International Climate Policy
UNFCCC and Kyoto
The economics of climate change
Main Sources
UNFCCC (2003), "Caring for climate: a guide to the climate change convention
and the Kyoto protocol", Issued by the Climate Change Secretariat (UNFCCC)
Bonn, Germany.
Aldy, J.E., S. Barrett, and R. N. Stavins(2003), "Thirteen plus One: A Comparison
of Global Climate Policy Architectures", NOTA DI LAVORO 64.2003.
Congressional Budget Office (2003), “The Economics of Climate Change: A
Primer”.
International Cooperation
Problem:
– 􀂄Causes of climate change are global ⇒international cooperation needed
– 􀂄Near-term, concentrated costs, long-term future benefits
– 􀂄Although agreeing on research and coordination of efforts, hard to agree on
whether and how much to restrict greenhouse gases
Some reasons:
– 􀂄Free-riding incentives
– 􀂄Conflicting interests (e.g. oil-exporting countries might oppose reductions)
• 􀂄Differing Responsibility: 􀂄five countries (USA, China, Russia, Saudi-Arabia, Canada)
produce more than half of world’s carbon
• 􀂄five countries (USA, China, Russia, Japan, India) consume account for more than
50% of carbon consumption
• 􀂄Industrialized countries have contributed the majority of historical emissions
• 􀂄Per-capita emissions in developing countries much smaller
International Policy Considerations
• Different options
– Formal treaties (binding under international law) or
less rigorous, nonbinding agreements
– From modest commitments to share information to
agreements on restrictions of emissions and penalties
• Underlying difficulty:
– Design the agreement such that every party benefits
and has no incentive to drop out
International Cooperation on
Climate Change
The timeline:
1988:
• United Nations General Assembly adopted resolution urging
the ‘protection of global climate for present and future
generations’
• IPCC established by UNEP
1990: 2ndWorld Climate Conference launches negotiations on
convention on climate change
1992: UNFCCC opened for signature at Rio de Janeiro Earth
Summit, entered into force in 1994
From UNFCCC to Kyoto
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UN Framework Convention (UNFCCC) …
Parties meet regularly (COP-Conference Of the Parties) to foster and monitor implementation
and continue talks on how to address climate change (leading to Kyoto)
Negotiating blocks
– Association of Small Island States (AOSIS)
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G77 + China
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Willing to make early reductions
US + Japan + Australia + New Zealand
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Want developed countries to take the lead in reducing
European Union
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Threatened with submersion by global warming
Higher fossil fuel dependence
Reluctant to commit
Russia
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Economic slowdown gives “surplus”
From UNFCCC to Kyoto
…to Kyoto
– Berlin Mandate (COP1): initiated talks on
commitments for industrialized countries
– Kyoto (COP3): protocol outlined legally binding
commitments
– COP4-COP7: How should details of the Kyoto
protocol be designed in order to make ratification
possible (55% of the countries and emissions
needed)?
– 2001: USA withdraw from Kyoto protocol
– 2001: Remaining countries reach compromise
– Kyoto protocol enters into force February 16th 2005
UNFCCC
Objective:
“to achieve stabilization of atmospheric
concentrations of greenhouse gases at levels that
would prevent dangerous anthropogenic (humaninduced) interference with the climate system…”
not defined what levels might be “dangerous”, but:
– ecosystems should be allowed to adapt naturally
– food supply should not be threatened
– economic development should be able to proceed in
a sustainable manner
UNFCCC
Distribute the burdens
– principles of “equity” and “common but differentiated responsibilities”􀂄
• industrialized countries have historically contributed the most to the problem
and have more resources to address it
• developing countries are more vulnerable to its adverse effects while having
a lower capacity to respond
– industrialized countries to take the lead 􀂄
• by modifying their long-term emission trends
• by providing financial and technological resources to help developing
countries
Deal with uncertainty
– 􀂄Precautionary principle
“where there are threats of serious or irreversible damage, lack of full scientific
certainty should not be used as a reason for postponing such measures”
UNFCCC
Non-Annex I parties:
– mostly developing countries
All parties to the convention:
– Greenhouse gas inventory
– National communications on actions on climate policy
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􀂄Mitigation measures
􀂄Provisions for developing countries
􀂄Preparations to adapt
􀂄Research plans, education, and public awareness
UNFCCC
• GEF – Global Environment Facility
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􀂄Operates the financial mechanisms
􀂄Channels money to developing countries
􀂄Was established 1991 (WorldBank, UNEP, UNDP)
􀂄Not only climate change but also biodiversity, ozone layer,
international waters
– 􀂄COP provides policy guidance to GEF
• IPCC – Intergovernmental Panel on Climate Change
– 􀂄Source of information
– 􀂄Publishes comprehensive reports on the current state of
climate change research (scientific, social, economic); mitigation
and adaptation
Involvement of developing
countries
Vulnerability to the impacts of climate change
– Data collection and research into (and monitoring of) climate
change impacts
– Assessment of vulnerability and of adaptation options
– Capacity-building
– Improving early warning systems for rapid response to extreme
weather events
– Starting to implement adaptation measures where appropriate.
Response measures
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Promoting investment for economic diversification
Developing and transferring more climate-friendly technologies
Expanding the use of climate-friendly energy sources
Capacity-building.
