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Another Informed View of the Outcome of COP-27 in Sharm El Sheikh

According to my most recent podcast guest, Billy Pizer, the Vice President for Research and Policy Engagement at Resources for the Future, agreement by negotiators at the 27th Conference of the Parties (COP27) of the United Nations Framework Convention on Climate Change (UNFCCC) in Sharm El Sheikh, Egypt, earlier this month on a mechanism to provide funding for particularly vulnerable nations suffering from climate change was a significant outcome, while the negotiators’ inability to achieve substantive commitments by nations to increase their Nationally Determined Contributions (NDCs) was a disappointment. Dr. Pizer offers those views and much more in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. I hope you will listen to the interview and our conversation here.

[As you know if you follow this blog, I have my own views of the outcome of COP27, about which I wrote just a couple of days ago, but in these podcasts I strive to feature the work and views of my guests, so in the podcast you won’t hear much from me on the various issues that arose at COP27. If you want to get my own take on that, you can find it here and here.] Now back to Billy Pizer …

The eyes of the world were focused on Sharm El Sheikh as negotiators representing nearly 200 countries discussed myriad issues with the goal of advancing international efforts to limit global warming to well below 2° C and pursuing efforts to limit it to 1.5° C this century, as specified in the Paris Agreement. COP27 did not have a particularly ambitious agenda, Pizer observes in our conversation, but it did move the ball forward.

“We’re now at a place after Paris where everything is a little bit lower stakes, in a sense, because we have the framework in place. And everything now is simply moving that framework along to the next step,” he says. “I think it’s inevitable that there’s a little bit less high-level drama and stakes going on at the COPs. That doesn’t mean they’re not unimportant, it just means that the nature of the COPs is different.”

Pizer says that one of the most significant outcomes during the two weeks of the COP took place 6,000 miles away, at the G20 summit in Bali, where President Biden and China President Xi agreed to resume bilateral cooperation on climate change as well as other issues.

“Now the negotiations have stepped back up,” Pizer remarks. “And I think that is certainly a significant development because I think it’s just very hard to make progress [on international climate policy] without the US and China talking.”

Another major outcome from this year’s COP was the agreement to establish a “Loss and Damage” fund to help poor nations suffering from the impacts of climate change. Pizer admits that he was somewhat surprised that the U.S. supported that proposal.

“The United States has been very concerned about whether or not there would be a notion of liability that went with such compensation. But remarkably, it was on the agenda, it got negotiated. And in the end, there was an agreement to a new fund,” he states. “The United States typically does not like to create new funds. But in the end, they were isolated, and I don’t think they wanted to be responsible for a bad outcome. And I think they also recognized the writing on the wall, that this was what the majority of countries wanted, and so they agreed to it.”

As an aside, I will note that as a result of work by the United States – and other delegations – at COP27, the Loss & Damage Fund is explicitly not about compensation or legal liability.

On another topic, Dr. Pizer observes that the negotiators made little progress on the issue of increased ambition among the parties to increase their commitments through their NDCs, an outcome which Pizer found disappointing.

“There is a broad recognition that we’re not on track to meet the targets, the goals of the convention or the goals of the Paris Agreement to limit warming to two degrees or 1.5 Degrees. And despite that, there weren’t dramatic increases in ambition announced. So that’s almost like the lack of an outcome that was notable,” he says.

The author along with Billy Pizer and others at RFF’s recent Net-Zero Economy Summit in Washington, D.C.

On a very positive note, Billy Pizer cites the power of recent youth movements of climate activism to help advance international climate efforts.

“I think the youth movement and the popular movement to address climate change has that sort of catalyzing role to help move things along,” he notes. “And I think it also creates a dynamic where, with the younger generation … even more committed to taking action, it helps decision makers, businesses, people that are betting literally their money on different events taking place, that this sort of action in the future is going to even accelerate more because the younger generation is even more concerned about it.”

