Economic Policy Archives - Page 33 of 39 - An Economic View of the Environment

The UN Climate Summit and a Key Issue for the 2015 Paris Agreement

World leaders converged at the United Nations in New York City this past week for Secretary-General Ban Ki-moon’s much anticipated Climate Summit, a lead-up to global negotiations that will take place in Lima, Peru, in December of this year, and culminate a year later in Paris. The challenge before negotiators is great, because there are significant obstacles to reaching a meaningful agreement, as I describe in an Op-Ed that appeared in The New York Times on Sunday, September 21^st, “Climate Realities.”

However, partly because of the new path that is being taken under the Durban Platform for Enhanced Action, in which all countries will be included under a common legal framework in a politically realistic hybrid policy architecture, the prognosis for a meaningful international agreement is better now than it has been in decades. I discuss this briefly at the end of the Times article, and emphasize it in a follow-up Op-Ed that appeared in The Boston Globe on September 23^rd, “UN summit can accelerate momentum to a new approach to climate change.” (Also, for my overall assessment of the UN Climate Summit, see this interview carried out by the Harvard Kennedy School’s Doug Gavel.)

A New Development at the UN Climate Summit

The most significant development at the UN Climate Summit this past week was the degree to which carbon pricing became central to so many discussions, including with leaders from the business community. As carbon pricing – in particular, cap-and-trade systems – have emerged as the policy instrument of choice in many parts of the world, interest in linking these systems together has grown. Linkage (unilateral or bilateral recognition of allowances) among carbon markets — and, for that matter links with non-market-based systems — can reduce the aggregate cost of achieving climate targets. And lower compliance costs can in turn encourage countries to increase the ambition of their contributions under the 2015 Paris agreement.

New Research from Harvard

Because of this, the Harvard Project on Climate Agreements has been collaborating with the International Emissions Trading Association (IETA) to explore the role of linkage in the new international climate change agreement to be completed in Paris. In this new research, my co-authors (Daniel Bodansky of Arizona State University, Seth Hoedl of Harvard Law School, and Gilbert Metcalf of Tufts University) and I examine linkage — not only among cap-and-trade systems, but among cap-and-trade, carbon tax, and non-market regulatory systems — and the role that linkage should play in the 2015 agreement. We look both at what would inhibit or even prevent linkage and should therefore be avoided in the 2015 agreement, and what – in a positive sense – should be included in the agreement to facilitate effective linkage of regional, national, and sub-national climate policies.

We released an Executive Summary of our research paper (“Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Policies Through a Future International Agreement”) in New York City on September 22^nd at an event co-sponsored by IETA and the Harvard Project, on the sidelines of UN Climate Summit, “Carbon Pricing and the 2015 Agreement” (the agenda of the event is available here).

In the executive summary (which can be downloaded in full here), we conclude that among the design elements the 2015 agreement should avoid because they would inhibit linkage are so-called “supplementarity requirements” that require parties to accomplish all (or a large, specified share) of their emissions-reduction commitments within their national borders. The 2015 agreement also should avoid including detailed linkage rules in the core agreement; an agreement with more flexibility would allow rules to evolve on the basis of experience.

Importantly, we also find that, to advance linkage, the 2015 agreement should: define key terms, in particular the units that are used for compliance purposes; establish registries and tracking mechanisms; and include default or model rules, from which nations are free to deviate at their discretion. Overall, the most valuable outcome of the Paris Agreement regarding linkage may simply be including an explicit statement that parties may transfer portions of their emissions-reduction contributions to other parties — and that these transferred units may be used by the transferees to implement their own commitments.

Looking Forward

We will release the complete research paper in November of this year, prior to the Twentieth Conference of the Parties (COP-20) of the United Nations Framework Convention on Climate Change in Lima, Peru, in December 2014, where the Harvard Project and IETA plan to conduct a side-event that will focus on this work.

When the full paper is released in November, I will provide a more complete description at this blog of our research methods and our findings.

[Additional press coverage is here, here, here, here, here, here, here, here, here, and here.]

Is the IPCC Government Approval Process Broken?

Over the past 5 years, I have dedicated an immense amount of time and effort to serving as the Co-Coordinating Lead Author (CLA) of Chapter 13, “International Cooperation: Agreements and Instruments,” of Working Group III (Mitigation) of the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC). It has been an intense and exceptionally time-consuming process, which recently culminated in a grueling week spent in Berlin, Germany, April 5-13, 2014, at the government approval sessions, in which some 195 country delegations discussed, revised, and ultimately approved (line-by-line) the “Summary for Policymakers” (SPM), which condenses more than 2,000 pages of text from 15 chapters into an SPM document of 33 pages. Several of the CLAs present with me in Berlin commented that given the nature and outcome of the week, the resulting document should probably be called the Summary by Policymakers, rather than the Summary for Policymakers.

