Efficiency; Development; Quota allocation; Post-Kyoto; Welfare; Impacts; Emissions trading

Equitable provision of long-term public goods: the role of negotiation mandates

In a one-period model, whether or not individual weights in the welfare function are based on initial endowments dictate who provides public goods. But with long-term public goods, banning wealth redistribution still allows for several equilibriums depending on Parties'willingness to acknowledge changes in negotiating powers over time, and on whether or not they care only for their own descendants. Adaptative and universal mandates lead to far more robust equilibrium. In all cases, a simple rule of thumb for allocating expenditures at first period emerges, independent of both the optimal level of public goods and the second-period distribution of expenditures.Montreal Protocol,Economic Theory&Research,Information Technology,Environmental Economics&Policies,General Technology,Montreal Protocol,Economic Theory&Research,Environmental Economics&Policies,Energy and Environment,Transport and Environment

Thirty-five years of long-run energy forecasting : lessons for climate change policy

This paper sheds light on an implicit dimension of the climate policy debate: the extent to which supply-side response (emission-reducing energy technologies) may substitute for the transformation of consumption behavior and thus help get around the political difficulties surrounding such behavioral transformation. The paper performs a meta-review of long-term energy forecasts since the end of the 1960s in order to put in perspective the controversies around technological optimism about the potential for cheap, large-scale, carbon-free energy production. This retrospective analysis encompasses 116 scenarios conducted over 36 years and analyzes their predictions for a) fossil fuels, b) nuclear energy, and c) renewable energy. The analysis demonstrates how the predicted relative shares of these three types of energy have evolved since 1970, for two cases: a) predicted shares in 2010, which shows how the initial outlooks for the 2000-2010 period have been revised as a function of observed trends; and b) predicted shares for t+30, which shows how these revisions have affected medium-term prospects. The analysis shows a decrease, since 1970, in technological optimism about switching away from fossil fuels; this decrease is unsurprisingly correlated with a decline in modelers’ beliefs in the suitability of nuclear energy. But, after a trend of increasing optimism, a declining trend also characterizes renewable energies in the 1980s and 1990s before a slight revival of technological optimism about renewables in the aftermath of Kyoto.Energy Production and Transportation,Energy and Environment,Environment and Energy Efficiency,Energy Demand,Climate Change Mitigation and Green House Gases

Enjeux géopolitiques du développement durable

L'observateur formé au doute cartésien pourrait s'étonner de la conversion récente des élites françaises à la thématique du développement durable. Elles la considérèrent longtemps avec tant de distraction que le rapport Brundtland, qui l'installa sur l'agenda diplomatique en 1986, dut être traduit au Québec pour être disponible en version français en 19881. Que faire en effet d'une expression vague, réceptacle de préoccupations disparates qui vont de la rareté des ressources à la disparition des cultures locales en passant par les coûts environnementaux, le principe de précaution face aux risques technologiques, la pauvreté et la sécurité énergétique ? A travers un impératif de solidarité intergénérationnelle2, le développement durable3 lie une réflexion sur le principe de responsabilité4 à un questionnement sur la poursuite du type de modernisation lancé par la révolution industrielle. Mais les sceptiques sont en droit de se demander pourquoi un tel questionnement intellectuel a pu devenir un objet diplomatique

Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement

Following the UN Framework Convention on Climate Change [1], countries will negotiate in Kyoto this December an agreement to mitigate greenhouse gas emissions. Here we examine optimal CO2 policies, given long-term constraints on atmospheric concentrations. Our analysis highlights the interplay of uncertainty and socioeconomic inertia. We find that the ‘integrated assessment' models so far applied under-represent inertia, and we show that higher adjustment costs make it optimal to spread the effort across generations and increase the costs of deferring abatement. Balancing the costs of early action against the potentially higher costs of a more rapid forced subsequent transition, we show that early attention to the carbon content of new and replacement investments reduces the exposure of both the environmental and the economic systems to the risks of costly and unpleasant surprises. If there is a significant probability of having to stay below a doubling of atmospheric CO2-equivalent, deferring abatement may prove costly.

L'économie des régimes climatiques : l'impossible coordination?

National audienceTraiter aujourd'hui de l'économie des régimes climatiques peut être vu comme un exercice d'économie virtuelle tant la gestion de ce dossier sera affectée par l'évolution du contexte géopolitique et par ses conséquences en termes de sécurité énergétique (J.R. Schlesinger, 1989) ou de place du multilatéralisme et du système Onusien dans la gestion des affaires du monde. Faut-il viser, dans la lignée de Kyoto, un régime intégré sous l'égide de la Convention Climat (Rio de Janeiro 1992) ? Peut-on faire vivre, sous cette même Convention, des ‘régimes fragmentés (H.D. Jacoby et al., 1998)? Faut-il revenir à des initiatives unilatérales de pays leaders se coordonnant progressivement puis élargissant le cercle d'une coalition pro-active (C. Carraro and D. Siniscalco, 1992). Tout ceci peut paraître, après la crise Irakienne affaire de politique plus que d'économie

Cutting the Climate-Development Gordian Knot - Economic options in a politically constrained world

Combating climate change cannot but be a cooperative venture amongst nations. Together with the problem posed by the withdrawal of the US from the Kyoto Protocol, the key challenge for winning the battle is the involvement of developing countries in efforts to alter their GHGs emissions trends. This involvement is necessary technically but also politically to bring the largest emitter of the planet back on the battle field. In the first section we draw on history to outline the intellectual underpinning of North/South divide around climate affairs. In the second section we show the economic basis for a leverage effect between development and climate policies. The third section ventures to propose some guidance to develop a viable climate regime strong enough to support an ambitious effort to decarbonize economies and we show that the Kyoto framework, once re-interpreted and amended is not so far from this working drawing.climate policy; development