Again, I encourage you to listen to this 42^nd episode of the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.
Navroz Dubash, Professor, Centre for Policy Research, New Delhi.
Paul Joskow, Elizabeth and James Killian Professor of Economics emeritus, MIT.
Maureen Cropper, Distinguished University Professor, University of Maryland.
Orley Ashenfelter, the Joseph Douglas Green 1895 Professor of Economics, Princeton University.
Jonathan Wiener, the William and Thomas Perkins Professor of Law, Duke Law School.
Lori Bennear, the Juli Plant Grainger Associate Professor of Energy Economics and Policy, Nicholas School of the Environment, Duke University.
Daniel Yergin, founder of Cambridge Energy Research Associates, and now Vice Chair of S&P Global.
Jeffrey Holmstead, who leads the Environmental Strategies Group at Bracewell in Washington, DC.
Daniel Jacob, Vasco McCoy Family Professor of Atmospheric Chemistry & Environmental Engineering at Harvard.
Michael Greenstone, Milton Friedman Distinguished Service Professor of Economics, University of Chicago.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

Thinking about the Institutional Dimensions of Climate Change Policy

Most economists tend to neglect the institutional and political dimensions of proposed climate change policies, whereas political scientists, policymakers, and stakeholder groups frequently give primary attention to these considerations. This is demonstrated by my recent podcast conversation with Navroz Dubash, professor at the Centre for Policy Research in New Delhi, and a Coordinating Lead Author of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. You can listen to our conversation in the latest episode of my podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.” Our full conversation is here.

In these podcasts, I converse with leading experts from academia, government, industry, and NGOs. Navroz Dubash fits well within this group, as a respected international expert on the politics of climate change policy and governance, the political economy of energy and water resources, and the regulatory state in the developing world. In addition, he was previously a senior associate at the World Resources Institute and a policy analyst at the Environmental Defense Fund.

In discussing pragmatic frameworks necessary for the implementation of effective climate change policy, Dubash explains why international institutions are absolutely essential.

“Climate change in a sense is now a problem with a clock. We have a ticking clock if you’re going to meet two degrees, and even more so if you meet [the goal of limiting the increase in global temperatures below] 1.5 degrees. It’s not enough for every country to do what they can. We have to be measuring progress against what is determined to be necessary by science. So, we have to have some process through which policies and actions are assessed and evaluated.”

This is where, Dubash says, international institutions and rules have a critical role to play.

“What is the mechanism through which future [emissions reduction] targets translate into current action? There needs to be some kind of interlinking mechanism through which we both decide what target is reasonable, as well as think back to what we have to do today in order to achieve those targets. And if there are obstacles to that action, how we overcome those obstacles? All of those tasks really require institutions,” he says.

I ask Navroz to talk about the differences between China and India, since they are sometimes (incorrectly) lumped together in conversations about climate change. He describes the differences in the context of both countries attempting to reduce their emissions in line with the goals of the Paris Climate Agreement.

“In a sense, China has now over the last 20 years built up its infrastructure to the point where it can start thinking about in a sense what the transition is to a low carbon future. India has actually not built up its infrastructure. And we are an interesting place because our emissions are likely to grow for a while longer in order to meet development needs. Now, the trick is going to be how can India do this with a shallower increase in emissions than China exhibited?,” he says. “To unwind a coal or fossil economy actually will have ripple effects throughout the larger political economy of India. And so that it’s not just the economic costs that matter, but also the transaction costs.”

Navroz Dubash remarks that the long-term potential for climate policy to succeed depends heavily on the internal politics in nations that have voluntarily pledged under the terms of the Paris Agreement to reduce their carbon emissions in coming years.

“I think the positive part of Paris for me was that it essentially recognized that progress on climate change is not going to come because of hectoring or peer pressure at the international level. It’s going to come because national politics in country after country shift, where countries find ways of telling a story about how low carbon futures are good for them economically and can sell that politically to their own people. And Paris basically gave countries space to figure out how to tell that story and make it happen.”

For this and much more, I hope you will listen to my complete conversation with Navroz Dubash, the 31^st episode in the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

Assessing China’s National Carbon Market

On July 16^th, China launched trading in the world’s largest carbon market, which is one part – but apparently an important part – of that nation’s efforts to curb its greenhouse gas (GHG) emissions. That message was delivered on July 22^nd by Carnegie Mellon University Professor Valerie Karplus during the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA). A video recording (and transcript) of the entire webinar is available here.

As readers of this blog know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government. In this most recent Conversation, I was fortunate to engage with someone with solid experience in research and engagement, with her focus on energy and environmental policies in an exceptionally important part of the world, namely China. Valerie Karplus is Associate Professor in the Department of Engineering and Public Policy at Carnegie-Mellon University, where she studies resource and environmental management in firms operating in diverse national and industry contexts.