Before returning to the topic of today’s blog entry — the SPM process and outcome — I want to emphasize that the IPCC’s Working Group III “Technical Summary” and the underlying Working Group III report of 15 chapters were completely untouched by the government approval process of the Summary for Policymakers. So, the crucial IPCC products – the Technical Summary and the 15 chapters of WG 3 – retain their full scientific integrity, and they merit serious public attention. Now, back to the SPM process and outcome …

The process of the government approval sessions was exceptionally frustrating, and the outcome of that process – the final SPM – was in some regards disappointing. Two weeks ago, immediately after returning from Berlin, I sent a letter to the Co-Chairs of Working Group III — Ottmar Edenhofer, Ramon Pichs-Madruga, and Youba Sokona — expressing my disappointment with the government approval process and its outcome in regard to the part of the assessment for which I had primary responsibility, SPM.5.2, International Cooperation. At the time, I did not release my letter publically, because I did not want to get in the way of the important messages that remained in the SPM and were receiving public attention through the Working Group III release.

With two weeks having passed, it is now unlikely that the broader release of my letter will obscure the news surrounding the Working Group III release, and – importantly — it could be constructive to the process going forward, as the IPCC leadership and others think about the path ahead for future climate assessments. Rather than summarizing or annotating my letter, I believe it makes most sense simply to reproduce it, and let it stand – or fall – as originally written. It follows below.

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From: Stavins, Robert
Sent: Thursday, April 17, 2014 4:06 PM

TO: Ottmar Edenhofer, Co-Chair, Working Group III, AR5, IPCC

Ramon Pichs-Madruga, Co-Chair, Working Group III, AR5, IPCC

Youba Sokona, Co-Chair, Working Group III, AR5, IPCC

CC: Rajendra Pachauri, Chairman, IPCC

Jan Minx, Head of Technical Support Unit, Working Group III

FROM: Robert Stavins

SUBJECT: Thoughts on the Government Approval Process for SPM.5.2 (International Cooperation) of the Summary for Policymakers of Working Group 3, Fifth Assessment Report, Intergovernmental Panel on Climate Change

Dear Ottmar, Ramon, and Youba:

I am writing to you today to express my disappointment and frustration with the process and outcome of the government approval meetings in Berlin this past week, at which the assembled representatives from the world’s governments, considered and, in effect, fundamentally revised or rejected parts of the Summary for Policymakers (SPM) of IPCC Working Group 3 over a period of five long days (and nights). My focus in this letter is exclusively on one section of the SPM, namely SPM.5.2, International Cooperation. I am not representing nor referring to any other parts of the SPM.

Also, none of what I have to say should be taken as reflecting negatively on you (the Co-Chairs of Working Group 3), the WG 3 Technical Support Unit (TSU), nor the overall leadership of the IPCC. On the contrary, I thought that all of you did a remarkable job over the five years of work on AR5, as well as during the week in Berlin. The problems about which I’m writing arose despite, not because of your excellent leadership and support.

More broadly, the problems I identify in this letter are not a consequence of personal failings of any of the individuals involved. My intent is not to criticize the country representatives, the IPCC leadership, the TSU, the Lead Authors, or the Coordinating Lead Authors. The problems I seek to identify are structural, not personal.

Further, as Co-Coordinating Lead Author (CLA) of Chapter 13 (International Cooperation: Agreements and Instruments) of the underlying report, I had primary responsibility – together with my Co-Coordinating Lead Author, Dr. Zou Ji – for drafting the text for Section SPM.5.2 (International Cooperation) of the SPM, and nothing in this letter should implicate Zou Ji, for whom I have great respect and with whom I have enjoyed working. He may or may not share any of the views I express below.

Another caveat is that none of the problems I describe in this letter apply to either the Technical Summary nor the underlying Chapter 13. Indeed, because of the problems with Section SPM.5.2 on international cooperation in the SPM, it is important that interested parties refer instead to the Technical Summary, or better yet, the original Chapter 13.

In this letter, I will not comment on the government review and revision process that affected other parts of the SPM, other than to note that as the week progressed, I was surprised by the degree to which governments felt free to recommend and sometimes insist on detailed changes to the SPM text on purely political, as opposed to scientific bases.

The general motivations for government revisions – from most (but not all) participating delegations – appeared to be quite clear in the plenary sessions. These motivations were made explicit in the “contact groups,” which met behind closed doors in small groups with the lead authors on particularly challenging sections of the SPM. In these contact groups, government representatives worked to suppress text that might jeopardize their negotiating stances in international negotiations under the United Nations Framework Convention on Climate Change (UNFCCC).

