Climate Policy

The Value of Emissions Trading

This paper estimates the value of international emissions trading, focusing attention on a here-to-fore neglected component: its value as a hedge against uncertainty. Much analysis has been done of the Kyoto Protocol and other potential international greenhouse gas mitigation policies comparing the costs of achieving greenhouse gas emission targets with and without trading. These studies often show large cost reductions for all Parties under trading compared to a no trading case. We investigate the welfare gains of including emissions trading in the presence of uncertainty in economic growth rates, using both a partial equilibrium model based on marginal abatement cost curves and a computable general equilibrium model that allows consideration of the interaction of emissions trading with existing energy taxes and changes in terms of trade. We find that the hedge value of international trading is small relative to its value in reallocating emissions reductions when, as in the Kyoto Protocol, the burden-sharing scheme does not resemble a least-cost allocation. The Kyoto Protocol also allocated excess allowances to Russia, so-called "hot air," and much of the value often attributed to emissions trading stems from other Parties having access to these extra allowances, which has the effect of lowering the aggregate emissions target. We also find that the effects of preexisting tax distortions and terms of trade dominate the hedge value of trading. We conclude that the primary value of emissions trading in international agreements is as a burden-sharing or wealth transfer mechanism and should be judged accordingly.

The Welfare Costs of Hybrid Carbon Policies in the European Union

To what extent do the welfare costs associated with the implementation of the Burden Sharing Agreement in the European Union depend on sectoral allocation of emissions rights? What are the prospects for strategic climate policy to favor domestic production? This paper attempts to answer those questions using a CGE model featuring a detailed representation of the European economies. First, numerical simulations show that equalizing marginal abatement costs across domestic sectors greatly reduces the burden of the emissions constraint but also that other allocations may be preferable for some countries because of pre-existing tax distortions. Second, we show that the effect of a single country's attempt to undertake a strategic policy to limit impacts on its domestic energy-intensive industries has mixed effects. Exempting energy-intensive industries from the reduction program is a costly solution to maintain the international competitiveness of these industries; a tax-cum-subsidy approach is shown to be better than exemption policy to sustain exports. The welfare impact either policy — exemption or subsidy — on other European countries is likely to be small because of general equilibrium effects

Toward a Framework for Climate Benefits Estimation

About the book: This book addresses the following questions: * What is the nature of avoided impact benefits from policies that limit global warming and how do these vary by sector or region? * Can these benefits be quantified and monetised reliably? * How do adaptation and mitigation policies interact? * What is the nature of ancillary or nearer term, local benefits of mitigation policies and how do they compare to other types of benefits? * How does the risk of abrupt climate change affect these benefits? * How might integrated assessment models help us to assess climate policy cost and benefit trade-offs? * Are there new ways to work with risk-based approaches to look at mitigation policy alternatives?

Toward a Useful Architecture for Climate Change Negotiations

Years of hard bargaining have failed to produce a policy architecture to adequately address the complexities of climate change. Very likely, such a structure will have to be sought though improvement of the partial architecture developed to date within the Framework Convention on Climate Change. We identify key architectural features that have emerged in the Convention process, and then explore extensions that will be necessary if the current approach is to serve for the long term. An important task is to break the deadlock over accession of developing countries. To this end we propose further incorporation in the negotiations of concepts of burden sharing according to ability to pay that already seem to be embedded in the Convention. The implications of alternative versions of such an approach are illustrated with a set of simple model simulations.

Toward a useful architecture in climate change negotiations

This paper surveys and interprets the attitudes of scientists to the use of flux adjustments in climate projections with coupled Atmosphere Ocean General Circulation Models. The survey is based largely on the responses of 19 climate modellers to several questions and a discussion document circulated in 1995. We interpret the responses in terms of the following factors: the implicit assumptions which scientists hold about how the environmental policy process deals with scientific uncertainty over human-related global warming; the different scientific styles that exist in climate research; and the influence of organisations, institutions, and policy upon research agendas. We find evidence that scientists' perceptions of the policy process do play a role in shaping their scientific practices. In particular, many of our respondents expressed a preference for keeping discussion of the issue of flux adjustments within the climate modeling community, apparently fearing that climate contrarians would exploit the issue in the public domain. While this may be true, we point to the risk that such an approach may backfire. We also identify assumptions and cultural commitments lying at a deeper level which play at least as important a role as perceptions of the policy process in shaping scientific practices. This leads us to identify two groups of scientists, 'pragmatists' and 'purists,' who have different implicit standards for model adequacy, and correspondingly are or are not willing to use flux adjustments.

