Climate Policy: Now What? Fourth Annual Conference on Global Analysis, June 27-29, 2001, Purdue University, West Lafayette, Indiana John Reilly MIT Joint Program on the Science and Policy of Global Change

Kyoto: 10-Year Path to Deadlock Rio (1992): the Framework Convention –Deal with climate in the UN context –Concept of quantity targets, and a timetable Berlin (1995): the Berlin Mandate –“Common but diff.”   Annex I/Non-Annex I split –Seek (by 1997) national targets for 2005, 2010, 2020 Kyoto (1997): the Kyoto Protocol –Agreed targets... but NOT key definitions! –Entry into force if get 55% of 1990 Annex I emissions The Hague (2000..and counting): –Resolve remaining definitions.

Where Are We Headed? Agree COP-6 Details? Into force: EU + USA? Into force: w/o USA? Renew Negotiations NO YES NO YES NO YES The Hague Return to Kyoto? Return to Rio? Kyoto as written Euro “Club” Into force? ? Separate Paths?

The Hague (2000) : The Devil Is In the “Details”

A US View of Flaws in Kyoto Fixed, legally binding, short-term targets –Unknown and unbounded cost? –Unequal burdens, feasibility? Trading/sinks: an artifact of premature targets? –Imply large international financial flows –Stimulate damaging fight over carbon sinks Handling of developing countries –Not even discussion of how they might participate Seek domestic policy details ahead of Congress

Where Are We Now? Bush statements marks the end of pretense regarding US ratification –Senate: 95-0 against, pre-Kyoto –Clinton: Warm words, but no action –Bush: Said he was opposed in campaign Fundamental problem is lack of meaningful domestic political support But US seeking a way to proceed –Non-Speech of June 11—An Administration divided?

What Will the US Do? Will not denounce or abstain from COP processes Cabinet-level review... –No concrete proposal for COP 6.5 (inappropriate and presumptuous?) –Expression of concern and general approach –The Bush ( Clinton-Gore ) Action Plan –Is a price on carbon still a possibility? Where to restart? –Problems of UN structure for resolving key problems –Unlikely to return to Pronk text

What will Europe Do? Desire/success in putting Kyoto into force? Can’t consider alternative to Kyoto, or amend, until EU and member state positions become clear How much stronger support in Europe than US? –Quiet abandonment of European eco-tax reform since the September price/tax protests –Differing forms of government explain differing rhetoric in Europe and US Willingness to engage?

Top Down or Bottom-Up Policy Top-down approach~ Kyoto Protocol or something like it: I.e. permits, coordinated tax, global technology standard. – negotiation  –uniform policy instrument  –adopted in many countries  –expanded to all countries & tightened over time. Bottom-up approach: countries act domestically ~ –Some countries start, instrument choice varies  –Intn’l negotiations jawbone to limit free-riding  –Broaden and deepen involvement  –Knit together a more coordinated trading system later, if needed, a la 50 years of GATT-WTO

Economic Modeling Influence--Hobbled? Economists, the “lemon suckers.” –“Siren song” of no-cost abatement. – “Cross your fingers and hope” for new technology. – “Join hands” for voluntary reductions. – Climate policy, it’s “good for what ails you.”

Economic Modeling Influence--Hobbled? Which costs? What’s big? –$300 per ton C;.05 percentage point reduction in growth; $4.5 trillion 10-year tax increase. – Economists preferred measure, welfare as equivalent variation is ~.7% reduction—Is this an HHS budget proposal? –Is climate change a catastrophe, a change of clothes, or a false alarm?

Economic Modeling Influence--Hobbled? Economics—Precisely irrelevant. –Triangles versus rectangles--$950 or $4500/household; $20B/year to Russia. –Tradeable permits vs Pigouvian taxes vs political reality. –“Action” or the appearance of “Action.” –Leading, following, trust—the commons problem. –A “first best” or “fourth best” world?

Where to for Economic Modelers? Directions for policy not clear BUT as policy moves closer to happening the proposals on the table will be a lot messier than a uniform tax or cap and trade system. Economic Modeling—Keep plugging away. Need serious analysis of even silly ideas and attention to communicate simply and clearly—vitae plumping or affecting policy?