I fully understand that the government representatives were seeking to meet their own responsibilities toward their respective governments by upholding their countries’ interests, but in some cases this turned out to be problematic for the scientific integrity of the IPCC Summary for Policymakers. Such involvement — and sometimes interference — with the scientific process of the IPCC was particularly severe in section SPM.5.2 on international cooperation. It is to that section of the SPM that I now turn.

In the early morning of Monday, April 7, 2014, a draft of SPM.5.2 was completed and approved by the assembled team of CLAs in Berlin. The draft, a copy of which is attached as Item A, had been extensively revised over the preceding months in response to comments received from governments around the world (to whom multiple drafts had been sent as part of the normal IPCC process). The draft in Item A was sent to governments on April 7^th through the IPCC’s PaperSmart system.

The plenary session of government representatives turned their attention to SPM.5.2 at approximately 10:00 pm on Friday, April 11^th. When it became clear that the country delegates were unwilling to move forward with the consideration of the text in plenary, you established a contact group to work on acceptable text. You gave the group 2 hours to come up with acceptable text. That group began its work at approximately 11:00 pm (and continued past 1:00 am on Saturday, April 12^th).

The contact group included representatives from of a diverse set of countries, ranging from small to large, and from poor to rich. Hence, I do not believe that the responsibility for the problems that arose are attributable to any specific country or even set of countries. On the contrary, nearly all delegates in the meeting demonstrated the same perspective and approach, namely that any text that was considered inconsistent with their interests and positions in multilateral negotiations was treated as unacceptable. In fact, several (perhaps the majority) of the country representatives in the SPM.5.2 contact group identified themselves as negotiators in the UNFCCC negotiations. To ask these experienced UNFCCC negotiators to approve text that critically assessed the scholarly literature on which they themselves are the interested parties, created an irreconcilable conflict of interest. Thus, the country representatives were placed in an awkward and problematic position by the nature of the process.

Over the course of the two hours of the contact group deliberations, it became clear that the only way the assembled government representatives would approve text for SPM.5.2 was essentially to remove all “controversial” text (that is, text that was uncomfortable for any one individual government), which meant deleting almost 75% of the text, including nearly all explications and examples under the bolded headings. In more than one instance, specific examples or sentences were removed at the will of only one or two countries, because under IPCC rules, the dissent of one country is sufficient to grind the entire approval process to a halt unless and until that country can be appeased.

I understand that country representatives were only doing their job, so I do not implicate them personally; however, the process the IPCC followed resulted in a process that built political credibility by sacrificing scientific integrity. The final version of SPM.5.2, as agreed to by the contact group, and subsequently approved in plenary (at approximately 3:00 am, April 12^th), is attached to this letter as Item B.

No institution can be all things for all people, and this includes the IPCC. In particular, in the case of the IPCC’s review of research findings on international cooperation, there may be an inescapable conflict between scientific integrity and political credibility. If the IPCC is to continue to survey scholarship on international cooperation in future assessment reports, it should not put country representatives in the uncomfortable and fundamentally untenable position of reviewing text in order to give it their unanimous approval. Likewise, the IPCC should not ask lead authors to volunteer enormous amounts of their time over multi-year periods to carry out work that will inevitably be rejected by governments in the Summary for Policymakers.

I hope I have made it clear that my purpose is not to condemn the country representatives, the IPCC leadership, the TSU, the Lead Authors, or the Coordinating Lead Authors. The problem is structural, not personal. In my view, with the current structure and norms, it will be exceptionally difficult, if not impossible, to produce a scientifically sound and complete version of text for the SPM on international cooperation that can survive the country approval process.

More broadly, I urge the IPCC to direct public attention to the documents produced by the lead authors that were subject to government (and expert) comment, but not subject to government approval. I believe that tremendous public good would arise from publicizing the key findings of the Technical Summary and the individual chapter Executive Summaries, instead of the Summary for Policymakers. I know that as the leaders of the IPCC, you see it to be your responsibility to convey to the public (and policy makers) the results of the hard scientific work that the hundreds of lead authors put into the report over the past five years, and not simply the constrained version of the Summary for Policymakers produced over the past week.

The mission of the IPCC is important, and the scientific work carried out by the hundreds of lead authors of AR5 Working Group 3 was solid and important, as validated by the Technical Summary and the underlying chapters. I hope this letter can be constructive and helpful for the future work of the IPCC.

Best wishes,

Rob

Robert N. Stavins, Albert Pratt Professor of Business & Government, John F. Kennedy School of Government, Harvard University
Director, Harvard Environmental Economics Program
Director of Graduate Studies, Ph.D. Programs in Public Policy and Political Economy & Government
Co-Chair, Harvard Business School-Kennedy School Joint Degree Programs
Director, Harvard Project on Climate Agreements
Blog: An Economic View of the Environment SSRN Paper Downloads
Mail: John F. Kennedy School of Government, Harvard University, 79 JFK St., Room L-306, Box 11, Cambridge, MA 02138
Phone: 617-495-1820 E-Mail: robert_stavins@harvard.edu
University Fellow, Resources for the Future Research Associate, National Bureau of Economic Research

Will Europe Scrap its Renewables Target? That Would Be Good News for the Economy and for the Environment

The European Union is considering scrapping the use of binding renewable energy targets as part of its global climate change policy mix that will extend action from 2020 to 2030. The Financial Times reported that this move – presumably due to concerns over high European energy costs during the ongoing economic turndown – will “please big utility companies but infuriate environmental groups.” The International New York Times framed the story in similar ways.

