Climate Change Policies: Roles of Developing Countries

1
Climate Change Policies Roles of Developing
Countries

• Anil Markandya
• Bath University
• December 10, 2006

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Variations of the Earths Surface Temperature
1000 to 2100
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Global Carbon Cycle

• For every 1 t of carbon emitted from fossil fuels
  
• 10 t are taken up and emitted by terrestrial
  ecosystems
• 7 t are taken up and emitted and by ocean
  ecosystems
• ¼ t is emitted from land clearing

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The Balance each year...

• 6.3 Gt from fossil emissions
• ca. 1.6 Gt emitted from land-clearing
• 1.7 Gt net uptake into ocean systems and c. 3.0
  Gt into terrestrial systems
• Leaving a net 3.2 Gt in the atmosphere
• We cannot ignore sinks in UNFCCC

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Emissions and uptakes since 1800 (Gt C)
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Carbon budget

• 1980s 1990s
• Atmospheric increase 3.3 0.1 3.2 0.1
• Fossil emissions 5.4 0.3 6.3 0.4
• Ocean - Atmosphere flux -1.9 0.6 -1.7 0.5
• Land Atmosphere flux -0.2 0.7 -1.4
  0.7
• Land-use Change 1.7 ? ?1.6 0.8 ?
• Residual terrestrial sink -1.9 ? ?-3.0
  ??
• The terrestrial carbon sink appears to be
  increasing

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Background Consensus on Climate Change Suggests

• An increase in global mean temperatures of
  1-4.50C by 2100
• A global mean rise in sea level of 14 to 94 cm
• These are wide ranges. Even wider ranges apply
  at the regional level
• Changes in rainfall and extreme events is
  predicted to increase

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Background InformationConsensus on Impacts
Suggests

• A modest impact on agricultural production but
  with very wide variations (Positive to highly
  negative).
• Changes in fisheries with possible benefits in
  some areas, losses in others.
• Loss of land in low-lying areas. With some
  action a 1 meter rise would cause loss of 6 of
  Netherlands, 17.5 of Bangladesh.

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Background InformationConsensus on Impacts
Further Suggests

• Health impacts are significant increase in
  malaria and infectious waterborne diseases.
• Increase in magnitude and frequency of natural
  disasters.
• Impacts on tourism, negative in winter sports,
  positive in some sea resorts.
• Possible conflicts as different groups attempt to
  claim land and water resources

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Global Climate Change Impacts

• Health Impacts
• Mortality, infectious disease, respiratory
  disease
• Increase in vector-borne diseases in the tropics

• Agricultural inputs
• Crop yields
• Irrigation demands
• agricultural productivity declines in Africa,
  Latin America

• Climate Change
• Temperature
• Precipitation
• Sea level rise

• Forest Impacts
• composition, geographic range, health and
  productivity

• Water Resource Impacts
• Quantity, quality of supply Competition over
  resources
• Arid and semi-arid areas in Africa, Middle East
  will become more water scarce

• Impacts on Coastal Areas
• Erosion, inundation of coastal areas, cost of
  protection
• low-lying delta areas and small island states
  threatened by sea level rise

• Species and Natural Areas
• Loss of habitat and species
• Forests and coral reefs vulnerable

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Valuation of Impacts in Money Terms

• Can we value the damages in money terms?
• Question is highly controversial. Yet some
  attempts have been made.
• Main effects are health, sea-level rise and
  agriculture.
• Problem of time period is critical. Most damages
  over next 100 years will occur from 2030-2100.
  Hence discount rate is very important.
• Degree of uncertainty is very high.

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Valuation of Impacts Fund Model
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Impact Valuation Open Framework Model Billion
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Valuation of Impacts

• Very sensitive to the discount rate. Going from
  1-5 reduces damages by factor of 20
• Major impacts are in Asia, Africa, followed by
  Latin America. Europe and N. America have very
  small impacts. At country level impacts vary by
  even more.
• Type of damages agriculture and water, followed
  by health are man direct effects. Disasters are
  main indirect effects.
• Valuation remains controversial

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Valuation of Impacts

• Models presented are not too dissimilar but there
  are some who argue that damages could be much
  greater.
• At 3 discount rate damages range from 43 to 74
  trillion over 100 years. Annual world GNP was
  about 30 trillion in 1998. So annual damages
  are about 1-2 of world GNP, which is significant
  but should not be insurmountable.
• Damages amount to 20-60tC at 3 discount rate.
  This would amount to 1.7 to 5.1cents/kWh or
  1.4-4.2 cents/litre of diesel.

