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Climate Change Policies: Roles of Developing Countries

Climate Change Policies: Roles of Developing Countries. Anil Markandya Bath University December 10, 2006. Variations of the Earth’s Surface Temperature: 1000 to 2100. Global Carbon Cycle. For every 1 t of carbon emitted from fossil fuels

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Climate Change Policies: Roles of Developing Countries

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  1. Climate Change Policies: Roles of Developing Countries Anil Markandya Bath University December 10, 2006

  2. Variations of theEarth’s Surface Temperature: 1000 to 2100

  3. Global Carbon Cycle • For every 1 t of carbon emitted from fossil fuels • 10 t are taken up and emitted by terrestrial ecosystems • 7 t are taken up and emitted and by ocean ecosystems • ¼ t is emitted from land clearing

  4. The Balance each year... • 6.3 Gt from fossil emissions • ca. 1.6 Gt emitted from land-clearing • 1.7 Gt net uptake into ocean systems and c. 3.0 Gt into terrestrial systems • Leaving a net 3.2 Gt in the atmosphere • We cannot ignore sinks in UNFCCC

  5. Carbon budget 1980s 1990s Atmospheric increase +3.3 ± 0.1 +3.2 ± 0.1 Fossil emissions +5.4 ± 0.3 +6.3 ± 0.4 Ocean - Atmosphere flux -1.9 ± 0.6 -1.7 ± 0.5 Land – Atmosphere flux -0.2 ± 0.7 -1.4 ± 0.7 Land-use Change 1.7±??1.6±0.8 ? Residual terrestrial sink -1.9 ± ? ?-3.0 ?? The terrestrial carbon sink appears to be increasing

  6. Background Consensus on Climate Change Suggests An increase in global mean temperatures of 1-4.50C by 2100 A global mean rise in sea level of 14 to 94 cm These are wide ranges. Even wider ranges apply at the regional level Changes in rainfall and extreme events is predicted to increase

  7. Background InformationConsensus on Impacts Suggests A modest impact on agricultural production but with very wide variations (Positive to highly negative). Changes in fisheries with possible benefits in some areas, losses in others. Loss of land in low-lying areas. With some action a 1 meter rise would cause loss of 6% ofNetherlands, 17.5% of Bangladesh.

  8. Background InformationConsensus on Impacts Further Suggests Health impacts are significant: increase in malaria and infectious waterborne diseases. Increase in magnitude and frequency of natural disasters. Impacts on tourism, negative in winter sports, positive in some sea resorts. Possible conflicts as different groups attempt to claim land and water resources

  9. Global Climate Change Impacts • Health Impacts • Mortality, infectious disease, respiratory disease • Increase in vector-borne diseases in the tropics • Agricultural inputs • Crop yields • Irrigation demands • agricultural productivity declines in Africa, Latin America • Climate Change • Temperature • Precipitation • Sea level rise • Forest Impacts • composition, geographic range, health and productivity • Water Resource Impacts • Quantity, quality of supply; Competition over resources • Arid and semi-arid areas in Africa, Middle East will become more water scarce • Impacts on Coastal Areas • Erosion, inundation of coastal areas, cost of protection • low-lying delta areas and small island states threatened by sea level rise • Species and Natural Areas • Loss of habitat and species • Forests and coral reefs vulnerable

  10. Valuation of Impacts in Money Terms • Can we value the damages in money terms? • Question is highly controversial. Yet some attempts have been made. • Main effects are health, sea-level rise and agriculture. • Problem of time period is critical. Most damages over next 100 years will occur from 2030-2100. Hence discount rate is very important. • Degree of uncertainty is very high.

  11. Valuation of Impacts: Fund Model

  12. Valuation of Impacts • Very sensitive to the discount rate. Going from 1-5% reduces damages by factor of 20 • Major impacts are in Asia, Africa, followed by Latin America. Europe and N. America have very small impacts. At country level impacts vary by even more. • Type of damages: agriculture and water, followed by health are man direct effects. Disasters are main indirect effects. • Valuation remains controversial

  13. Valuation of Impacts • Models presented are not too dissimilar but there are some who argue that damages could be much greater. • At 3% discount rate damages range from $43 to $74 trillion over 100 years. Annual world GNP was about $30 trillion in 1998. So annual damages are about 1-2% of world GNP, which is significant but should not be insurmountable. • Damages amount to $20-60tC at 3% discount rate. This would amount to 1.7 to 5.1cents/kWh or 1.4-4.2 cents/litre of diesel.

