Climate Change Policy Climate Change Policy Overview of Policy Options to Reduce Greenhouse Gases Mac Callaway UNEP Centre RISØ

Objectives Provide a brief overview of the current greenhouse gas (GHG) emissions picture Outline policy instruments that can be used to reduce climate change damages Describe the Kyoto Protocol Present some discussion questions

CO 2 Emissions Overview Global Emissions (mmtC) – 1950: 1630 – 2000: 6611 Rate of increase: 2.8% per year Top five countries: 50% of emissions – US: 25% – EU: 16% – CHINA + INDIA = 17% Energy Intensity (mt/GNP) – US: 21 – EU: 11 (6-18)

How to Avoid Climate Change Damages Reduce GHG emissions – Reverses climate change, but takes a while to reduce GHG stocks – Avoids the impacts of climate change – Except for “irreversible” impacts Adjust to effects of higher GHG emissions through adaptation – Does not reverse climate change – Reduces severity of impacts of climate change, except for: Irreversible effects Impacts on unmanaged ecosystems

How to Achieve Direct GHG Reductions Reduce energy-intensity of consumption – Demand for household energy services – Production/Consumption of less fossil fuel-intensive goods by industry and households Reduce primary fossil fuel use through substitution away from fossil fuels to: – More “renewables” – “Cleaner” fossil fuels Increase efficiency of primary fuel transformation into work and/or heat Store carbon in biomass or geological sinks

Reducing Climate Change Impacts “ Adaptation ” Will happen anyway, but how much more should be planned? Substitute other technologies and “inputs” and “outputs” to offset climate effects in existing industries – Short-run management actions – Long-run investment actions Focus “should be” on investment, but risks are high in both directions (caution/precaution) Structural changes in economy to less-climate sensitive industries Better information about climate change

Instruments to Reduce Climate Change Damages Reduces damages by reducing GHGs – Emissions quotas (Caps) – Emissions quotas + emissions trading (Cap and Trade) Reduces damages by GHG reductions + adaptation – Collective or private ownership of the atmosphere + liability for damages + compensation – Carbon taxes – Green development policy – Tech Transfer policy

Regulations vs. Taxes Regulations Require: – Base-lines or quotas – Monitoring and verification of regulated gases (Often indirect for CO 2 !) – Enforcement and penalties for non- compliance Taxes Require: – Information about relationship between tax rate and emissions reductions – Tax collection system – Treatment of additional tax revenues?

Kyoto Overview (Cap and Trade) Three groups of countries – Annex 1 Developed Countries – Annex 1 Economies in Transition (E Europe) – Non- Annex 1 Developing Countries Emissions reductions “quotas” for Annex 1 Countries – Goal was –5.2% average for period relative to 1990 No emissions reductions “quotas” for Non-Annex 1 countries Flexible Mechanisms 55 countries with 55% of emissions must sign to put the Kyoto Protocol into effect

EU Quotas Austria – 13 % Belgium – 7.5% Denmark – 21% Germany – 21% Italy – 6.5% Lux – 28% Holland – 6% UK – 12.5% Finland – 0 France – 0 Greece + 25% Ireland +13% Portugal +27% Spain +15 Sweden +4% EU – 8%

Flexible Mechanisms Emissions trading – Annex 1 countries can trade “emissions credits” between countries that exceed emissions quotas and those who fail to meet targets Joint implementation (JI) – Annex 1 developed countries can share credits for emissions reductions they finance in Russia and E. Europe Clean development Mechanism (CDM) – Annex 1 countries can share credits for “additional” emissions reductions they finance in non-Annex 1 countries

Kyoto Reality The US is out and Russia has signed – so the Protocol can be implemented, but the agreement runs out in Without the US, emissions reductions actually achieved by Annex 1 countries could fall from 5.2% to 2-3% (or less). – Global emissions (not just Kyoto parties) may increase due to non-Annex 1 country emissions (China, India, etc), even if US emissions growth slows – GHG concentrations would fall by much less (or increase) and lag emissions reductions by years Most EU nations + Canada will fail to meet their Kyoto Targets. The EU has reduced emissions by about 1% Chances are good that Kyoto will be replaced by a Non- UN top-down approach or by bi/multi-lateral agreements

Why are so many EU countries off-target? Initial commitments based on: – Bad science – Bad economics – Good politics Subsequent lack of commitment based on: – Emissions reductions costs turned out to be high – No miracles “as planned” happened – False hopes about flexible mechanisms – Revisiting the science and economics – The best policy is to wait, keep quiet, blame the US

DK Target Why is it so high (-21%)? DK emissions from domestically produced energy were well below average in the base year; imports were high Old Government (S) believed in:  High climate change damages in DK (but no science to support it)  high market penetration rates for renewables even without an emissions reduction commitment (wishful thinking)  Low mitigation costs (supported in part by Risoe research)  Being a responsible “leader” of green reforms Current government is backtracking : V-K estimates the mitigation costs are higher then S-R believed Wants to change base emissions Wants to undertake more JI and CDM than previous government Seems to be hoping everyone will forget about climate

Why Did Kyoto Fall Apart? Mitigation costs are high A-1 countries have no economic incentives to reduce emissions A-1 countries may actually experience economic benefits or very small damages by not mitigating Biggest future emissions sources have no obligations to reduce emissions No economic penalties for non-participation, or non-compliance Flexible mechanisms don’t really bring down mitigation costs

Some Alternatives Bi- and multi-lateral technology transfer agreements Top-down agreements between major players – More focus on evening out costs and benefits – Putting more issues on the tables, such as Nuclear security ● Counter terrorism Trade ● Energy security Debt relief ● Tech transfer, etc. – Tying various payoffs/penalties from these issues to emissions reductions