Triggering emerging countries’ participation in a climate deal
What’s at stake: Europe attempted to reassert its international leadership in the fight against global warming on Friday, offering to slash its greenhouse gas emissions by up to 95% by 2050 and by 30% by 2020 if a climate change pact is sealed in Copenhagen in six weeks' time. The commission has suggested that E.U. member nations should pay from $3 billion to $22 billion annually from their national budgets by 2020 to help the developing world but European governments remain badly split over the issue. The financing of South CC mitigation is only one of the policy levers that rich countries can use to trigger emerging countries’ effective participation in a climate deal. Fostering the transfer of technology from North to South is another one. The focus here is on setting the right emission targets for EMEs.
Valentina Bosetti, Carlo Carraro, and Massimo Tavoni say that the bill for a climate agreement might significantly outweigh the current estimate of around 1% of Gross World Product if some countries postpone their participation. Most economic estimates of the cost of climate policy assume the full and immediate participation of all major world economies. That is, they compute the cost of climate policy in a “first-best” case, in which all countries participate in a cooperative effort to curb greenhouse gas emissions. But if developing countries delay their participation to a global climate agreement by twenty years, the penalty would be on the order of $25 trillion, with a final climate policy cost above 3% of GWP, significantly higher than the 1% used as a reference, and probably too expensive even for currently committed countries.
The FT’s Money Supply blog has a graph by Andrew Sentance that makes clear why reducing carbon dioxide will be so politically difficult for emerging countries. Having world economic growth strongest in emerging markets is great for equality and poverty reduction, but it is terrible for greenhouse gas emissions. Rather than breaking the link between world economic growth and greenhouse gas emissions, at the global level the two appear to be becoming more closely correlated.
Michael Spence says that advanced countries should lead the way with technology and a global strategy to reduce the carbon intensity of their economies. That will lay the groundwork for developing economies to follow a sustainable path as they graduate to higher income levels without jeopardizing their income growth. The criterion for graduation to advanced country status and responsibilities is an important current element of negotiation. It has to be fair, not terribly high-risk for developing countries, and create the right incentives. Spence favours a criterion based on gross or net emissions per capita reaching the advanced country average. These have the advantage of creating incentives for low-carbon growth paths and the latter also adds an incentive to be an active supporter of the cross-border system.
Jeffrey Frankel says that there is one — and only one – practical solution to this apparent deadlock. The United States agrees to binding emission cuts — something like those in the Waxman-Markey bill that passed the House of Representatives on June 26; and, simultaneously, China, India, and other developing countries agree to a path that immediately imposes on them binding emission targets — but targets that in their early years simply follow the so-called Business as Usual (BAU) path where BAU is defined as the rate of increase in emissions that these countries would have experienced anyway, in the absence of an international agreement, as determined by experts’ projections. Sheila Olmstead and Robert Stavins argue further that these targets should become more stringent over time as countries become wealthier.
Denny Ellerman and Ian Sue Wing say that intensity targets – emission targets that are linked to GDP growth – have the attractive property of lessening the importance of what is arguably the most significant imponderable for any nation considering the cost of GHG emission limits: future economic performance. To the extent that uncertainty about the effects of an absolute limit may impede agreement or cause existing agreements to unravel, then some degree of indexation to economic growth seems both desirable and necessary. On possible option for developing countries is that emissions targets grow less than GDP.
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