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Some Recent Meta-analyses

• Joel Smith and Sam Hitz Estimating the Global
  Impacts from Climate Change, OECD Background
  Paper ENV/EPOC/GSP(2002)12/FINAL, Paris (2003)
• Joel Smith, A Synthesis of Potential Climate
  Change Impacts on the US, Pew Center,
  Washington, DC (2004)
• Richard Tol, The Marginal Damage Costs of Carbon
  Dioxide Emissions An Assessment of the
  Uncertainties, Energy Policy, 332064-74 (2005)
• Richard Tol, Estimates of the Damage Costs of
  Climate Change, Environmental and Resource
  Economics, 2147-73 (2002).

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Tol Meta-analysis of Marginal Damage Cost per
tonne of C
Source Tol (2005)
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Issues in Valuation

• Discount rate
• Valuation of loss of life
• Why estimates have been declining?
• Certain values have been ignored.

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Stabilisation Scenario Scope of Benefits
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Policy Implications

• Major impacts are in relatively poor countries
• Major actions for mitigation are needed in
  industrialized countries.
• Effects are over a long period
• Uncertainties are critical.
• Impacts are not independent of measures taken
• All these factors make action difficult to agree
  upon.

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Adaptation

• Action to adapt is necessary whatever measures
  for reducing greenhouse gases are agreed on.
• Uncertainty and risk aversion play a critical
  role in determining adaptation strategy.
• Measures have been classified w.r.t. purpose
  (whether planned or autonomous) and with respect
  to timing (reactive or anticipatory). Autonomous,
  reactive adaptation does not need government
  intervention. Planned anticipatory intervention
  does

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Adaptation Options

• Measures include
• infrastructure investments (e.g. sea defences)
• incentives to discourage land use in vulnerable
  areas
• Investment in RD for malaria control and other
  diseases
• Development of better early warning mechanisms to
  reduce damages caused by extreme weather
  conditions.
• Investment in development of crops suited to new
  climate

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Adaptation Policy

• The need for adaptation is greatest in countries
  least able to afford it. At Rio it was accepted
  that some assistance should be provided to them.
• Idea that penalties for non-compliance would go
  to an adaptation fund was proposed. This has
  been taken up partly in the flexibility
  mechanisms (Clean Development Mechanism)
• Whatever policies are put in place, we have to
  ensure that the incentives for cost effective
  action remain in place (e.g. sea walls may be
  less cost effective than relocation but external
  assistance will only pay for former.

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Mitigation

• Mitigation measures reduce GHGs.
• Current emissions are about 1 tC/capita/year.
  South average is 0.5 TC. North average is 3tC.
• 2100 target is 0.25-0.3 tC/capita/year. By end of
  next century this implies around half of current
  levels. This will need a renewables transition
  (but we have time!)
• South catches up with North in 2016 w.r.t. to
  emissions, 2056 w.r.t. to concentrations and 2118
  w.r.t. to radiative forcing.

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Aside How Much are We Doing in Renewables?
UK!
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Mitigation

• Measures to reduce emissions fall into
• Energy efficiency
• Clean energy production
• Carbon sequestration.
• It is expected that energy efficiency will make
  the major contribution in the next decade,
  whereas physical carbon sequestration will be the
  last category to come on line.

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Mitigation In Kyoto Time Frame

• Under the Kyoto Agreement industrialised
  countries agreed to reduce emissions by 5.2
  w.r.t. 1990 levels by 2008-2012. Or about 150 mn.
  tons carbon/year (39 Annex I countries)
• No reduction commitment by non Annex I countries.
  
• Agreement on the importance of flexibility
  mechanisms
• Emissions trading between Annex I countries
• Permission to transfer/acquire emissions from
  projects between Annex I countries (JI) (Art 6)
• Permission for Annex I countries to acquire
  emissions from non Annex I (CDM) (Art 17).

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Kyoto Protocol- Recent Developments

• Ratification by Russia brought KP into effect
• USA has not ratified and so is not party to the
  Protocol but is looking at alternative ways to
  reduce GHGs
• Voluntary Programs (PCA)
• About 25 states are pursuing some kind of GHG
  reduction policy. Proposals range from carbon
  sequestration to stationary source emissions
  reductions.
• Wyoming Carbon sequestration
• California GHG registry, mobile source limits.
• MA., NH Four pollutant legislation Nox, SO2,
  CO2, Mercury. Limits on all four.

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Mitigation Measures

• The cost of mitigation is the difference in costs
  between the reference situation and a new one
  characterised by lower emissions (IPCC, 1999).
• Two approaches to estimating costs of mitigation.
• Top-down" studies analyse aggregate behaviour
  based on prices and use of macro instruments such
  as carbon taxes.
• At the sector and project level mitigation costs
  studies use "bottom-up" models based on detailed
  performance characteristics and technology
  prices.

