Feasible Path to Greenhouse Gas Emissions Targets

After the Cancun Agreements:What is the Politically Feasible Pathto Comprehensive Targetsfor Greenhouse Gas Emissions? Jeffrey Frankel Harpel Professor, Harvard Kennedy School Lecture, Boston College, March 28, 2011

The recent Cancun Conference of the Parties to the UN FrameworkConventiononClimateChange(Dec. 2010) was considered a success, in part because expectations had been so low. • The preceding year’s Copenhagen meeting (Dec. 2009) was considered a failure, because expectations had been so high.

What is the definition of progress? It is useless to evaluate negotiations by whether they produce a sweeping communiqué, • such as Bali or G8 agreement to limit warming to 2°C • at L’Aquila, Italy, in 2009: • They are just words. • Modest targets, if short-term & credible, are worth far more than aggressive targets, if long-term & non-credible.

Definition of progress? • Keep in mind the Herculean tasks of bridging • the gap between rich countries & poor, • the gap between environmental aspirations & economic costs that people are willing to pay, • the gap between what leaders say, &what commitments are enforceable/credible. • Progress ≡ steps toward specific credible commitments by a large number of countries.

Assume that the climate regime will continue to follow Kyoto • Features of the Kyoto Protocol worth building on -- • Politics: Quantitative limits maximize national sovereignty • Economics: Market mechanisms, esp. international permit trading • Thus (2001)“You’re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto.” • What was sorely missing from Kyoto: • Participation by US, China, & other developing countries • A mechanism for setting targets further into the future, past 2012 • Any reason to expect compliance.

Progress • Most countries (>80) responded to the CopenhagenAccord in 2010 by submitting plans for reducing emissions. • By the time of Cancun, 21 countries had associated themselves with specific quantitative targets • counting the EU27 as one • and including 7 big non-Annex-I countries. • Of course some, like China or US, are vague • about seriousness of commitment. • Also India & China’s 2020 target ≈ BAU (Business as Usual). • But that is not a problem.

My Proposal: formulas for pragmatic targets, based on what emission paths are possible politically: • unlike other approaches based purely on: • Science (concentration goals), • Ethics (equal emission rights per capita), • or Economics (cost-benefit optimization). • Why the political approach? • Countries will not accept burdens they view as unfair. • Above certain thresholds for economic costs, they will drop out.

“An Elaborated Proposal For Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades” (2009) suggested a framework of formulas that produce precise numerical targets for CO2 emissions in all regions for the rest of the century, subject to political constraints: No country suffers loss (PDV) > Y=1% GDP, by signing up ex ante, nor in any one period suffers a loss >X=5% GDP, by abiding ex post.

“Is it economics?” • Define economics as maximization of objectives subject to constraints. • That applies not just to private agents maximizing expected utility subject to budget constraints, • but also to how policy-makers can maximize objectives subject to political constraints. • Not the same as what other climate modelers do: • cost-benefit analysis (Integrated Assessment models), • or minimizing economic costs subject to the constraint of attaining a given environmental goal.

Maximizing the credibility of agreement,for any given environmental goal Credibility of an agreement, Vs. probability that it will un- ravel because (e.g.) some key players find that complying imposes huge economic costs, relative to dropping out. Frankel (2009) • Bosetti & Frankel (2010) • • Some proposals • 450 ppm | 350 ppm | 500 ppm | Aggressiveness of targeted cut in CO2 concentrations by 2100

Proposal Stage 2:When the time comes for developing country cuts, targets are determined by a formula incorporating 3 elements, designed so each is asked only to take actions analogous to those already taken by others: • Stage 1: • Advanced countries commit to the post-2012 targets that their leaders have already announced. • Others commit immediately not to exceed BAU. • a Progressive Reduction Factor, • a Latecomer Catch-up Factor, and • a Gradual Equalization Factor.

The three factors in the formulas • Progressive Reduction Factor: • For each 1% difference in income/cap => target is γ% greater emissions abatement from BAU. • Latecomer Catch-up Factor: • Gradually close the gap between the latecomer’s starting point & its 1990 emission levels at λ per year. (Goal: avoid rewarding latecomers for ramping up emissions). • Baseline probably now moved from 1990 to 2005. • Gradual Equalization Factor: • In the long run, rich & poor countries’ targets converge in emissions per capita at δ per year.(Goal: equity)

Where do the parameters come from? • They would be negotiated. • But a good start is to use parameters implicit in targets that have already been agreed. • The degree of progressivity in the PRF can be estimated from observed pattern • in allocations among countries already agreed (γ=.14). • We estimated Latecomer Catch-up parameter from the speed with which US targets close the gap:current vs. 1990 emission levels • in Lieberman-Warner(2008) & Waxman-Markey bills(2009) => λ =.3 per 5-yr. period. • Initially we set speed of Gradual Equalization δ=.1, per 5-yr. budget period(which comes to dominate per capita targets toward the end of the century).