The press coverage has missed the very important reality that this potential decision by the European Commission will be good news both for the economy and for the environment. The fundamental reason is that in the presence of the European Union’s Emissions Trading Scheme (EU ETS) – its pioneering, regional cap-and-trade system that covers electricity generators and large-scale manufacturing – the “complementary” renewables mandate conflicts with, rather than complements other policies. Without the renewables mandate, the cap being planned for the EU ETS will be achieved at lower cost and will foster greater incentives for climate-friendly technological change.

Some Background

In 2007, the European Union established three sets of targets and related policies: (1) a 20% reduction in greenhouse gas (GHG) emissions below 1990 by 2020, to be achieved by the cap-and-trade system; (2) a 20% target for 2020 for the share of Europe’s electricity consumption coming from renewable resources; and (3) a 20% improvement in energy efficiency by 2020. These are the so-called “20-20-20 targets” for the year 2020. A wonderful slogan, but a flawed policy, because of perverse interactions among the three elements.

Europe is well on its way to achieving the first goal, with emissions now reduced by about 18%, and it is now looking to establish targets for the subsequent decade. At the same time, Europe is continuing to experience its greatest economic downturn since the Great Depression, while European electricity prices have risen by some 40% since 2005 (while the U.S. economy rebounds, with electricity prices actually having fallen – mainly because of low natural gas prices). Therefore, there is great concern in European capitals and at EU headquarters in Brussels about high energy prices damaging the international competitiveness of European industry.

Plans for 2030

Although the planned, new emissions targets for 2030 may increase stringency from the currently mandated 20% cut by 2020 to perhaps a 35% or even 40% cut by 2030, it now appears that the European Commission may drop specific binding constraints on the share of electricity generated from renewables. Why would this elimination of the renewables target be good news not only economically, but environmentally as well?

Perverse Policy Interactions

Under the umbrella of a binding cap-and-trade scheme, unless a complementary policy addresses some other market failure that is not addressed by the price signals of the cap-and-trade mechanism (such as the principal-agent problem thought to retard energy-efficiency adoption decisions in renter-occupied properties), these complementary policies that are under the cap will either be irrelevant or counter-productive. Here is the basic logic.

Under the umbrella of the EU ETS, the cap will be achieved cost-effectively (at minimum aggregate cost) if the cap is binding, which it will be with the new 2030 targets. (Cost effectiveness is achieved because the CO₂ cap-and-trade mechanism – like a carbon tax – provides incentives for all sources to control at the same marginal abatement cost.)
A “complementary policy” under the cap, such as a renewables target, will either be irrelevant (if it is not binding) or, if it is binding, any additional emissions reductions achieved in the electricity sector under the complementary measure (the renewables program) will cause electricity generators to have additional allowances they do not need. And they will not tear up those allowances, but will sell them to other sources, such as those in other sectors. Hence, emissions in those other sectors will be greater than they otherwise would have been, completely neutralizing the emissions-reduction impact of the renewables policy.
So, in the presence of the over-arching EU ETS, the renewables target has no incremental impact on CO₂ emissions. On net, the emissions reduction due to the renewables policy is zero. But the bad news does not stop there.
With more emissions reductions in the electricity sector and less in other sectors than under the cost-effective allocation of control achieved by the cap-and-trade system on its own, aggregate abatement costs are actually increased. Marginal abatement costs are no longer equated, and the allocation of control responsibility is no longer cost-effective. There is too much abatement in the electricity sector, and not enough in some other sector or sectors. Costs are driven up.
Hence, nothing is being accomplished in terms of CO₂ emissions with the renewables policy, and costs have been driven up! Wait, there is more.
If some emissions reductions are being achieved by the binding renewables policy, then there is less demand overall for tradable allowances. Since the supply of allowances has not changed, this means that allowance prices are inevitably suppressed; and low allowance prices mean less induced climate-friendly technological change over time.

The Path Ahead

That is the perverse trifecta of a complementary renewables policy under the umbrella of a cap-and-trade scheme, such as the EU ETS: no additional emissions reductions are achieved; but costs are driven up; and technological change is retarded.

If the European Commission decides to eliminate its renewables targets as it proceeds with more stringent emissions targets for 2030 under the EU ETS, it will be good news both for the economy and the environment.