Positive Political Economy Archives - Page 30 of 52 - An Economic View of the Environment

Misleading Talk about Decoupling CO2 Emissions and Economic Growth

You can call it my pet peeve or even my obsession, but whenever I read about the claimed “decoupling” of CO₂ emissions and economic growth, I get annoyed. Webster’s Dictionary defines decoupling as “eliminating the interrelationship” between two processes. But the interrelationship between CO₂ emissions and economic growth has certainly not been eliminated.

Decoupling is the wrong word and metaphor to describe what has been happening. When a caboose is decoupled from a train, it stops moving altogether. A better metaphor, although less linguistically appealing, would be a “slipping clutch.” The engine continues to transmit power, and as a result the driveshaft continues to rotate, but with less velocity than when the clutch was new.

What Has Been Happening

True enough, the carbon intensities of many economies in the world, particularly those of the industrialized nations, have – for many years – been falling, as those economies have become less energy intensive (less energy use per unit of economic activity – Gross Domestic Product or GDP), and therefore less carbon intensive. For each dollar of economic activity, CO₂ emissions are less than they used to be. For each unit of economic growth, there is less growth in CO₂ emissions than previously.

Furthermore, in some cases, as economies grow, CO₂ emissions can actually fall. First, picture an economy which is growing exclusively in its services sector. In this case, economic growth might be accompanied by no change in CO₂ emissions. Now picture an economy which is growing in its services sector, while shrinking in its manufacturing sector (sound familiar?). In this case, economic growth might be accompanied by reduced CO₂ emissions. Now add to this picture the presence of some public policies, such as those that cause the closure of coal-fired electric generation plants, as well as greater dispatch of electricity from natural gas-fired plants. The result: economic growth continues, with falling CO₂ emissions. But there has been no decoupling.

Confusion Due to Failure to Employ Appropriate Counterfactual

The problem and the confusion arises from a very common mistake in the popular press and, for that matter, in many casual conversations: failure to use the right counterfactual for analysis. The fact that GDP is rising while emissions are falling does not mean that GDP is not affecting emissions. The appropriate counterfactual for comparison is how much would emissions have fallen had there been no growth in GDP. Presumably, emissions would have fallen even more. The excess of emissions in the factual case, compared with the counterfactual case, is the magnitude of emissions growth due to (actually, “associated with”) economic growth. There has been no elimination of the relationship between the two, although the nature and the magnitude of that relationship has changed.

What Factors Affect CO₂ Emissions?

So, why have CO₂ emissions been declining in some countries? Or, more broadly and more to the point, what factors have affected CO₂ emissions? Four stand out (although there are others).

First, energy comes at a cost in all economies, and so economic incentives exist to economize on energy use through technological change. The energy-intensity of the U.S. economy has gradually fallen – almost monotonically – since early in the twentieth century.

Second, putting aside energy-intensity and focusing on carbon intensity, some technological change has worked against the use of carbon-intensive sources of energy. The most dramatic example, specific to the United States, has been the combination of horizontal drilling and hydraulic fracturing (fracking), which has caused a significant increase in supply and dramatic fall in the market price of natural gas, which has thereby led to a massive shift of investment and electricity dispatch from coal to natural gas.

Third, in the richer countries of the world, including this one, the process of economic growth has led to changing sectoral composition: heavy industry to light manufacturing to services. The deindustrialization of California is a graphic example. Does the fact that California’s economy has grown while emissions have fallen mean that decoupling has occurred? Of course not. And, in the California case, there has also been a fourth factor …

Fourth, public policies have in some jurisdictions of the world (Europe, the United States, and most of the other OECD countries) discouraged carbon intensity. In the USA, this has happened both through climate policies and other, non-climate policies. Some non-climate policies, such as EPA’s Mercury Rule, discourage investment, encourage retirement, and discourage dispatch of coal-fired electricity, while other non-climate policies, such as CAFE standards for motor vehicles, bring about greater fuel efficiency of the fleet of cars and trucks over time. Climate-specific policies have also mattered, such as in California, where the Global Warming Solutions Act of 2006 (AB-32) has brought down emissions through a portfolio of policies, including an economy-wide CO₂ cap-and-trade system.

The Bottom Line

So, yes, the carbon intensity of many economies continues to fall – for a variety of reasons, including but by no means limited to public policies. And, in some cases, the combination of energy price changes, technological change, changes in sectoral composition, and climate and other public policies has meant that emissions have fallen in years when economic growth has continued. But don’t be fooled. Economic growth does affect CO₂ emissions. There has been no decoupling; just some (desirable) slipping of the clutch.

Of course, this is not an anti-environment message. On the contrary, a belief in decoupling per se could lead to a misguided laissez-faire attitude about the path of CO₂ emissions. Being honest and accurate about the links between (desirable) economic growth and (desirable) CO₂ emissions reductions puts our focus and emphasis where it ought to be: finding better ways to have both.

