Does Northern Mitigation Affect the Developing World?

1. Does Northern Mitigation Affect the Developing World? Marco Sakai ee08masd@leeds.ac.uk

2. Overarching question “How mitigative actions undertaken by developed countries could affect development in developing and emerging economies?” Hans Opschoor (2010)

3. Overview • Background on climate change mitigation. • Consumption trends and consumption-based accounting. • Trade and impacts to the developing world. • Method • Results • Limitations and conclusions

4. Climate Change • Strong evidence that rise in global average temperatures is due to the observed increase in anthropogenic GHG concentrations. • Currently global warming is at 0.7 ° C above pre-industrial levels . • Under a “business as usual” scenario, temperatures could rise 5 to 6°C by 2100. • Source: (IPCC, 2007)

5. Projected Impacts of Climate Change Source: Based on Stern Review (2006)

6. Multilateral emissions reduction targets • Kyoto protocol: Some Annex B countries agreed to reduce emissions by 2012 relative to 1990 baseline (e.g. EU15 and other European nations -8%). • EU ETS: Cuts of at least 20% by 2020 and >80% by 2050 relative to 1990. • Cancun Agreements: Industrialized countries proposed reduction targets, including some developing countries (e.g. Brazil, China, Indonesia, Mexico, South Africa).

7. What is mitigation? • “Technological change and substitution that reduce resource inputs and emissions per unit of output” (IPCC, 2007) • Strong focus on technological solutions. • Low-carbon technologies • Renewable energy • Geoengineering • Energy conservation

8. Can technology save us? • 90% to 130% emission intensity improvement is required (Jackson, 2010) • 80% of projected 2020 emissions from the power sector are already locked in (IEA, 2011) • Window for cutting emissions (to 450 ppm - 2°) is closing fast (Stern, 2011) • Not enough just to rely on technology (HM Government, 2005)

9. Other mitigation actions • Social and economic policies oriented towards emission reductions and enhancement of sinks (IPCC, 2007). • Beneficial aspects of creating synergies between developed and developing nations • Clean Development Mechanism (CDM) • Reducing Emissions Reducing Emissions from Deforestation and forest Degradation (REDD).

10. Demand-side options • Demand-side options seek to modify directly or indirectly consumption patterns in order to achieve emission reductions. • Behavioural changes (business practices, individual lifestyles) • Instruments such as carbon taxes, border adjustments, subsidies, carbon labelling, awareness campaigns, etc. can have an effect on demand. • EU, US (Waxman-Markey bill) and Australia to implement BCA to address the issues of leakage and loss of competitiveness.

11. Consumption • Climate change is the greatest symptom of excessive consumption levels. • Consumption in developed countries is the main driver for increasing emissions (Sanwal, 2009) • Consumption patterns also need to be modified (Agenda 21, 1992; Rio +20, 2012) • Northern consumption causes environmental impacts in the South.

15. Carbon accounting • Production-based (territorial) approach: “Greenhouse gas emissions that take place within the national territory and offshore areas over which a country has jurisdiction” (IPCC, 2006). • Consumption-based emission inventories consider total emissions occurring from economic consumption within a country (Peters and Hertwich, 2008).

17. Consumer emissions as a percentage of territorial emissions, 2004 Source: Carbon Trust Analysis, CICERO/SEI/CMU GTAP 7 MRIO model (2004)

18. Income-Emissions Relationship • Panel data regressions using fixed and random effects, between-groups and differences including 113 countries. • From a consumption-based perspective, evidence rejects the EKC inverted-U hypothesis. • CO2 emissions increase monotonically with income*. higher income → higher consumption → higher emissions Sakai and Hubacek(forthcoming)

22. Source: Carbon Trust

23. Impacts on the developing world • Changes in consumption patterns (as mitigation actions) have been largely analysed from a developed-country perspective. • The consequences of these actions in the developing world have not been sufficiently explored. • ECLAC has recently expressed concerns in Latin America, especially to policies like border adjustments and carbon labelling.

24. International Trade • Trade has grown three times faster than world GDP since 1990: increasing globalisation of markets. • The geographical fragmentation of production has created a new trade reality. • Rise of global production chains and the profound interdependency imply that exogenous changes in one country may induce effects in several other economies.

25. Fragmentation of production Source: WTO (2011) and Meng and Miroudot (2011)

26. The Method • Increasing use of environmentally- extended MRIO Analysis to understand environmental effects caused by consumption. • Shows the underlying structure of several economies. • Capture the interdependencies between different industries located in diverse regions. • 113 countries and 57 sectors – GTAP7

27. The MRIO Model Total Outputs FD (6441*113) Technology matrix (6441*6441) Value Added Total Inputs CO2 emissions Import matrices

31. Share of consumption-based value added (domestic + imports)

36. Limitations • Static model. Data for only one year. • Price effects, production functions, elesticities, etc. not included. (started working on CGE modelling). • Developing countries are very heterogeneous. • Additional factors not captured by the model (climate variables, extreme climate events, etc.).

37. Conclusions • Need to lower consumption and change patterns, especially in wealthy countries, but this may cause alterations in the structure of global trade. • Poor countries are vulnerable to changes in structure of trade. • Negative consequences on welfare in the developing world aggravating adaptation costs. • Need for financial and technological transfers and strengthening absorptive capacities. • Policies should be regarded from an inclusive viewpoint that considers the needs of both developed and developing nations.

38. ee08masd@leeds.ac.uk

39. 30% domestic and 15% import improvements in energy emission intensity Source: Own projections based on data by SEI