  14. Some Recent Meta-analyses • Joel Smith and Sam Hitz: “Estimating the Global Impacts from Climate Change,” OECD Background Paper ENV/EPOC/GSP(2002)12/FINAL, Paris (2003) • Joel Smith, “A Synthesis of Potential Climate Change Impacts on the US,” Pew Center, Washington, DC (2004) • Richard Tol, “The Marginal Damage Costs of Carbon Dioxide Emissions: An Assessment of the Uncertainties,” Energy Policy, 33:2064-74 (2005) • Richard Tol, “Estimates of the Damage Costs of Climate Change,” Environmental and Resource Economics, 21:47-73 (2002).

  15. Tol: Meta-analysis of Marginal Damage Cost per tonne of C Source: Tol (2005)

  16. Issues in Valuation • Discount rate • Valuation of loss of life • Why estimates have been declining? • Certain values have been ignored.

  17. Stabilisation Scenario: Scope of Benefits

  18. Policy Implications • Major impacts are in relatively poor countries • Major actions for mitigation are needed in industrialized countries. • Effects are over a long period • Uncertainties are critical. • Impacts are not independent of measures taken All these factors make action difficult to agree upon.

  19. Adaptation • Action to adapt is necessary whatever measures for reducing greenhouse gases are agreed on. • Uncertainty and risk aversion play a critical role in determining adaptation strategy. • Measures have been classified w.r.t. purpose (whether planned or autonomous) and with respect to timing (reactive or anticipatory). Autonomous, reactive adaptation does not need government intervention. Planned anticipatory intervention does

  20. Adaptation Options • Measures include • infrastructure investments (e.g. sea defences) • incentives to discourage land use in vulnerable areas • Investment in R&D for malaria control and other diseases • Development of better early warning mechanisms to reduce damages caused by extreme weather conditions. • Investment in development of crops suited to new climate

  21. Adaptation Policy • The need for adaptation is greatest in countries least able to afford it. At Rio it was accepted that some assistance should be provided to them. • Idea that penalties for non-compliance would go to an adaptation fund was proposed. This has been taken up partly in the flexibility mechanisms (Clean Development Mechanism) • Whatever policies are put in place, we have to ensure that the incentives for cost effective action remain in place (e.g. sea walls may be less cost effective than relocation but external assistance will only pay for former.

  22. Mitigation • Mitigation measures reduce GHGs. • Current emissions are about 1 tC/capita/year. South average is 0.5 TC. North average is 3tC. • 2100 target is 0.25-0.3 tC/capita/year. By end of next century this implies around half of current levels. This will need a ‘renewables transition’ (but we have time!) • South catches up with North in 2016 w.r.t. to emissions, 2056 w.r.t. to concentrations and 2118 w.r.t. to radiative forcing.

  23. Aside – How Much are We Doing in Renewables? UK!

  24. Mitigation • Measures to reduce emissions fall into: • Energy efficiency • Clean energy production • Carbon sequestration. • It is expected that energy efficiency will make the major contribution in the next decade, whereas physical carbon sequestration will be the last category to come on line.

  25. Mitigation In Kyoto Time Frame • Under the Kyoto Agreement industrialised countries agreed to reduce emissions by 5.2% w.r.t. 1990 levels by 2008-2012. Or about 150 mn. tons carbon/year (39 Annex I countries) • No reduction commitment by non Annex I countries. • Agreement on the importance of flexibility mechanisms • Emissions trading between Annex I countries • Permission to transfer/acquire emissions from projects between Annex I countries (JI) (Art 6) • Permission for Annex I countries to acquire emissions from non Annex I (CDM) (Art 17).

  26. Kyoto Protocol- Recent Developments • Ratification by Russia brought KP into effect • USA has not ratified and so is not party to the Protocol but is looking at alternative ways to reduce GHGs • Voluntary Programs (PCA) • About 25 states are pursuing some kind of GHG reduction policy. Proposals range from carbon sequestration to stationary source emissions reductions. • Wyoming: Carbon sequestration • California: GHG registry, mobile source limits. • MA., NH: Four pollutant legislation – Nox, SO2, CO2, Mercury. Limits on all four.