The Future Role of Economics in the IPCC

Despite attacks from “climate skeptics” and other opponents of action on climate change, as well as its own missteps, the Intergovernmental Panel on Climate Change (IPCC) is broadly viewed as the world’s most legitimate scientific body that periodically assesses the economics of climate change for policy audiences. But growing inefficiencies and other limitations have made the IPCC an increasingly problematic forum for qualified scholars. This has been particularly true with regard to expertise from economics.

In an article that has appeared in the journal, Climate Change Economics, “Reforming the IPCC’s Assessment of Climate Change Economics,” my colleagues and I draw on our personal experiences writing the most recent IPCC report to identify some of the main problems faced by this institution and to propose some possible solutions. My co-authors are, in alphabetical order: Gabriel Chan (University of Minnesota), Carlo Carraro (Ca’ Foscari University of Venice), Ottmar Edenhofer (Technische Universität Berlin), and Charles Kolstad (Stanford University).

Background and Context

The IPCC was established in 1988 by the World Meteorological Organization and the United Nations Environment Program to assess and synthesize scientific research on climate change, its impacts, and response options. The IPCC is governed by its Plenary (composed of representatives of member governments), Bureau, Executive Committee, and Secretariat, which have distinct roles to provide oversight, develop procedures, and facilitate operation.

Coverage of the scientific literature is divided into three Working Groups that respectively assess climate change science, impacts and adaptation, and mitigation. Authors are nominated by national governments, and selected by the IPCC Bureau. Authors serve as Coordinating Lead Authors (CLAs), with responsibility for leading the writing of a chapter, or as Lead Authors (LAs), who serve on a chapter team and participate in the writing process. CLAs and LAs participate in numerous meetings held at diverse locations around the world. Other experts serve as Contributing Authors (CAs), but the process for nominating these contributors is less formal, and the CAs typically do not participate in meetings and deliberations.

The assessment cycle for each round of the IPCC begins with a scoping process, with government representatives, together with a large group of scholars and other interested parties, drafting outlines of each chapter of the IPCC. Following the scoping process, the IPCC Plenary approves the outlines, sometimes after some modification.

CLAs and LAs are then nominated and subsequently approved by the IPCC Bureau. CLAs and LAs serve as volunteer labor (although some have their travel expenses reimbursed). In the Fifth Assessment Report Working Group III process, Lead Author Meetings (LAMs) were convened four times from July, 2011, to July, 2013. These meetings took place in Changwon, Korea; Wellington, New Zealand; Vigo, Spain; and Addis Ababa, Ethiopia. Over the course of the LAMs, CLAs led their chapter teams to review relevant literature and prepare chapter text, tables, and figures.

At three points during this process, external Expert Reviewers and government representatives submit detailed comments on subsequent draft. These comments, numbering in the many thousands in AR5, are made public following the assessment cycle, and, are checked by appointed Review Editors, who confirm that authors have replied adequately to comments. After four drafting rounds, the Working Group reports are preliminarily finalized.

Towards the end of the assessment cycles, authors of each Working Group, primarily CLAs, engage in writing two summary documents for each report, a Technical Summary (TS) and a Summary for Policymakers (SPM). The Summary for Policymakers is subject to line-by-line approval by the IPCC Plenary (that is, the governments). By the way, in case you’re interested, I have written about these government approval processes at length in previous essays at this blog: Is the IPCC Government Approval Process Broken? (April 25, 2014); Understanding the IPCC: An Important Follow-Up (May 3, 2014); and The Final Stage of IPCC AR5 – Last Week’s Outcome in Copenhagen (November 4, 2014).

Finally, concurrent with much of the chapter-drafting process, a subset of CLAs and LAs from all three Working Groups convene to draft a Synthesis Report (SYR) and its own Summary for Policymakers.

I’m exhausted, just having written that summary of the multi-year process in which we were engaged in the IPCC’s Fifth Assessment Report.

Categories of Key Reforms

I hope you’ll turn to our article in Climate Change Economics to read about the procedural and substantive reforms we propose. So, here I’ll provide just a list as a guide to what you can find in the article.

We propose four potential procedural reforms that could lower the cost for volunteering as an IPCC author:

Improving interactions between governments and academics
Making IPCC operations more efficient
Clarifying and strengthening conflict of interest rules
Expanding outreach

In addition, we propose three reforms to the IPCC’s substantive coverage to clarify the IPCC’s role and to make participation as an author more intellectually rewarding:

Complementing the IPCC with other initiatives
Improving the integration of economics with other disciplines
Providing complete data for policymakers to make decisions

Looking Forward

My co-authors and I all found that working for the IPCC was at times enormously frustrating. As an IPCC author, particularly as a CLA, scholars can at times feel as if they are inside a political process, forced to respond to critical government comments based on political sensitivity, and even directly negotiating text with professional climate negotiators during the SPM Approval Sessions.