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Mitigation Measures

• Bottom Up models come up with lower cost
  estimates than top down models.
• National estimates also differ.
• For a 20 reduction in emissions bottom-up"
  studies estimate negligible to slightly negative
  costs. Top down models estimate costs of up to
  5-7 of GDP.
• Differences arise because of
• Implementation costs (not allowed for in B-U
  models)
• Technological possibilities (not allowed for in
  T-D models)

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Mitigation Co-Benefits

• Measures to reduce GHGs have co-benefits in the
  form of lower emissions of PM, Sox, Nox, etc.
• In the case of Russia estimates of such benefits
  are estimated at as much as 16 per ton of
  carbon.
• In the case of the EU the estimate is that these
  benefits could be as much as 17 of the costs of
  the GHG reduction.
• The implication of co-benefits are
• Give special incentives for projects that reduce
  use of emissions of coal, high sulphur oil.
• Developing country reductions per ton of carbon
  are worth more than in developed countries where
  emissions of PM, Sox, Nox, etc. are better
  controlled.

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Flexibility Mechanisms

• Flexibility reduces costs because it allows
  Parties to exploit differences in abatement
  costs.
• Particularly large between industrialised and
  developing countries.
• E.g. Japanese estimates of marginal abatement
  cost per ton of carbon to meet their target is
  234 while that for USA is 153, with the EU in
  between 198. For developing countries estimates
  of options are in range of 0-25 per ton.

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Flexibility Mechanisms Cost Savings

• GDP Changes in 2010 Under Different Scenarios

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Key Issues for KP with flexibility mechanisms

• Agreement on baselines (ALL)
• Carbon leakage (CDM)
• Guarantee of additionality (CDM)
• Proceeds of CDM projects
• Treatment of sequestration and Land Use
• Links between different mechanisms
• Roles of private and public sectors (e.g. Carbon
  Funds at World Bank)
• Flexibility no to fully replace domestic actions

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Key Issues for the Kyoto ProtocolLand-Use,
Land-Use Change and Forestry

• How have LULUCF activities been included in the
  Kyoto Protocol?
• What are the key decisions?
• What is the potential of LULUCF activities to
  reduce net emissions?

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Key Issues for the Kyoto ProtocolLand-Use,
Land-Use Change and Forestry

• Definitions of a forest, afforestation,
  reforestation and deforestation
• How to address the harvesting/regeneration cycle
  and aggradation/ degradation (Art. 3.3 or 3.4)
• How to deal with permanence under Articles 3.3
  and 3.4?
• What activities are eligible under Article 3.4?
• whether to limit credits under Article 3.4
• whether business-as-usual uptake can be credited
• What needs to be monitored?
• Which, if any, LULUCF activities are eligible in
  the CDM?
• afforestation, reforestation, slowing
  deforestation, forest/range-land/cropland
  management, agroforestry
• how to address the issues of permanence,
  baselines, leakage and sustainability criteria
  under the CDM

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Key Issues for the Kyoto ProtocolArticle 12 CDM
Emission reductions ... shall be certified by
operational entities to be designated by the
Conference of the Parties... on the basis of

• (a) Voluntary participation approved by each
  Party involved
• (b) Real, measurable, and long-term benefits
  related to the mitigation of climate change and
• (c) Reductions in emissions that are additional
  to any that would occur in the absence of the
  certified project activity.

Does this include sinks? Does it refer to gross
or net emissions? Current text suggests allowing
afforestation and reforestation, but no other
LULUCF activities
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Key Issues for the Kyoto ProtocolEmissions
Trading
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Why emissions trading?

• Reaching a given target at minimum cost
• Economic argument
• Environmental argument
• Environmental effectiveness and minimum cost are
  two core building for any long-term climate policy

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Why EU emissions trading?

• Is a scheme restricted in terms of geography,
• sectors and gases worthwhile?
• Yes, its better than no ET at all
• One needs to start somewhere
• International, broad ET scheme wont fall from
  sky in revolutionary fashion, but will rather be
  the outcome of an evolution. EU ETS is a first
  and major step in this direction.

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A product of an intense debate

• voluntary vs. mandatory participation
• demand will create supply, but supply wont
  create demand
• absolute vs. relative targets
• credits vs. allowances
• simplicity vs. complexity

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EU Emissions Trading Scheme

• an entity-based domestic cap and trade emissions
  allowance programme
• Timing
• three-year mandatory start-up phase from 2005 to
  2007
• five-year mandatory Kyoto phase from 2008 to 2012
  ctd.
• Allocation method
• Member States may auction up to 5 for 2005 to
  2007
• Member States may auction up to 10 for 2008 to
  2012
• Common allocation criteria
• transparency, comments by the public, scrutiny by
  the Commission

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EU Emissions Trading Scheme ctd.

