A Building Blocks Approach to International Climate Policy

1. A Building Blocks Approach to International Climate Policy CAGE/CCCEP workshop, 25 January 2011 Dr Robert Falkner Department of International Relations, LSE CCCEP & Grantham Research Institute on Climate Change and the Environment, LSE

2. Overview • Why a ‘building blocks’ approach? • Comprehensive, legally binding agreement unattainable; transition to incremental regime-building under way. • Elements of building blocks approach. • Lessons from international cooperation • Diversity of international regime designs and pathways. • Lessons from ozone and GATT/WTO negotiations; comparision with climate change. • Making a building blocks approach work • Strategies • Risks Dr Robert Falkner, LSE

3. 1. Why a ‘building blocks’ approach? • Failure to agree a comprehensive, universal and legally binding climate treaty. • Two decades of ‘Convention+Protocol’-type negotiations have failed to deliver such a global deal. • ‘Sovereignty hawks’ resist binding international rules; demands for legally binding targets out of sync with domestic politics in key emitter countries (esp. USA). • Balancing common and differentiated responsibilities a key hurdle. • A building blocks approach is already emerging. • Kyoto Protocol as a stepping stone, but failure to set dynamic and long-term targets; locks in strict asymmetry between Annex-I and non-Annex-I countries. • Cancun 2010: beginning shift towards partial agreements in effort to keep international process alive. • Sub-global governance mechanisms (e.g. emissions trading in Europe, North America) as building blocks; potential for scaling up? Dr Robert Falkner, LSE

4. Elements of building blocks approach • International climate policy as ongoing process; incremental process of regime-building. • Disaggregation of global deal: partial agreements on commitments and governance instruments (e.g. ‘pillarisation’, ‘variable geometry’, ‘plurilateralism’) • Outcome resembles a ‘regime complex’; between fragmented governance and coherent regime (Keohane/Victor). • Need to embed partial agreements and governance mechanisms in an international political framework. • Key functions of UNFCCC system: universal representation; MRV standards; interoperability of governance instruments; manage international funding. • But only second best strategy; comprehensive and binding climate regime remains the long-term objective . Dr Robert Falkner, LSE

5. 2. Lessons from international cooperation • Factors preventing strong, legally binding, agreements • Interest divergence • Uncertainty re future costs and benefits • Problem complexity and diversity • Considerable diversity in international regime designs • Clubs vs. universal membership (OECD vs UN) • Different levels of hierarchy (UN Security Council vs General Assembly; World Bank/IMF vs WTO) • Hard vs soft compliance mechanisms (WTO vs MEAs) • Different pathways exist towards global governance • Comprehensive multilateral negotiations (WTO Doha Round, UNFCCC) • Club agreement expanded to near-universal membership (1985 Vienna Convention + 1987 Montreal Protocol) • Soft law strengthened through hard law (e.g. ISO standards adopted in law) • Diffusion of public norms to private sector (IFC and Equator Principles) Dr Robert Falkner, LSE

6. Varieties of international institutions UNFCCC universal Montreal Protocol 2010 WTO 2010 Kyoto Protocol GATT 1986 Membership APP MEF Vienna Convention 1985 Montreal Protocol 1987 EU ETS GATT 1948 club low high Legalization Dr Robert Falkner, LSE

7. Case 1: Ozone depletion • Elements of a building blocks approach in ozone politics: • Classic ‘global deal’ model, but includes important elements of building blocks strategy. • Initial agreement by a small club of countries: Vienna Convention (1985) originally signed by 21, Montreal Protocol (1987) by 25 countries. • Hierarchy within negotiations, reflecting oligopolistic CFC market: USA, UK, Germany, France, Japan play key role. • Step-by-step expansion of initial agreement into a universal regime during 1990s; economic aid as inducement for key developing and emerging economies (e.g. China, India). Dr Robert Falkner, LSE

8. Comparison with climate change • Interest convergence/divergence • Homogeneity of key players in ozone politics, unlike climate politics. • Broad agreement on the goal of ozone protection between major CFC producers; negotiations focus on modalities of phase-out regime. • Equity concerns not a major stumbling block • North-South equity concerns not central to initial bargaining phase in ozone talks; comprehensive regime in place before developing/emerging economies join. • Limited economic aid (ca. $150m/year) sufficient to pay for CFC replacement in developing countries. Dr Robert Falkner, LSE

9. Case 2: GATT/WTO • Elements of a building blocks approach in trade: • Step-by-step creation of the international trade order through successive negotiation rounds. • Move from shallow (GATT) to ‘deep’ integration (Uruguay Round + WTO). • GATT as second-best option for regime-building, after failure of ITO. • From club to near-universal WTO (23 GATT signatories; 153 WTO members). • Hierarchy within a regime of equals: key leadership role of ‘Quad’ and Group of Seven/Eight in GATT rounds; ‘new Quad’ in Doha Round (US, EU, India, Brazil). • Parallel creation of regional and bilateral trade agreements; forum shifting a threat to multilateralism, but also a case of managed complexity. Dr Robert Falkner, LSE

10. Comparison with climate change • Reciprocity in bargaining: • Reciprocity essential to success of GATT/WTO negotiations; trade agreements create excludable goods. • Main benefit of climate governance is a non-excludable good (climate stability); need to develop excludable goods from climate policy (e.g. emissions trading; beneficial trade treatment; access to finance and technology). • Domestic support: • Trade liberalization shifted domestic ‘balance of power’ in favour of pro-trade interests (MNCs). • Climate governance is slowly creating pro-regulatory business interests (e.g. clean energy technology, emissions trading), but insufficient to change domestic dynamics in the short run (e.g. USA). • Time frame: • Developing the GATT into the WTO took nearly half a century… Dr Robert Falkner, LSE

11. 3. Strategies for a building blocks approach • Identify appropriate small groups for partial agreements • create conditions for reciprocity between key negotiation parties • Innovative combinations of major emitters and regional representatives • Focus on country grouping based on sectoral agreements • Create excludable goods (e.g. trading, technology, funding) • to create incentives for parties to engage in negotiations and join partial agreements • Strengthen monitoring and information exchange • to encourage compliance with non-binding mitigation targets • Environmental leaders to provide stimulus • for setting high level of ambition (e.g. EU’s emissions targets) • for developing and expanding innovative instruments (e.g. emission trading) • for technological innovation and diffusion (e.g. CCS) • Reduce carbon leakage in an uneven regulatory environment • E.g. through border tax adjustment Dr Robert Falkner, LSE

12. Political risks • Strengthen veto power of major emitters • If key demandeurs for emission cuts are likely to be excluded from small group settings, would this lower the level of ambition? • Loss of linkage opportunities • Comprehensive package deals allow for trade-offs across different issue areas; disaggregation of regime-building may make such deals more difficult. • Further erosion of trust • North-South: developing countries have long opposed moves to plurilateralism as it undermines their bargaining position over international climate funding etc. • Transatlantic: Long-standing European suspicion over US advocacy for small group settings (e.g. Bush & APP). • Strategic dilemma • How to prepare the ground for a building blocks strategy without undercutting the long-term ambition of creating a comprehensive, universal and legally binding regime? Dr Robert Falkner, LSE