Climate Policy

The Net Environmental Effects of Carbon Dioxide Reduction Policies

In response to the threat of global warming a variety of policy measures have been proposed to reduce the emissions of carbon dioxide (CO2). However, policies which reduce CO2 emissions will also decrease the emissions of greenhouse-relevant gases methane, nitrous oxide, nitrogen oxides, carbon monoxide, and sulfur oxides. When these additional effects are overlooked the net effect of CO2 reduction policies on global warming is understated. Thus, emissions of all greenhouse-relevant gases should be included when evaluating CO2 reduction policies.

Other proposals which recognize the need to reduce emissions of all greenhouse gases have called for the reduction of a “CO2-equivalent" amount. Policymakers evaluate these policies by using a Global Warming Potential (GWP) which is an index that supposedly indicates the relative radiative power of a greenhouse gas with respect to CO2 . This method, however, is flawed, as calculation of the GWP depends critically on the lifetime of the gas as well as the radiative effect of CO2 which can change depending on the composition of the atmosphere. When analyzing the effect of gases on global warming, an atmospheric chemistry model which describes the interactions of all the gases should be used in place of the GWP. In this case, specification of future emissions of all greenhouse-relevant gases is also required. This thesis addresses these two problems by developing a model which forecasts emissions of all greenhouse-relevant gases. This emissions model uses the GREEN model as the underlying economic model and incorporates the emissions of greenhouse-relevant gases from activities in energy, agriculture, industry, and land use. The results of the model are then fed into an atmospheric chemistry model to evaluate the effect on warming.

The atmospheric chemistry model is used to compare the results of a reference case with a Toronto-type agreement. The thesis finds that including other greenhouse-relevant gases results in an additional decrease of 40% in warming as compared to when only CO2 is specified. Additional analyses are performed to illustrate the interaction between chemical species and the importance of including all greenhouse-relevant gases when evaluating global warming policies.

The Prospects for Biological Carbon Sinks in Greenhouse Gas Emissions Trading Systems

The role of sinks in climate policy has been controversial and confused. The major supporters for including sinks in an international climate policy under the Kyoto Protocol were the Umbrella Group of countries, led by the USA and including Australia, Canada, Japan and Russia. This group also pushed strongly for international emissions trading, imagining that countries would distribute emissions allowances to private sector emitters, who would then be required to have an allowance for each tonne of greenhouse gas (GHG) they emitted. With emissions trading, emitters who found they could cheaply reduce their emissions might have allowances to sell, or those who could not easily reduce these could purchase allowances to cover their emissions. With international trading, these permits could be exchanged among allowance holders anywhere among the parties subject to an emissions cap.

In principle, accounting and crediting sinks under a cap-and-trade system should be straightforward: (i) measure the stock of carbon at an initial year; (ii) measure the stock of carbon in subsequent years; (iii) if the carbon stock rises from one period to the next, the increased sequestration is added to the allowances or cap on emissions of the country or entity, and if the stock declines, the net release to the atmosphere is subtracted from the allowances or cap. This simplicity has eluded designers of carbon policy. For various reasons, a desire has developed to identify specific types of sink-enhancement actions that may or may not be included under agreed caps as well as an unwillingness to bring the entire terrestrial biosphere carbon stock within a policy target. The result has been thousands of pages of attempts to define a forest, the difference between afforestation and reforestation, what constitutes 'management', if a change in carbon stocks is due to human action, and spatial and temporal leakage. Most of this would be irrelevant if a simple accounting framework and broad coverage of land use emissions and uptake were adopted in the design of carbon policy. How and why did we get from a simple and straightforward idea to the complex design and controversial issues now discussed as part of sinks policy? Are there good reasons why the problem is not as simple as it at first seems? Is it possible (or desirable) to now try to work towards fairly simple mechanisms for sinks in a carbon policy? These are the questions we hope to address in this chapter.

We first review existing policies with attention to issues that arise with regard to terrestrial sinks, and how sinks are to be included. We then show some of the important aspects of managing sinks that arise because they depend on environmental conditions that are largely outside the control of the land owner. Next we work through a very simple example of two hypothetical countries, and show the effects of including sinks. Finally we address several issues that have arisen as countries have negotiated the inclusion of sinks in GHG mitigation policies. Some of these are important and real issues that must be addressed if climate policy design is to create incentives for efficiently managing carbon in the terrestrial biosphere. However, many of the issues arise from, or in response to, the tangled policy approaches we have designed for sinks enhancement, and attempts to straighten it out seem only to further tangle the issue.

The Road to the Successful Clean Development Mechanism: Lessons from the Past

The Clean Development Mechanism (CDM) has evolved at a surprising speed since 2003 and is considered to have made positive contributions to the development of greenhouse-gas-reducing projects in developing countries. Taking into account its historical significance as the first effort of its kind and its current success, a thorough evaluation of its system and its effectiveness is of critical importance. Against this backdrop, this study closely investigates each stage of the CDM project cycle from development and registration of projects to issuance of certified emission reductions and identifies influential factors for the successful CDM implementation. For the analysis, we performed an extensive quantitative analysis augmented by a descriptive study, based on information of approximately 5000 CDM project.

Our findings suggest that the development of CDM projects is stimulated by favorable economic, social and technical environments in host countries as well as supportive CDM administration. This explains why projects are currently concentrated in certain countries such as China and India. Once projects are developed and submitted for validation, the success of the CDM projects at the next stages of project cycle related to registration and Certified Emission Reduction (CER) issuance is influenced by their types and a choice of Designated Operational Entities and project consultants. In particular, significant difference in registration success exists across project types, which calls for special attention of both the CDM authority and project participants to projects with high risks like energy efficiency, fossil fuel switch and biomass projects. Lastly, we found that performance of projects is affected by very project-specific conditions. For many of the most poorly performing projects, failure is attributable to technical and operational problems at the initial stage of project implementation, which highlights the importance of well-prepared PDDs. Based on the findings, the thesis concludes with policy recommendations to enhance the capacities and improve the performance of the major players under the CDM.