Tradable emissions rights and joint implementation for greenhouse gas abatement: A look under the hood

This paper provides a penetrating analysis of the Clinton Administration's pre-Kyoto proposal for imposing national limits on greenhouse gas emissions in the context of negotiations for an international agreement. The Administration's "U.S. Draft Protocol Framework" (17 January 1997), which suggests tradable permits and joint implementation are the favored policy vehicles to achieve emissions reductions, shows neglect of important issues. It has the potential to take us for a bumpy ride (with non-negligible implementation problems and potentially excessive abatement costs) in the wrong direction (toward short-run reductions in rich country emissions from fossil fuels). The subsequent Commentary continues the metaphor to discuss: How good are the climate road maps?, What road are we on?, and Can backseat drivers (scientists) help?

Tradable Permits for Greenhouse Gas Emissions: A Primer With Particular Reference to Europe

This paper is written as part of a two-year study of climate change policy choices facing Sweden, conducted under the auspices of the Center for Business and Policy Studies in Stockholm. As such, it aims to be a primer on emissions trading as an instrument for limiting greenhouse gas (GHG) emissions under the Kyoto Protocol to the Framework Convention on Climate Change. The first section notes general considerations concerning emissions trading, particularly in relation to climate policy. The second section explains the many forms of emissions trading included in the Kyoto Protocol. The third section provides a brief review of emissions trading proposals that have been advanced in Europe as of mid-2000. The fourth section addresses issues in the design and implementation of a national GHG emissions trading system. The brief conclusion is followed by an appendix, which draws applicable lessons concerning the choice and design of a cap and trade system from the U.S. SO2 emissions trading program.

Same Science, Differing Policies; The Saga of Global Climate Change

This paper provides a comparative analysis of the economic and political interests influencing the progress of climate negotiation. The primary focus is on the U.S., France, Germany, U.K., Belgium, Netherlands, and the E.U. itself. A discussion of the drivers of policy and differing responses on a national basis is presented to highlight the larger influences at work. The driving factors range across economic and political interests, public concern, bureaucratic goals, scientific evidence, non-governmental organizations, energy industries, and are relevant in each country to varying degrees. Also included is a personal forecast of what can be expected to emerge in the next few months as the current negotiations reach their climax in Kyoto, Japan, in December 1997.

Scenarios with MIT Integrated Global System Model: Significant Global Warming Regardless of Different Approaches

A wide variety of scenarios for future development have played significant roles in climate policy discussions. This paper presents projections of greenhouse gas (GHG) concentrations, sea level rise due to thermal expansion and glacial melt, oceanic acidity, and global mean temperature increases computed with the MIT Integrated Global Systems Model (IGSM) using scenarios for twenty-first century emissions developed by three different groups: intergovernmental (represented by the Intergovernmental Panel on Climate Change), government (represented by the U.S. government Climate Change Science Program) and industry (represented by Royal Dutch Shell plc). In all these scenarios the climate system undergoes substantial changes. By 2100, the CO2 concentration ranges from 470 to 1020 ppm compared to a 2000 level of 365 ppm, the CO2-equivalent concentration of all greenhouse gases ranges from 550 to 1780 ppm in comparison to a 2000 level of 415 ppm, oceanic acidity changes from a current pH of around 8 to a range from 7.63 to 7.91, in comparison to a pH change from a preindustrial level by 0.1 unit. The global mean temperature increases by 1.8 to 7.0?C relative to 2000. Such increases will require considerable adaptation of many human systems and will leave some aspects of the earth’s environment irreversibly changed. Thus, the remarkable aspect of these different approaches to scenario development is not the differences in detail and philosophy but rather the similar picture they paint of a world at risk from climate change even if there is substantial effort to reduce emissions.

© 2010 Springer

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