The targeted reductions from BAU agreed to at Kyoto in 1997 were progressive with respect to income. Cuts ↑ γ =.14 Incomes → This is how we set the parameter in the Progressive Reductions Factor

The resultant paths for emissions targets, permit trading, the price of carbon, GDP costs, & environmental effects are estimated by means of the WITCH model of FEEM, Milan, co-authored & applied by Valentina Bosetti.

◙ In 2009 version, CO2 concentrations level off at 500 ppm in the latter part of the century. ◙ Constraints are satisfied: -- No country in any one period suffers a loss as large as 5% of GDP by participating. -- Present Discounted Value of loss < 1% GDP. Global peak date ≈ 2035

The last completed paper(2010) co-authored with Valentina Bosetti was an attempt to see if we could hit CO2 concentrations = 450 ppm • by assuming more aggressive parameters in the formulas.

Latest study, currently underway (2011) • updates all the estimates • to reflect recent developments in the economy, environment, & negotiations, • particularly the Copenhagen-Cancun country targets, • and to reflect new technologies, including • Wind, separate from solar • Carbon Capture & Storage (CCS) for gas • Bio-energy (BE) with CCS in most runs . • and again tries to attain more aggressive targets. • “A Politically Feasible Architecture for Global Climate Policy: Specific Formulas and Emission Targets to Build on Copenhagen & Cancun” • with Bosetti • for the UN.

2011 EU27 + 20 other countries

2011 Progressivity in the Cancun numberssetting “hot air” to 0 for 6 FSU countries The implicit progressivity coefficient is almost exactly the same as the one we had been using: .13 ≈ .14 !=> external validation of the political economy of approach Cuts ↑ a a γ =.13 t=3.9 R2=.44 Regression line Emissions targets for 2020 expressed vs. BAU (WITCH model)

EUROPE = Old Europe + New Europe US = The United States KOSAU = Korea & S. Africa & Australia (3 coal-users) CAJAZ = Canada, Japan & New Zealand TE = Russia & other Transition Economies MENA = Middle East & North Africa SSA = Sub-Saharan Africa SASIA= India + the rest of South Asia CHINA = PRC EASIA = Smaller countries of East Asia LAC = Latin America & the Caribbean Our 11 regions:

Figure 2: Global emission targetsresulting from the formulas & parametersunder the 500 ppm goal Using Cancun targets, near-term cuts are bigger than in our earlier work.

Fig.3: Targets & emissions by OECD countriesunder the 500 ppm goal Predicted actual emissions exceed caps, by permit purchases. }

Fig.4: Targets & emissions, developing countries under the 500 ppm goal } Predicted actual emissions fall short of caps, by permit sales.

Figure 8: Effect on energy prices, under 500 ppm goal Carbon price climbs steeply in 2nd half of century,but < earlier estimates, presumably due to new technologies.

Figure 5: Global economic costs (% of income) 500 ppm goal (without BE-CCS) Global cost < 1% of income Economic losses Contemporaneousvalue Discounted at 5%

Economic cost to each country/region (Net Present Value of income losses) USA EU KoSAu CaJaZ TE MENA SSA SAsia China EAsia LAm India0.8%0.4% 0.9% 0.7% 1.2% 1.2% -0.2% 0.1% 1.2% 0.9% 0.7% 0.5% • Regional Cost measured with respect to baseline (no global climate policy) • Regional Cost measured with respect to case where individual country free rides, but coalition continues. USA EU KoSAu CaJaZ TE MENA SSA SAsia China EAsia LAm India0.7% 0.3% 0.7% 0.9% 1.6% 3.1% -0.2% -0.3% 1.2% 0.5% 0.8% 0.2% Cost is particularly high to oil producers – even if they drop out. But it is almost down to 1% even for them.

Figure 7a: Economic losses of each region,relative to dropping out alone(% of income)under 500 ppm goal, 2010-2045 Costs stay under 2% of income during the 1st half of the century.

Figure 7b: Economic losses of each region, relative to dropping out alone(% of income)under 500 ppm goal, 2050-2090 For every country in every year, costs stay under 5% of income.

Figure 11: Path of concentrations hits the 500 ppm CO2 goal First environmental goal is achieved

Figure 12: Rise in Temperatureunder the 500 ppm CO2 goal 3°C vs. 4° C under BAU

Summary • Our framework allocates emission targets across countries in such a way that every country feels it is doing its fair share: • corresponding to what others have done before it, • taking due account of differences in income, • and avoiding that any country will bear a cost above threshold. • Specifically, every country expects cost < 5% GDP in every year, • and PDV of costs of participating (almost) < 1% of GDP. • Otherwise, announcements of distant future goals would not be credible, will not have the desired effects. • This framework—in providing for a decade-by-decade sequence of emission targets, each determined on the basis of a few principles and formulas— • is flexible enough to accommodate changes in circumstances during the century, by changes in the formula parameters • as more is learned about climate, economic growth, & technology.

Papers available at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm On Climate Change

Feasible Path to Greenhouse Gas Emissions Targets