Is climate change mitigation an obstacle for development? Michael Jakob and Jan Steckel Potsdam Institute for Climate Impact Research April 19, 2012

Four Hypotheses 1)Recently developing countries repeat energy use patterns of the past 2)China’s surge in carbon emissions is mainly due to economic growth and the structure of the energy system 3)Climate policy could entail the risk of a poverty trap, as a minimal access to energy is a precondition for development. 4)Climate finance might impose negative effects on growth prospects of developing countries

Energy Use Patterns Source: Jakob et al. (2012)

Data and Estimator

Four Hypotheses 1)Recently developing countries repeat energy use patterns of the past 2)China’s surge in carbon emissions is mainly due to economic growth and the structure of the energy system 3)Climate policy could entail the risk of a poverty trap, as a minimal access to energy is a precondition for development. 4)Climate finance might impose negative effects on growth prospects of developing countries

China‘s role in emission growth Source: Steckel et al. (2011)

Economic Growth as Driver of CO 2 Emissions ChinaNewly Industrializing Countries

Development of Kaya Factors GDP per capita CO 2 emissions per capita Energy intensity Carbon Intensity

Understanding Changes in Carbon Intensity World OECD China Newly Industrializing Countries

Understanding Changes in CI

Four Hypotheses 1)Recently developing countries repeat energy use patterns of the past 2)China’s surge in carbon emissions is mainly due to economic growth and the structure of the energy system 3)Climate policy could entail the risk of a poverty trap, as a minimal access to energy is a precondition for development. 4)Climate finance might impose negative effects on growth prospects of developing countries

Energy and Human Development Index Steckel et al. (submitted to EcolEcon) Threshold at around 40 GJ per capita 10 GJ per capita can be explained by subsidiary needs

Infrastructure and Investments Cement Steel

Energy and Infrastructure Investments and GDP are highly significant for steel and cement in developing countries In OECD countries both are less or not significant Population is also important factor for both inputs in developing countries In OECD countries population is only a significant driver for cement R² are better for cement, might be due to trade patterns

Projections of Energy for Infrastructure

Energy and Human Development Index Steckel et al. (submitted to EcolEcon) Threshold at around 40 GJ per capita 10 GJ per capita can be explained by subsidiary needs 10 – 20 GJ per capita might be explained by infrastructure uptake

Why is this important ? BAU $10 $30$50 Final Energy per capita [GJ] GDP per capita [$] Aspects of development are usually not included into state of the art energy-economy models (such as ReMIND by PIK)!

Four Hypotheses 1)Recently developing countries repeat energy use patterns of the past 2)China’s surge in carbon emissions is mainly due to economic growth and the structure of the energy system 3)Climate policy could entail the risk of a poverty trap, as a minimal access to energy is a precondition for development. 4)Climate finance might impose negative effects on growth prospects of developing countries

Possible scenarios for climate finance Stabilization targets (CO 2 -only): 450ppm 550ppm Mechanisms to disburse climate finance: Coverage of incremental investment costs Coverage of total mitigation costs International emission trading Allocation schemes (for IET): Grandfathering, or allocation proportional to GDP Equal per capita allocation of permits Contraction and Convergence

Non-Market Transfers

Emission Trading Financial Flows 2020 Financial Flows 2050

Comparing Financial Flows Data Resource Exports, FDI: Year 2009 Aid: Year 2008 ETS: ReMIND scenario Year 2020 Climate Finance Range [% of GDP]

How to avoid the climate finance curse? Price corridors and Sovereign Wealth Funds to dampen volatility Macro-policies (interest rates and government spending) and increasing prod. Of non-traded sector to counter Dutch disease Transparency and civil society involvment to lower rent-seeking Higher risk of climate finance curse with emissions trading; but problem to efficiently deliver non-market transfers Transfer of rents can be limited by appropriate choice of allocation; but might conflict with notions of equity

Four hypotheses … four papers 1)Jakob, M, M Haller, R Marschinski (2012): Will history repeat itself? Economic convergence and convergence in energy use patterns Energy Economics, 34 (1), pp )Steckel, JC, M Jakob, R Marschinski, G Luderer (2011): From carbonization to decarbonization? Past trends and future scenarios for China’s CO2 emissions. Energy Policy, 39 (6), pp )Steckel, JC, RJ Brecha, J Strefler, M Jakob, G Luderer (2012): Development without energy? On the challenge of sustainable development in the context of climate change mitigation. Submitted to Ecological Economics 4)Jakob, M, JC Steckel, C Flachsland, L Baumstark (2012): Climate Finance – Curse or Blessing? Submitted to Climate Policy.

Thank you very much! Questions and discussion

Additional Slides

27 Model results Non Annex I Annex IEurope India FE per capita [GJ] FE per capita [GJ] FE per capita [GJ] Baseline 2030 Baseline 2050 Cat Cat Cat Cat Baseline 2030 Baseline 2050 Cat Cat Cat Cat Baseline 2030 Baseline 2050 Cat Cat Cat Cat Baseline 2030 Baseline 2050 Cat Cat Cat Cat

Decomposing Scenarios BAU 450ppm CO 2

China‘s role in global mitigation efforts

Mitigation trap in a Solow model Production function: Capital formation: In the case of climate policy: β decreases The trap gets more likely in the presence of climate policy in the form of βK(s) [Independent from the form of the function s(k)] K0K0 KCKC [$]