  27. Mitigation Measures • The cost of mitigation is the difference in costs between the reference situation and a new one characterised by lower emissions (IPCC, 1999). • Two approaches to estimating costs of mitigation. • ”Top-down" studies analyse aggregate behaviour based on prices and use of macro instruments such as carbon taxes. • At the sector and project level mitigation costs studies use "bottom-up" models based on detailed performance characteristics and technology prices.

  28. Mitigation Measures • Bottom Up models come up with lower cost estimates than top down models. • National estimates also differ. • For a 20% reduction in emissions ”bottom-up" studies estimate negligible to slightly negative costs. Top down models estimate costs of up to 5-7% of GDP. • Differences arise because of • Implementation costs (not allowed for in B-U models) • Technological possibilities (not allowed for in T-D models)

  29. Mitigation: Co-Benefits • Measures to reduce GHGs have co-benefits in the form of lower emissions of PM, Sox, Nox, etc. • In the case of Russia estimates of such benefits are estimated at as much as $16 per ton of carbon. • In the case of the EU the estimate is that these benefits could be as much as 17% of the costs of the GHG reduction. • The implication of co-benefits are: • Give special incentives for projects that reduce use of emissions of coal, high sulphur oil. • Developing country reductions per ton of carbon are worth more than in developed countries where emissions of PM, Sox, Nox, etc. are better controlled.

  30. Flexibility Mechanisms • Flexibility reduces costs because it allows Parties to exploit differences in abatement costs. • Particularly large between industrialised and developing countries. • E.g. Japanese estimates of marginal abatement cost per ton of carbon to meet their target is $234 while that for USA is $153, with the EU in between $198. For developing countries estimates of options are in range of $0-25 per ton.

  31. Flexibility Mechanisms: Cost Savings • GDP Changes in 2010 Under Different Scenarios

  32. Key Issues for KP with flexibility mechanisms • Agreement on baselines (ALL) • Carbon leakage (CDM) • Guarantee of additionality (CDM) • Proceeds of CDM projects • Treatment of sequestration and Land Use • Links between different mechanisms • Roles of private and public sectors (e.g. Carbon Funds at World Bank) • Flexibility no to fully replace domestic actions

  33. Key Issues for the Kyoto ProtocolLand-Use, Land-Use Change and Forestry • How have LULUCF activities been included in the Kyoto Protocol? • What are the key decisions? • What is the potential of LULUCF activities to reduce net emissions?

  34. Key Issues for the Kyoto ProtocolLand-Use, Land-Use Change and Forestry • Definitions of a forest, afforestation, reforestation and deforestation • How to address the harvesting/regeneration cycle and aggradation/ degradation (Art. 3.3 or 3.4) • How to deal with permanence under Articles 3.3 and 3.4? • What activities are eligible under Article 3.4? • whether to limit credits under Article 3.4 • whether business-as-usual uptake can be credited • What needs to be monitored? • Which, if any, LULUCF activities are eligible in the CDM? • afforestation, reforestation, slowing deforestation, forest/range-land/cropland management, agroforestry • how to address the issues of permanence, baselines, leakage and sustainability criteria under the CDM

  35. Key Issues for the Kyoto ProtocolArticle 12: CDM Emission reductions ... shall be certified by operational entities to be designated by the Conference of the Parties... on the basis of: (a) Voluntary participation approved by each Party involved; (b) Real, measurable, and long-term benefits related to the mitigation of climate change; and (c) Reductions in emissions that are additional to any that would occur in the absence of the certified project activity. Does this include sinks? Does it refer to gross or net emissions? Current text suggests allowing afforestation and reforestation, but no other LULUCF activities

  36. Key Issues for the Kyoto ProtocolEmissions Trading

  37. Why emissions trading? Reaching a given target at minimum cost • Economic argument • Environmental argument • Environmental effectiveness and minimum cost are two core building for any long-term climate policy

  38. Why EU emissions trading? Is a scheme restricted in terms of geography, sectors and gases worthwhile? • Yes, it‘s better than no ET at all • One needs to start somewhere • International, broad ET scheme won‘t fall from sky in revolutionary fashion, but will rather be the outcome of an evolution. EU ETS is a first and major step in this direction.

