Blog Post

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. […]

By: Date: October 22, 2009 Topic: Energy & Climate

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.

*Bruegel Economic Blogs Review is an information service that surveys external blogs. It does not survey Bruegel’s own publications, nor does it include comments by Bruegel authors.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More by this author
 

Blog Post

It’s hard to live in the city: Berlin’s rent freeze and the economics of rent control

A proposal in Berlin to ban increases in rent for the next five years sparked intense debate in Germany. Similar policies to the Mietendeckel are currently being discussed in London and NYC. All three proposals reflect and raise similar concerns – the increase in per-capita incomes is not keeping pace with increases in rents, but will a cap do more harm than good? We review recent views on the matter.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: July 8, 2019
Read article More on this topic
 

Blog Post

The breakdown of the covered interest rate parity condition

A textbook condition of international finance breaks down. Economic research identifies the interplay between divergent monetary policies and new financial regulation as the source of the puzzle, and generates concerns about unintended consequences for financing conditions and financial stability.

By: Konstantinos Efstathiou and Bruegel Topic: Finance & Financial Regulation Date: July 1, 2019
Read article More on this topic
 

Blog Post

The June Eurogroup meeting: Reflections on BICC

The Eurogroup met on June 13th to discuss the deepening of the economic and monetary union (EMU) and prepare the discussions for the Euro Summit. From the meeting came two main deliverables: an agreement over a budgetary instrument for competitiveness and convergence and the reform of the European Stability Mechanism (ESM) treaty texts. We review economists’ first impressions.

By: Bruegel and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 24, 2019
Read article More on this topic
 

Blog Post

The campaign against ‘nonsense’ output gaps

A campaign against “nonsense” consensus output gaps has been launched on social media. It has triggered responses focusing on the implications of output gaps for fiscal policy under EU rules, especially for Italy. But the debate about the reliability of output-gap estimates is more wide-ranging.

By: Konstantinos Efstathiou and Bruegel Topic: European Macroeconomics & Governance Date: June 17, 2019
Read article More on this topic
 

Blog Post

The inverted yield curve

Longer-term yields falling below shorter-term yields have historically preceded recessions. Last week, the US 10-year yield was 21 basis points below the 3-month yield, a feat last seen during the summer of 2007. Is the current yield curve a trustworthy barometer for future growth?

By: Inês Goncalves Raposo and Bruegel Topic: Global Economics & Governance Date: June 11, 2019
Read article More on this topic
 

Blog Post

The 'seven' ceiling: China's yuan in trade talks

Investors and the public have been looking at the renminbi with caution after the Trump administration threatened to increase duties on countries that intervene in the markets to devalue/undervalue their currency relative to the dollar. The fear is that China could weaponise its currency following the further increase in tariffs imposed by the United States in early May. What is the likelihood of this happening and what would be the consequences for the existing tensions with the United States, as well as for the global economy?

By: Inês Goncalves Raposo and Bruegel Topic: Global Economics & Governance Date: June 3, 2019
Read article More on this topic
 

Blog Post

The next ECB president

On May 28th, EU heads of state and government will start the nomination process for the next ECB president. Leaving names of possible candidates aside, this review tries to isolate the arguments about what qualifications the new president should have and what challenges he or she is likely to face.

By: Bruegel and Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 27, 2019
Read article More on this topic More by this author
 

Blog Post

The latest European growth-rate estimates

The quarterly growth rate of the euro area in Q1 2019 was 0.4% (1.5% annualized), considerably higher than the low growth rates of the previous two quarters. This blog reviews the reaction to the release of these numbers and the discussion they have triggered about the euro area’s economic challenges.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 20, 2019
Read article More by this author
 

Blog Post

Is an electric car a cleaner car?

An article published by the Ifo Institute in Germany compares the carbon footprint of a battery-electric car to that of a diesel car, and argues a higher share of electric cars will not contribute to reducing German carbon dioxide emissions. Respondents rejected the authors’ calculations as unrealistic and biased, and pointed to a series of studies that conclude the opposite. We summarise the article and responses to it.

By: Michael Baltensperger Topic: Energy & Climate, Innovation & Competition Policy Date: May 13, 2019
Read article More on this topic More by this author
 

Blog Post

All eyes on the Fed

Last week the US Federal Reserve left the federal funds rate unchanged and lowered the interest rate on excess reserves. We review economists’ recent views on the monetary policy conduct and priorities of the United States’ central bank system.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: May 6, 2019
Read article More on this topic More by this author
 

Blog Post

Is this blog post legal (under new EU copyright law)?

How new EU rules on using snippets from news publishers and on copyright infringement liability might affect circulation of information, revenue distribution, market power and EU business competitiveness.

By: Catarina Midões Topic: European Macroeconomics & Governance Date: April 8, 2019
Read article More on this topic
 

Blog Post

Secular stagnation and the future of economic stabilisation

Larry Summers’ and Łukasz Rachel’s most recent study documents a secular fall in neutral real rates in advanced economies. According to the authors, this fall would be even more marked in the absence of offsetting fiscal policies. Policymaking in a world of permanently low interest rates may be hard to navigate, especially in troubled waters. We review economists’ views on the matter

By: Inês Goncalves Raposo and Bruegel Topic: European Macroeconomics & Governance Date: April 1, 2019
Load more posts