A Paradigm shift in Policy mechanisms for Kyoto

Thursday, 7 July 2005, 3:06 pm
Opinion: Scoop Reader Opinion

A Paradigm shift in Policy mechanisms for Kyoto

Scoop Reader Submission From:
OUTSIDE THE CUBE
3D Analytics
Wellington
Energy and Technology transfer analytics

A Paradigm shift in Policy mechanisms for Kyoto from the G8 will produce more realistic outcomes.

Abstract.

The G8 will this week issue a communiqué identifying new pathways for global cooperation on stabilizing GHG emissions. It is expected that there will be a broad policy statement on the lessening of an emission tariff based mitigation system to one of the development of new cleaner and more efficient carbonless energy systems and taxation changes.

The present architecture and delivery mechanisms of the Kyoto Protocol have been found to be unworkable in there present form and the targets provide no measurable results. The costs of Kyoto have been found to seriously affect the global economy.

The British house of Lords will today release a review of the Kyoto Protocol being critical of the mechanism and the IPCC politicization Some of the mechanisms for new pathways will be identified in this report..

The Kyoto agreement was an agreement with countries from around the world to quantify the possible climate change from Anthropogenic greenhouse emissions and to provide mechanisms to stabilize the emissions by tariff . However, it is also an intrinsically problematic mechanism for bringing about the kinds of changes in the global energy system that will be required to stabilize anthropogenic emissions.

The policy and design framework of the Kyoto protocol were broadly based on the Montreal protocol for the reduction of CFC in the atmosphere. But, despite some obvious superficial parallels, the scientific, technical, and political structure of the ozone and climate problems is quite different. As a consequence the world has committed itself to a framework for climate policy that, in many respects, may be quite unsuited to the problem. Indeed the economic reality of meeting stabilization within a realistic timeframe (2060) will cause major disinvestment in core business by signatory governments to meet the 18 trillion dollars required.

Although the short term targets are set low and will not make any difference to either temperature or GHC by the initial target date of 2012. No-one suggests that the global emissions reductions envisaged in the Kyoto targets will come anywhere close to limiting emissions at levels that would stabilize anthropogenic greenhouse gas concentrations. The short-term targets give the appearance of serious action, but gloss over the absence of any viable plans for compliance at these levels, let alone those that would come into force with the inevitable tightening of targets. It has been pointed out that, even if all the current Kyoto commitments were met, it would require some 30 repeat performances to reach this goal. At the current rate of 7-10 years for each phase, we would achieve the goal of atmospheric stabilization in 200-300 years! Clearly this is not an acceptable strategy .Targets in future reduction periods will have to be ACCELERATED (always assuming that the first step has in any case taken us in the direction that we wish to go). However, there has been no serious analysis of the political viability of the kind of radical correction to targets and timetables that would be required for emissions trading to produce positive outcomes in a more timely fashion. A number of economic models suggest a CE unit of 150-200 dollars by 2012.

There are other economic variables that also concern the EC members of the G8 . In constructing an international climate regime, the emissions baselines established for certain countries (notably Russia and the Ukraine) under the Framework Convention on Climate Change were set at levels that they were unlikely to reach, even under optimistic economic scenarios. The result is a potential for sales of “hot air” (allowances that do not actually represent emissions reductions) to the West in excess of $300 billion. Any serious attempt to develop the Kyoto global trading framework will require that the baselines for Russia and Ukraine be revisited. However, this would drastically reduce the incentive for these countries to continue to participate.

The various initiatives being developed by the governments of certain US states clearly demonstrate that national governments are not necessarily the most promising agents for achieving effective climate policy. It also suggests that a regional approach to climate change may be a way of building a global climate regime from the bottom up. One might imagine an Asian climate policy bubble or a Latin-American policy bubble. In every case, the focus should be on progress towards the desired result of stabilizing the concentrations of anthropogenic greenhouse gases in the atmosphere, rather than on fetishizing any particular programme, process, or protocol.

