Climate change: How to get a win-win deal at Durban

by Valentina Bosetti and Jeffrey Frankel

The parties to the UN Framework Convention on Climate Change are meeting in Durban, South Africa. Time is running out on negotiations for a successor agreement to the Kyoto Protocol. Despite optimism from some, progress at Copenhagen two years ago and at Cancun a year ago, was slow.

Negotiations have been blocked by a seemingly insurmountable obstacle. The United States is at loggerheads with the developing world, especially China -now the world’s largest emitter of greenhouse gases - and India.

Fortunately, there might be a way to break through this roadblock. In this column, we present a formulas-based approachbuilding on existing commitments that could attain desired mitigation of concentrations of greenhouse gases, while avoiding the imposition of disproportionate economic costs on any single country or group of countries.

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On the one hand, the leaders of India and China are clear. They won’t cut emissions until after the United States and other developed countries have cut theirs first. After all, the industrialised countries created the problem of global climate change, and got rich in the process. Developing countries shouldn’t be denied their turn at economic development, they argue. As the Indians point out, Americans emit more than 10 times as much carbon dioxide per person as they do.

On the other hand, the US Congress is equally clear. It will not impose quantitative limits on US greenhouse gas emissions if it fears that emissions from China, India, and other developing countries will continue to grow unabated. Indeed, that is why the Senate was unwilling to ratify the Kyoto Protocol 10 years ago.

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Why should US firms bear the economic cost of cutting emissions if energy-intensive domestic aluminium smelters and steel mills, for example, would just migrate to countries that have no caps and cheaper energy (a problem known as leakage)? Global emissions would simply continue their rapid rise in a different part of the world. Emissions-cap legislation will not pass the Senate as long as major developing countries haven’t accepted quantitative targets of their own.

[caption id=“attachment_144825” align=“alignleft” width=“380” caption=“Time is running out on negotiations for a successor agreement to the Kyoto Protocol. Reuters”]  [/caption]

Global issues of leakage and competitiveness can only be effectively addressed at the multilateral level. The diplomats preparing for the Durban negotiations need to coalesce on a specific mechanism for setting the actual numbers for future emission targets. The framework must address the three gaping holes in the Kyoto Protocol:

• The absence of a mechanism for setting targets in the long run,
• The lack of participation by many major emitting countries, and
• The lack of faith that signatories will fulfil their commitments.

We see one practical solution to the apparently irreconcilable differences between the US and the developing countries regarding binding quantitative targets. Washington would agree to join Europe in adopting emission targets that would be cut substantially over the next 40 years.

Simultaneously, in the same agreement, China, India, and other developing countries would agree to a path that immediately imposes binding emission targets on them. These would be targets that in the first five-year period simply follow the ‘business-as-usual path’, defined as the rate of increase in emissions that these countries would experience in the absence of an international agreement, as determined by experts’ projections.

The idea of developing countries committing only to business-as-usual targets will be met with loud objections from both environmentalists and US business interests because it doesn’t obligate China or other developing countries to cut emissions.

But this commitment is far more important than it may sound at first. Specifically, it precludes carbon leakage from undermining the environmental goal of the agreement. The developing countries can’t go above their set business-as-usual paths as they would in the absence of this commitment and, therefore, can’t exploit developed states’ emissions-reduction efforts by expanding carbon-intensive industries.

This step mitigates the competitiveness concerns of carbon-intensive industries in developed countries.

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Such an approach recognises the reality that it would be irrational for China to agree to substantial cuts in the short term. Indeed, the developing countries, for their part, may object when asked to take on any kind of binding targets at all, at this stage. But they should realise that they would gain in strictly economic terms from such an agreement. The commitment, in an international system of emission-permits trading, would give China the ability to sell permits at the world market price.

How do we know Beijing would come out ahead? It is currently building roughly 100 power plants per year to accommodate its rapidly growing energy demand. The cost of shutting down an already-functioning US coal-fired power plant is far higher than the cost of building a new low-carbon plant in China. For this reason, when a US firm pays China to cut its emissions voluntarily, thereby obtaining a permit that the US firm can use to meet its emission obligations, both parties benefit, even in strictly economic terms. The environmental benefit is that China’s aggregate emissions would voluntarily fall below its business-as-usual commitment from the beginning.

Of course, the next step to this solution requires that China and other developing countries make cuts below their business-as-usual path in future years and, eventually, make cuts in absolute terms as states gain confidence in the framework.

But the developing countries must agree to the principle of making cuts similar to those made by Europe, the United States, and others who have gone before them, taking due account of differences in income. Emission targets can be determined by formulas that:

(1) give lower-income countries more time before they start to cut emissions,

(2) ask richer countries for steeper cuts than poorer countries (a principle that turns out to have been embodied in the targets accepted by countries last year at Cancun);

(3) lead to a gradual convergence of emissions per capita over the course of the century, and also

(4) take care not to reward any country for joining the system late.

These formulas produce emission targets that obey common-sense constraints. No country or group of countries is asked to adopt targets that would cost it more than 1 percent of GDP over the century as a whole or more than 5 percent of GDP in any single five-year time period.

Realistically, no country (rich or poor) will abide by targets in any given period that entail extremely large economic sacrifices relative to the alternative of simply not participating in the system. It is time to stop making sweeping proposals that assume otherwise, and to pursue instead the narrow thread of the politically possible.

Valentina Bosetti is Senior Researcher at the Fondazione Eni Enrico Mattei, Italy; Jeffrey Frankel is Professor of Economics at Harvard Kennedy School.

Copyright: voxEU.org