The Role of Non-CO2 Greenhouse Gases in Climate Policy: Analysis using the MIT IGSM

A CGE model is used in an integrated modeling framework to examine the economic and climate impacts of various low cost ($15/ton carbon equivalent) non-CO2 GHG policies. We estimate that global mean surface temperature in 2100 could be decreased by 0.57 degrees C with a non-CO2 policy, of which more than half the reduction is due to methane alone. In comparison, Kyoto maintained in its current form for the remainder of the century would yield only 0.30 degrees C temperature reduction, with a significantly higher cost (as measured by net present value of consumption over the century). A further benefit of methane reduction is a 5% decrease in global mean tropospheric ozone concentrations.

The role of non-CO2 greenhouse gases in climate policy: Analysis using the MIT IGSM

First steps toward a broad climate agreement, such as the Kyoto Protocol, have focused on less than global geographic coverage. We consider instead a policy that is less comprehensive in term of greenhouse gases (GHGs), including only the non-CO2 GHGs, but is geographically comprehensive. Abating non-CO2 GHGs may be seen as less of a threat to economic development and therefore it may be possible to involve developing countries in such a policy even though they have resisted limits on CO2 emissions. The policy we consider involves a GHG price of about $15 per ton carbon-equivalent (tce) levied only on the non-CO2 GHGs and held at that level through the century. We estimate that such a policy would reduce the global mean surface temperature in 2100 by about 0.55 °C if only methane is covered that alone would achieve a reduction of 0.3 to 0.4°C. We estimate the Kyoto Protocol in its current form would achieve a 0.25°C reduction in 2100 if Parties to it maintained it as is through the century. Furthermore, we estimate the costs of the non-CO2 policies to be a small fraction of the Kyoto policy. Whether as a next step to expand the Kyoto Protocol, or as a separate initiative running parallel to it, the world could well make substantial progress on limiting climate change by pursuing an agreement to abate the low cost non-CO2 GHGs. The results suggest that it would be useful to proceed on global abatement of non-CO2 GHGs so that lack of progress on negotiations to limit CO2 does not allow these abatement opportunities to slip away. © 2006 IAEE

The role of science in policy: The climate change debate in the United States

Why is the U.S. finding it so difficult to agree on policies to address an ecological threat that, if it materializes, could have catastrophic consequences for itself and the rest of the world? Although much of the controversy surrounding global warming appears to revolve around scientific principles, political and economic forces actually dominate. This paper discusses the primary factors that determine policy outcomes (e.g., uncertainty, the structure of government, economic impacts, the media) and demonstrates how scientific knowledge interacts with the formulation of policy in the U.S.

The safety valve and climate policy

The "safety valve" is a possible addition to a cap-and-trade system of emissions regulation whereby the authority offers to sell permits in unlimited amount at a pre-set price. In this way the cost of meeting the cap can be limited. It was proposed in the U.S. as a way to control perceived high costs of the Kyoto Protocol, and possibly as a way to shift the focus of policy from the quantity targets of the Protocol to emissions price. In international discussions, the idea emerged as a proposal for a compliance penalty. The usefulness of the safety valve depends on the conditions under which it might be introduced. For a time it might tame an overly stringent emissions target. It also can help control the price volatility during the introduction of gradually tightening one, although permit banking can ultimately serve the same function. It is unlikely to serve as a long-term feature of a cap-and-trade system, however, because of the complexity of coordinating price and quantity instruments and because it will interfere with the development of systems of international emissions trade.

The temporal efficiency of SO2 emissions trading

This paper provides an empirical evaluation of the temporal efficiency of the U.S. Acid
Rain Program, which implemented a nationwide market for trading and banking sulfur
dioxide (SO2) emission allowances. We first develop a model of efficient banking and
select appropriate parameter values. Then, we use aggregate data from the first seven
years of the Acid Rain Program, to assess the temporal efficiency of the observed
banking behavior. We find that banking has been surprisingly efficient and we discuss
why this finding disagrees with the common perception of excessive banking in this
program.

The U.S. SO2 allowance trading program

The U.S. SO2 (sulfur dioxide) Allowance Trading Program is the world's first large-scale application of a cap-and-trade system for limiting emissions, and it is often cited as an example for the control of other pollutants and of greenhouse gases. Drawing upon experience with this novel approach to emissions control since 1995, this article makes five observations that address common misunderstandings about emissions trading and that are applicable to the control of greenhouse gases. First, emissions trading did not compromise environmental effectiveness, and even enhanced it. Second, the program works because of the simplicity of the compliance requirement, the unavoidably strict accountability of the system and the complete flexibility given to emitting sources. All three go together to form what may be regarded as a virtuous circle. Third, despite fears to the contrary, allowance markets developed in response to trading opportunities. Fourth, the politics of allowance allocation can be helpful in overcoming objections to emission control measures. Finally, provisions for voluntary accession present problems of moral hazard that must be carefully considered.

The uses and misuses of technology development as a component of climate policy

The current misplaced focus on short-term climate policies is a product both of domestic political exigencies and badly flawed technical analyses. A prime example of the latter is a recent U.S. Department of Energy study, prepared by five national laboratories. The 5-Labs study assumes — incorrectly — that technical solutions are readily at hand. Worse, advocates of short-term emissions targets under the Framework Convention on Climate Change are using this study to justify the subsidy of existing energy technologies — diverting resources from the effective long-term technology response that will be needed if the climate picture darkens.

MIT Global Change

Climate Policy

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