• Coverage
• five major downstream sectors with thresholds
• start with carbon dioxide
• Monitoring
• In accordance with EU-wide plant level monitoring
  guidelines
• Currency
• Allowances, linked to Kyoto Assigned Amount Units
  and entitling emission of 1 tonne of
  CO2equivalent
• Sanctions
• Financial penalty of 40 / 100 per
  non-surrendered allowance (tonne of CO2)
• Making up for a shortfall in following year

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Implementing the EU ETS

• identify covered installations
• cap-and-trade infrastructure
• monitoring
• registries
• initial allocation of allowances
• data-intensive
• unpopular aim is scarcity

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EU ETS as a driver for innovation

• carbon constrained world - from threat to
  opportunity
• create an enabling environment that rewards
  innovation directly in the market
• it is early days to draw lessons

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The EU ETS and international developments

• While some countries question whether they should
  accept / respect GHG emission targets
• and others discuss (for years) whether and how to
  design an ET scheme
• Europe has opted for pragmatic learning by doing
  
• and is determined to make the EU ETS a success

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Mitigation Options In Longer Time Frame Three
Messages

• 60 cuts feasibleand options more abundant than
  thought
• full range of renewables, hydrogen, fuel cells,
  efficiency..nuclear
• Costs not prohibitive lt 0.5 to 2.0 of GDP by
  2050, or a few months growth in 50 years
• Results consistent with those of many other
  studies
• Innovation holds the key
• ? Importance of innovation policyat national and
  international levels

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Costs of Mitigation Change in Projected World
Product(survey of Barker and Koehler, 2004)
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Costs of 50-70 CO2 reductions by 2050

• Source Anderson and Leach review for DTI

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World Incomes and Energy Demands 2001

• Economies Developing a/ Rich
• Population, millions 4,700
  900
• Income Per Capita, 1,100
  27,000
• Energy Use
• --Total (EJ) 145 225
• --Per capita (GJ) 31 235
• --Electricity (kWh)/capita) 900
  8,500
• --Millions without elctrty. 2,000 0
• Growth per decade
• --per capita incomes 50b/ 30
• --total energy use 35 15
• --------------------------------------------------
  --------------------------------------------
• a/excl. FSU E. Europe b/100 per decade in
  India and China

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Technologies in Pacala-Socolow Analysis

• Vehicle fuel economye.g. hybrid vehicle at
  60mpg instead of 30 mpg
• More efficient buildings (buildings account for
  about 1/3rd of energy use)
• Natural gas for coal in power generation
• Carbon capture and storage from fossil power
  plants
• Carbon capture and storage from fossil fuelsfor
  hydrogen production
• Nuclear power700 GW or 10-15 more of future
  electricity supply (450GW today)
• Electricity from wind and PVs 1500 GW (10-12
  growth)
• Electricity energy from PVs 3000 GW ( 15
  growth)
• Biofuels to replace fossil fuels for transport
  34 million barrels per day from 15 of the
  worlds cropland (world oil demand today is 75
  mbd.)
• Fuel cell vehicles using hydrogen
• --Similar to Range of Options being pursued or
  under review in UK

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Intergenerational Equity

• There are issues of inter and intragenerational
  equity.
• Intergenerational equity is captured in the
  discount rate. At 5 rates climate change is
  not a problem for the present generation.
• But high rates are not justified for such long
  periods (underlying growth over 100 years plus is
  not more than 1-2)
• On the other hand solutions in next 100 years
  that make emerge that make renewable energy very
  cheap

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Intragenerational Equity

• Rich industrialised countries are responsible for
  the emissions but developing countries face the
  impacts and the costs of adaptation. Solutions?
• Allocate targets to industrialised countries
• No targets to developing countries
• Additional funds to assist in meeting adaptation
  costs
• Additional funds for long term development of
  sustainable strategy
• Technology Transfer

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Allocation of emissions under different rules
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Implications of Population Based Carbon
Allocations
56
Recent Developments

• Greater agreement on the presence of significant
  impacts
• Stern Report (UK)
• IPCC 4th Panel Report (forthcoming March 07)
• Statements by scientists.
• Recognition that action by developing countries
  will be needed and that fast growing developing
  countries are different from other countries that
  have slower development in Africa mainly.
• But the last CoP in Nairobi did not have any post
  Kyoto agreement.

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Issues for discussion

• Impacts Action in the face of huge uncertainty
  and very long term horizons
• Adaptation Programs with appropriate mix of
  public and private actions and aid.
• Mitigation Flexibility mechanisms and how to
  exploit them to the best advantage
• Extension to LULUCF
• Equity discount rates, sustainable development
  while meeting the climate challenge