Unfortunately, support for Kyoto has become a litmus test for determining those who take the threat of climate change seriously. Between Kyoto’s supporters and those who scoff at the dangers of leaving greenhouse gas emissions unchecked, there has been a tiny minority of commentators and analysts convinced of the urgency of the problem while remaining profoundly sceptical of the proposed solution. But their voices have largely gone unheard. Climate change policy has become a victim of the sunk costs fallacy. We are told that Kyoto is “the only game in town”. However, it is plausible to argue that implementing Kyoto has distracted attention and effort from real opportunities to reduce greenhouse gas emissions and protect society against climate impacts. While it may not be politically practical or desirable to abandon the Kyoto path altogether, it certainly seems prudent to open up other approaches to achieving global reductions in greenhouse gas emissions. G8 is a golden opportunity to establish some new games and open alternative, or at least supplementary, paths to achieve climate policy goals. Britain, in contrast to the US, has high credibility as a country that has taken the challenge of climate policy seriously. It is therefore well placed to introduce and support much-needed novel approaches and measures into the international arena.

Policy makers should explore the possibility that international competition could prove to be as important as cooperation in progress towards lowering global carbon emissions.

While cooperation is undoubtedly required at some levels of climate policy, others may be more effectively advanced though competition. Consider the following scenario. Regardless of Kyoto, the EU as a whole decides to take advantage of the historic opportunity to modernise its energy sector while the US continues along its present path of relying heavily on coal and oil. Initially Europe may experience some loss of competitiveness vis-à-vis the US. However, after a while the modernized EU economy would be likely to outstrip the performance of the aging infrastructure of the US (much as the West German economy did relative to the UK during the post World War II recovery). This would provoke the US to modernise its own energy sector to recover its competitive position with respect to Europe. The result could be a much more rapid reduction in greenhouse gas emissions than would be achieved by endless rounds of tortured negotiations to set targets that will always be the lowest common denominator.

Of course, such a scenario does not depend on the imposition of emissions caps or even explicit emissions targets; rather, it takes advantage of the economic efficiencies that would be achieved through greater energy efficiency. Rather than a restrictive approach towards emissions, it approaches the policy goal indirectly through a positive policy to encourage energy modernization. One thing that social scientists have very hard evidence for is that the framing of policies fundamentally shapes the choices that people make. A positive approach towards energy modernization is likely to be politically much more attractive (particularly in the US) than one that is framed as a negative policy towards greenhouse gases. It also asks less from people in terms of behavioural change. Extending initiatives such as the UK’s Carbon Trust across the EU could be an important step towards the European action necessary to initiate such a cycle of competitive modernization.

Regardless of the level of commitment to the Kyoto mechanisms, it is imperative that the EU and G8 countries reverse a decade of precipitous decline in public and private sector investment in energy R&D. Achieving a significant reversal of this trend would be the most significant single action by which the UK could demonstrate international leadership and make an indisputable contribution to any workable strategy to address climate change.

Since the mid-1980s, the world has enjoyed cheap and abundant fossil energy supplies. Technological advances, discoveries of new petroleum resources, improved energy productivity, and the creation of futures markets, have alleviated fears that the world’s energy future would necessarily be characterized by scarcity and high prices. The widespread perception that energy has become a matter of less urgency, relative to other social priorities, has led to shrinking government budgets for R&D, which have dropped by over 40% worldwide since 1980. The decline has been particularly dramatic in Germany, the UK, and the USA, with the largest hit being taken by the renewable sector.

At the same time, an ideological shift towards deregulation of the energy sector in many industrialized countries has placed additional pressures on private R&D investments. The introduction of competitive forces has led to shrinking private sector R&D budgets while remaining private sector resources gravitate more often to lower risk, market-oriented projects than to riskier projects with more distant payoffs.

This disinvestment in R&D could hardly be happening at a less-opportune time for the pursuit of climate change goals. Much of the electrical generating capacity in the industrialized world is nearing the end of its useful life and will need to be replaced in the next three decades. Europe alone will need to replace over 200,000 Megawatts of capacity by 2020. Without significant new investment in energy R&D, the technologies upon which any emissions reduction strategy depends simply will not be available at a competitive cost at the time when they could make a significant difference. It is not that the technologies are missing altogether, but that many of them lack the investment needed to take them to the production levels that would make them economically competitive. Such an investment could, in principle, accelerate the move away from fossil fuels more rapidly than targets and timetables.

It is also worth noting that over 60% of all energy R&D undertaken around the world during the past forty years has been spent on developing nuclear power. This might be part of the solution, at least as an interim stop-gap technology, provided that the nuclear waste issue could be resolved. To achieve public acceptance, this would probably require the establishment of secure, monitorable and retrievable waste storage, the capacity of which would be strictly limited to accommodate only the waste of any licensed new facilities.