Professor Karplus is an expert on China’s energy system, including related climate change policies – a very timely topic given recent developments in China. She previously directed the MIT-Tsinghua China Energy and Climate Project, a five-year research effort focused on analyzing the design of energy and climate change policy in China, and its domestic and global impacts. She holds a BS in biochemistry and political science from Yale University, and a PhD in engineering systems from the Massachusetts Institute of Technology.

In the first part of the webinar, Valerie uses a PowerPoint deck to take us through her views of “The Future of China’s National Carbon Market.” She praises the Chinese government’s commitment to addressing climate change, while acknowledging that sustaining those efforts will be neither simple nor easy.

“Many challenges around the question whether China can be trusted come from the fact you had different interests operating in different parts of the system,” she says. “I would say that the intentions of the top leadership to establish a credible system can be trusted…[but] a lot of the challenges will come in the implementation on the ground.”

Professor Karplus with QI Ye, Director of the Brookings-Tsinghua Center for Public Policy (BTC), at a workshop in Beijing in 2019 on carbon emissions trading, organized by the Harvard Project on Climate Agreements.

China’s new, national carbon trading system, launched earlier this month, is currently limited to the nation’s electricity sector, and includes more than 2000 power plants, but Karplus remarks that there will most likely be pressure to expand the scope of the system to other sectors in coming years to meet President Xi’s 2020 proclamation that the country will be carbon free by 2060.

“This is very ambitious because this is the first time that there has been discussion of deeply reducing emissions in China and tying that to a long-term goal,” she says. “There are plans underway to think about how all of the different energy sectors will need to change to support China’s carbon neutrality goal by 2060.”

China’s climate policies date back several decades, Karplus notes, and were crystallized by the nation’s Nationally Determined Contribution (NDC), announced in compliance with the 2015 Paris Climate Agreement. This includes making best efforts to reach peak CO₂ emissions by 2030, reducing CO₂ intensity by 60-65 percent relative to 2005 levels by 2030, increasing the non-fossil share of the primary energy sector by 20 percent by 2030, and increasing the forest stock by approximately 4.5 billion cubic meters by 2030. Doing all of this will be challenging, to say the least.

“China’s efforts to start to address carbon emissions we should think about as a gradual and long-term process, and the planning process and even action plans will also play an important role alongside efforts to address carbon through legislation targets,” she remarks. “The accounting of carbon is just now starting to happen. It’s well developed for the power sector, but for the other sectors it’s still not developed, so we need to ask how to read the tea leaves, essentially, on how different instruments will come into play and have different impacts over time.”

China’s national emissions trading system may be said to have begun with a set of sub-national pilot systems in 2014, in parallel with a number of other efforts designed to address air pollution. The seven pilot systems eventually led to the announcement in 2017 that the country would push forward with the development of a national emissions trading system. Policymakers learned a great deal through those pilot systems, according to Karplus. Looking forward, she predicts that China’s current carbon trading system, which is a tradable performance standard, will evolve into a mass-based cap-and-trade system by 2030, and will be accompanied by several other policy advances.

“You’re going to see a lot more electrification, a lot more renewables, a lot of directive energy policies in place alongside the cap-and-trade system, and the cap-and-trade system will evolve over time to have the function of both linking with global efforts and ambitions to provide a way of tracking and responding to other things happening in the world. And it also will help to control emissions within an ever-shrinking share of the power sector, which is fossil generation, but I don’t see the carbon market per say as being the main driver. It is one of many drivers and that’s where I think things will be in 20 years.”

The Q&A session with the audience after Valerie Karplus’s presentation is particularly interesting and informative. Do stay on the video for that!

All of this and much more can be seen and heard in our full Conversation here. I hope you will check it out.

Previous episodes in this series – Conversations on Climate Change and Energy Policy – have featured Meghan O’Sullivan’s thoughts on Geopolitics and Upheaval in Oil Markets, Jake Werksman’s assessment of the European Union’s Green New Deal, Rachel Kyte’s examination of “Using the Pandemic Recovery to Spur the Clean Transition,” Joseph Stiglitz’s reflections on “Carbon Pricing, the COVID-19 Pandemic, and Green Economic Recovery,” Joe Aldy describing “Lessons from Experience for Greening an Economic Stimulus,” Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration,” Ottmar Edenhofer talking about “The Future of European Climate Change Policy,” and Nathaniel Keohane describing his view of “The Path Ahead for U.S. Climate Change Policy.”

Watch for an announcement about our next webinar. You will be able to register in advance for the event on the website of the Harvard Project on Climate Agreements.