Kyoto Protocol
Commitments􀂄
– legally binding emissions targets
– Minus 5% from 1990 levels in 2008-2012
– Annex I parties have individual targets, listed in Annex B
• EU-15, Bulgaria, Czech Republic, Estonia, Latvia, Liechtenstein,
Lithuania, Monaco, Romania, Slovakia, Slovenia, Switzerland -8%
• US -7%
• Canada, Hungary, Japan, Poland
-6%
• New Zealand, Russian Federation, Ukraine 0%
• Norway
+1%
• Australia
+8%
• Iceland
+10%
Implementation mechanisms
Emissions trading (Article 17):􀂄
– industrialized countries are allowed to buy/sell excess emissions credits among
themselves
Joint implementation (Article 6)􀂄
– industrialized countries can cooperatively implement projects to reduce
greenhouse gas emissions
– investor from one country receives emissions credits equal to the amount of
emission reduction as a result of the project
– recipient country would receive new technology
Clean development mechanisms (Article 12)􀂄
– Goal to promote sustainable development in developing countries
– Allows industrialized countries to earn emissions credits from their investments in
emission-reducing projects in developing countries
– Requires verification that the greenhouse gas emissions reductions are real,
measurable and additional to what would have occurred in the absence of project
Implementation mechanisms
• Accounting of greenhouse gas emissions in national registries
• Different names for emissions􀂄
– Based on their commitment, parties receive assigned amount units
(AAUs)
– Joint implementation projects result in emission reduction units
(ERUs)
– CDM projects generate certified emission reductions (CERs)
– removal units (RMUs) are generated through sink activities in the
LULUCF sector
• Effective emissions trading
• parties may exchange AAUs, CERs and ERUs, as well as RMUs
• each of these units equates to one ton of carbon dioxide equivalent
(calculated using the Global Warming Potential index)
Some thoughts on the costs of the
protocol
Why did the U.S. withdraw from the Kyoto negotiations
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Dispute between EU and U.S. on the use of flexibility mechanisms
Substantial costs for U.S. predicted
No obligations for developing countries
Byrd/Hagel resolution in Senate (1997) 􀂄
• “the United States should not be a signatory to any protocol to, or other
agreement regarding, the United Nations Framework Convention on Climate
Change of 1992, at negotiations in Kyoto in December 1997, or thereafter,
which would
• (A) mandate new commitments to limit or reduce greenhouse gas emissions
for the Annex I Parties, unless the protocol or other agreement also
mandates new specific scheduled commitments to limit or reduce
greenhouse gas emissions for Developing Country Parties within the same
compliance period, or
• (B) would result in serious harm to the economy of the United States”
Some thoughts on the costs of the
protocol
• After withdrawal of U.S., new negotiations in
Bonn/Marrakesh lead to agreement on use of
flexibility mechanisms
• Implementation issues even more liberal than
originally advocated by U.S.
– Substantial reduction in costs
– Substantially less effective in reducing
emissions
• Entry into force: 2005
Marrakesh – agreement on final
issues
Transferability and bankability of credits
– Emission credits from sinks projects under Art. 3.3 (forestry
management) and Art. 3.4 (agriculture) will be labelled as
removal units (RMUs). Those RMUs cannot be used for banking
into the 2nd commitment period, but swapping between RMUs
and AAUs/CERs/ERUs is allowed.
– Assigned amount units (AAUs), RMUs and/or credits from JI
(ERUs) and CDM (CERs) can be used for complying with the
Kyoto emission reduction target
– Transfers of AAUs, ERUs, CERs and RMUs between Annex I
Parties is unrestricted
– AAUs may be carried over without restrictions into the 2nd
commitment period; ERUs and CERs can each be banked only
up to a limit of 2.5 % of the initial assigned amount
Marrakesh – agreement on final
issues
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Compliance: Rules for penalty and enforcement
Minimizing Adverse Effects: New funding sources
Postponed Review of Commitments
New Funds
– Climate Change Fund􀂄
• “complementary to” GEF Climate Change funding
• Adaptation, Technology Transfer, Econ. Diversification
• Sectors: energy, transport, industry, agriculture, forestry, waste
management
– Least-Developed Countries Fund*􀂄
• Adaptation
• Additional GEF, multilateral, bilateral funding
• For capacity building in LDCs and EITs
CDM
CDM
CDM
Project Cycle
Baselines
Baseline approaches
• New baseline methodologies use one of the three approaches:
– Existing actual or historical emissions, as applicable
– Emissions from a technology that represents an economically attractive
course of action, taking into account barriers to investment
– Average emission of similar projects activities undertaken in the
previous 5 years, in similar circumstances, and whose performance is
among the top 20% of their category.
• The baseline scenario:
– “Covers emissions from all gases, sectors, sources in within project
boundary (Marrakech Accord: Annex A)”
– On-site emissions -reductions that arise immediately from the project
activity itself
– Off-site emissions -reductions occur upstream or downstream of the
project
– Leakage
Verification
• Periodic independent review of the monitored project
emissions during the implementation period
• Third party review by designated OE (different than
Validation OE)
• Includes a review of:
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Data
Procedures
Interviews
Identify concerns
Confirm GHG reductions in monitoring process
• regular reports to CDM Executive Board = guaranteed
accredited emissions reduction
Certification
• Certification report issued by OE
• The report will:
• Specify ownership of GHG reductions
• Note no further analysis is required
• State the quality of GHG reductions
• Report submitted to CDM Executive Board by
OE
• Board then reviews report and issues CERs
equal to verified amount of GHG reductions
• Transfers liability to the certifier
The road ahead…
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Pros of Kyoto
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Cons of Kyoto
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Market-based approach
Flexibility
Focus on those responsible for problem
Monitoring and reporting established
First step
U.S., China, India face no commitments
Russia has hot air
Potential of emissions leakage
Potential of withdrawal
Only 5 years 2008-2012
Current
– UNFCCC dialogue continues
– G8+5 (Brazil, China, India, Mexico, South Africa) talks on climate and energy