Another stop-gap technology is carbon sequestration, which could be used to buy time for an effective transition away from intensive use of fossil carbon for energy. The investments in this sector have been meagre, but the insurance value of such investments could be quite substantial.

A mere 6% of the world’s energy R&D budget has been used to support renewable energy. Since only 10 countries carry out 98% of the world’s energy research, a concerted programme of new investment in renewable energy is plausible. In principle, this could be achieved without any need for international - let alone global - treaties, as the government policies that are needed mainly consist of domestic programmes to induce firms to invest in renewable energy. At a minimum, the EU and G8 could be used to encourage and support such programmes.

Some limited forms of international agreement would probably be necessary to help transfer advanced, low-emitting technologies to less industrialized countries so that they can avoid following the carbon intensive development path. However, these arrangements would be far less problematic than full implementation of the Kyoto architecture. Rapid dissemination of advanced technologies is essential. One approach might be to emphasize the world class R&D capabilities of China and, increasingly, India, so that they could be partners in this process. Such partnerships could also have longer term economic advantages for the G8 and EU as these countries rapidly become more developed.

G8 offers an important opportunity to increase policy attention and resources focused on proactive adaptation to climate impacts.

Until very recently the focus of international negotiations about climate change focused overwhelmingly on emissions mitigation and not very much on issues of climate change impacts and adaptation. Indeed, for the better part of the decade leading up to the turn of the last century, adaptation strategy was virtually a taboo topic in climate policy discourse because of a widespread belief that it would be viewed by many as a way to sidestep the imperative to mitigate. Another reason why adaptation has gotten off to a slower start in international negotiations is that it is even harder to design a universal framework for adaptation (let alone one where compliance is measurable and monitorable) than it is for mitigation.

Adaptation measures avoid climate impacts by changing human behaviours, such as land use, and by taking actions to protect valued resources, communities, and landscapes. Adaptation encompasses a wide range of options that can reduce vulnerability of marginal human and natural populations to the consequences of atmospheric disturbance. Many (although admittedly not all) adaptation measures also offer increased resilience in the face of climatic variability (such as droughts and storms), which makes them potentially attractive policies even in the absence of long-term secular changes in climate.

From the point of view of public policy implementation, adaptation actually may have some advantages over policies directed at mitigation. Adaptation may be more immediately relevant to stakeholders than emissions mitigation as it directly addresses people, objects, and landscapes that are known to them and valued by them in their daily lives. Thus adaptation policies may provide opportunities for a wide variety of people to become directly engaged with the climate issue. Also, the basic regulatory and legal concepts and frameworks already exist (eg, governance of land use) and are broadly accepted; they just need to be adapted. This is not to minimize the political challenge, but the point is that you are not starting from scratch. This is in marked contrast with the challenge of mobilizing public support and action to cut emissions. Emissions are too abstract and too easily seen as someone else’s problem to be a good starting point from which to mobilize support for climate policies. However, once people have mobilized around concrete adaptation goals they may be more likely to recognize the limits of adaptation and move to support for more effective emissions reductions measures than seem plausible at present.

Another advantage of increasing the focus on impacts and adaptation is that action on these issues does not require any kind of global consensus. Indeed, as impacts and the potential for adaptation vary widely on a regional basis, it seems quite likely that that such an emphasis would favour regional responses. There would almost certainly be many and varied opportunities for the articulation of climate policies with other policies designed to improve public health and protect populations from natural disasters.

Overall, the inherent problems suggest that it is unlikely that the Kyoto cap-and-trade scheme will result in an economically efficient global market that achieves environmentally effective greenhouse gas emissions reductions.

A multi path approach of carbon taxes and emissions trading with R&D of new energy mechanisms being enhanced by both tax and depreciation acceleration. This mechanism would allow governments to set targets for both emissions quantities and prices by establishing a trading system with price ceilings on permits. Some of the Kyoto complications would be eliminated by confining the system only to carbon dioxide. But there would be no absolute limit on the number of permits, so that if the trading price exceeds the target price, firms would be able to purchase new permits from governments at the lower issue price. Whenever the trading price dropped below the issue price, firms would purchase them at lower cost on the open market. This would make it easier for governments to allocate commitments and permits, reduce firms’ uncertainty about the costs of compliance, and enable compliance to be enforced by making the buyer liable for the seller’s compliance as a way of discouraging “hot air” trading.

ENDS

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