  39. A product of an intense debate • voluntary vs. mandatory participation • demand will create supply, but supply won’t create demand • absolute vs. relative targets • credits vs. allowances • simplicity vs. complexity

  40. EU Emissions Trading Scheme an entity-based domestic cap and trade emissions allowance programme • Timing: • three-year mandatory start-up phase from 2005 to 2007 • five-year mandatory Kyoto phase from 2008 to 2012 ctd. • Allocation method: • Member States may auction up to 5% for 2005 to 2007 • Member States may auction up to 10% for 2008 to 2012 • Common allocation criteria: • transparency, comments by the public, scrutiny by the Commission

  41. EU Emissions Trading Scheme ctd. • Coverage: • five major downstream sectors with thresholds • start with carbon dioxide • Monitoring: • In accordance with EU-wide plant level monitoring guidelines • Currency: • Allowances, linked to Kyoto Assigned Amount Units and entitling emission of 1 tonne of CO2equivalent • Sanctions: • Financial penalty of €40 / €100 per non-surrendered allowance (tonne of CO2) • Making up for a shortfall in following year

  42. Implementing the EU ETS • identify covered installations • cap-and-trade infrastructure • monitoring • registries • initial allocation of allowances • data-intensive • unpopular aim is scarcity

  43. EU ETS as a driver for innovation • carbon constrained world - from threat to opportunity • create an enabling environment that rewards innovation directly in the market • it is early days to draw lessons

  44. The EU ETS and international developments • While some countries question whether they should accept / respect GHG emission targets … • and others discuss (for years) whether and how to design an ET scheme … • Europe has opted for pragmatic learning by doing … • and is determined to make the EU ETS a success

  45. Mitigation Options In Longer Time Frame: Three Messages 60% cuts feasible—and options more abundant than thought: • full range of renewables, hydrogen, fuel cells, efficiency…..nuclear… • Costs not prohibitive: < 0.5% to 2.0% of GDP by 2050, or a few month’s growth in 50 years • Results consistent with those of many other studies Innovation holds the key  Importance of innovation policy—at national and international levels

  46. Costs of Mitigation: % Change in Projected World Product(survey of Barker and Koehler, 2004)

  47. < 0 0-1 1-2 2-3 3-4 4-5 > 5 % reduction in GDPs Costs of 50-70% CO2 reductions by 2050 Source: Anderson and Leach review for DTI

  48. World Incomes and Energy Demands 2001 Economies: Developing a/Rich Population, millions 4,700 900 Income Per Capita, $ 1,100 27,000 Energy Use: --Total (EJ) 145 225 --Per capita (GJ) 31 235 --Electricity (kWh)/capita) 900 8,500 --Millions without elctrty. 2,000 ~ 0 Growth per decade: --per capita incomes 50%b/ 30% --total energy use 35% 15% ---------------------------------------------------------------------------------------------- a/excl. FSU & E. Europe b/100% per decade in India and China

  49. Technologies in Pacala-Socolow Analysis • Vehicle fuel economy—e.g. hybrid+ vehicle at 60mpg instead of 30 mpg • More efficient buildings (buildings account for about 1/3rd of energy use) • Natural gas for coal in power generation • Carbon capture and storage from fossil power plants • Carbon capture and storage from fossil fuels—for hydrogen production • Nuclear power—700 GW or 10-15% more of future electricity supply (450GW today) • Electricity from wind and PVs — 1500 GW (~10-12% growth) • Electricity energy from PVs — 3000 GW (~ 15% growth) • Biofuels to replace fossil fuels for transport — 34 million barrels per day from 15% of the world’s cropland (world oil demand today is 75 mbd.) • Fuel cell vehicles using hydrogen --Similar to Range of Options being pursued or under review in UK

  50. Intergenerational Equity • There are issues of inter and intragenerational equity. • Intergenerational equity is captured in the discount rate. At 5%+ rates climate change is not a problem for the present generation. • But high rates are not justified for such long periods (underlying growth over 100 years plus is not more than 1-2%) • On the other hand solutions in next 100 years that make emerge that make renewable energy very cheap

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