Despite such distractions and frustrations, however, the group of us believe that the IPCC remains a critical institution for the communication of scholarly knowledge about climate change. Engaging governments in often detailed deliberations over climate science, economics, and policy helps build a knowledge base that is broadly based. And the process of consensus-building around the SPM and the work of the underlying chapters play key motivating roles in driving international climate negotiations under the United Nations Framework Convention on Climate Change (UNFCCC).

Going forward, the greatest risk is that scholars with sound and balanced understanding of the relevant literature may be deterred from participating as IPCC authors, and thereby surrender the process to quasi-academics with political motivations. The potential harm to the policy process (and the reputation of academia) would be very great.

To prevent this from happening, the IPCC needs to reform its operational procedures and substantive scope so that qualified scholars perceive the time investment as authors to be worthwhile. At the same time, scholars of climate change economics should not dismiss the opportunity to provide a significant public service by volunteering for the IPCC in its future assessments.

Can the WTO Take a Lesson from the Paris Climate Playbook?

As readers will know from my previous entry at this blog (“Paris Agreement — A Good Foundation for Meaningful Progress”, December 12, 2015), I was busy with presentations and meetings during the 21^st Conference of the Parties (COP-21) of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris last December. However, I did have time to reflect on the process that was leading to the then-emerging Paris Agreement, including a series of discussions with my Harvard colleague – Professor Robert Lawrence, a leading international trade economist –who was back in Cambridge.

He and I realized that negotiators in a very different realm – international trade – could benefit from observing the progress that was being made in the international climate policy realm in Paris. This led to a co-authored op-ed that appeared in the Boston Globe on December 7, 2015 (“What the WTO Can Learn from the Paris Climate Talks”).

For many years, climate negotiators have looked longingly at how the World Trade Organization (WTO) was able to negotiate effective international agreements. But ironically, the Paris climate talks and the WTO negotiations, which were set to take place the following week in Nairobi, lead to the opposite conclusion. Trade negotiators can now emulate the progress made in the climate change agreements by moving away from a simplistic division between developed and developing countries.

For years, global climate change policy was hobbled by this division. Readers of this blog will be familiar with this issue. In the Kyoto Protocol, only developed countries committed to emissions reductions. Developing countries had no obligations. The stark demarcation made meaningful progress impossible, partly because the growth in emissions since the Protocol came into force in 2005 has been entirely in the large developing countries. Even if developed countries were to eliminate their CO₂ emissions completely, the world cannot reduce the pace of climate change unless countries such as China, India, Brazil, Korea, South Africa, Mexico, and Indonesia take meaningful action.

The WTO negotiations, launched in 2001 in Doha, have remained at an impasse because of similar problems. They are tied up because nearly all the obligations assumed by WTO members depend upon whether they claim to be developed or developing. And since countries are allowed to self-designate, countries such as Singapore, South Korea, and the Gulf oil states seek to be treated the same as Ghana, Zambia, and Pakistan.

When developing countries accounted for a relatively small share of world trade, it was easy to grant all of them special treatment. But it has become impossible for developed countries to agree to additional liberalization without meaningful market-opening concessions by the large emerging economies, which will account for the majority of world trade growth in the future. Even though some have already liberalized unilaterally, many of these countries avoid making concessions at the WTO by claiming treatment as developing nations.

In the climate arena, the big break came in Durban, South Africa, in 2011, when countries agreed to achieve an outcome that was applicable to all parties. In Paris, the countries of the world adopted the Paris Agreement, which includes: bottom-up elements in the form of Intended Nationally Determined Contributions (INDCs) – national targets and actions that arise from domestic policies and circumstances; and top-down elements for oversight, guidance, and coordination. Now all countries are involved in protecting the climate system “on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities.”

Whereas the current commitment period of the Kyoto Protocol covers countries (Europe and New Zealand) that account for no more than 14 percent of global emissions (and zero percent of global emissions growth), INDCs submitted for the Paris agreement cover 186 countries, representing 96 percent of global emissions. This dramatic, path-breaking expansion of the scope of participation is the key reason for optimism about the Paris Agreement.

In the trade sphere, a similarly nuanced approach with differentiated responsibilities that reflect different capabilities could be adopted by the WTO. Instead of all countries having to subscribe as either developed or developing countries, the WTO could finally move beyond the North-South divide that is embodied in almost every draft proposed in the current Doha round.

The climate talks have shown that simplistic classifications of countries are a prescription for impasse. Robert Lawrence and I concluded that unless the WTO learns this lesson, it may become increasingly irrelevant, as coalitions of the willing turn to regional agreements to make what progress they can on international trade liberalization.