Climate Policy

In March 2000, the European Commission presented a Green Paper on greenhouse gas emissions trading within Europe, supporting implementation of a Community-wide scheme in which the design and regulation of all essential elements would be harmonized at the Community level. The present paper analyzes economic arguments used to justify such a coordinated scenario, showing these arguments to be based on misleading rhetoric about fair trade and harmonization. Diverse allocations of emissions allowances across Member States are justified in theory. In practice, too, no empirical evidence or model-based results demonstrate that an uncoordinated European trading scheme would adversely affect competitiveness to any significant extent or substantially increase industrial relocations.

This paper develops a multi-regional general equilibrium model for climate policy analysis based on the latest version of the MIT Emissions Prediction and Policy Analysis (EPPA) model. We develop two versions so that we can solve the model either as a fully inter-temporal optimization problem (forward-looking, perfect foresight) or recursively. The standard EPPA model on which these models are based is solved recursively, and it is necessary to simplify some aspects of it to make inter-temporal solution possible. The forward-looking capability allows one to better address economic and policy issues such as borrowing and banking of GHG allowances, efficiency implications of environmental tax recycling, endogenous depletion of fossil resources, international capital flows, and optimal emissions abatement paths among others. To evaluate the solution approaches, we benchmark each version to the same macroeconomic path, and then compare the behavior of the two versions under a climate policy that restricts greenhouse gas emissions. We find that the energy sector and CO2 price behavior are similar in both versions (in the recursive version of the model we force the inter-temporal theoretical efficiency result that abatement through time should be allocated such that the CO2 price rises at the interest rate.) The main difference that arises is that the macroeconomic costs are substantially lower in the forward-looking version of the model, since it allows consumption shifting as an additional avenue of adjustment to the policy. On the other hand, the simplifications required for solving the model as an optimization problem, such as dropping the full vintaging of the capital stock and fewer explicit technological options, likely have effects on the results. Moreover, inter-temporal optimization with perfect foresight poorly represents the real economy where agents face high levels of uncertainty that likely lead to higher costs than if they knew the future with certainty. We conclude that while the forward-looking model has value for some problems, the recursive model produces similar behavior in the energy sector and provides greater flexibility in the details of the system that can be represented.
© Elsevier, 2009

Global climate change is on the political agenda primarily as a result of science and the warnings of the scientific community, and is commonly seen as a quintessentially scientific matter. However, the development of policy on this issue in the U.S. today does not turn on the scientific evidence. Rather, policy is determined by the political and economic forces involved, with reference to the science only to support positions reached on other grounds. The reasons relate primarily to the uncertainty in the evidence, the structure and politics of the government, the economic costs and impact of change and of policies to reduce greenhouse gases, the international structure in which the issue is being confronted, the role of the media, and the effects of partisan politics. In this situation, the scientific and engineering communities (including social scientists and especially economists) have a major responsibility to maintain their professional values and objectivity so dominated at the moment by other pressures. Only that way can they retain the public trust that will be necessary if and when costly policy measures must be undertaken.

At The Hague in November 2000, a decade of apparent progress in the climate negotiations seemed to run off the tracks. The precipitating event was the meeting intended to settle the details of the Kyoto Protocol, which ended instead in disarray and recrimination. Though a surprise to many, this was a train wreck that had been proceeding in slow motion for several years, as the European Union, the United States and like-minded nations, and developing countries squabbled over the design and implementation of measures to limit greenhouse gas emissions. Some negotiators and analysts hope that agreement on the details, which seemed so close on the last day in The Hague, can be resurrected. We are not optimistic. It may, in fact, take many more years to put together the kind of effective, grand international deal that was sought in Kyoto, covering both the US-EU sticking points and difficult North-South issues. It is not clear that short-term failure is irreversible, however-or even undesirable,if what replaces the grand deal is a period of national experimentation that can then be knit back together into a more effective international system.
      To prepare for discussion of possible ways forward, we begin with our interpretation of the history of the climate negotiations. We trace the sequence of events from the FCCC signed at the Rio Earth Summit in 1992, through crucial decisions reached in Berlin in 1995 and at the Kyoto meeting in 1997, and finally to the debacle in The Hague. In this process, the negotiators attempted to establish the long-term architecture of an emissions control pact among countries with very different political institutions and economic circumstances, and at the same time tried to set stringent targets for short-term action. They appear to have been too ambitious. The process never dealt adequately with developing country issues, and in setting targets they ran far ahead of domestic support in key countries.
      Against this background, we turn to an exploration of next steps in the international process. One conclusion is that the international discussions need to give serious attention to the prospect that mitigation actions will proliferate and deepen even without common agreement, as nations develop their own definitions, policy measures and market institutions. While modest, but important, short-term actions will proceed on a nation-by-nation basis, the public goods nature of the climate problem means that any meaningful long-term response will ultimately require agreement among nations over burdens and rules. The question then is what, short of a Kyoto-style protocol, can be done now to facilitate consistency later. Clearly, creative thought is needed, perhaps on a less grand scale than in recent years, to guide inevitable mitigation activities in more-or-less coherent directions, in the hope that tighter coordination will emerge.

© 2001 The Royal Institute of International Affairs

About the book: A new examination of corporate involvement in international development, a key issue for the global community in the twenty-first century. Benedicte Bull and Desmond McNeill look at how and why United Nations organizations and the World Bank are increasingly working with private actors, including not-for-profit companies and corporations and business organizations and private foundations to address key world issues such as health, education, labour rights and water. Critics have claimed that increased corporate involvement threatens the legtimacy of multilateral organizations and this book assesses this claim, while providing a comprehensive cross-sector study of public-private partnerships (PPP) and detailed case studies on: * the pharmaceutical industry, exploring health initatives such as the Global Alliance for Vaccines and Immunization and the Global Fund to fights AIDS, Tuberculosis and Malaria * the International Labour Organization and the fight against child labour. * UNESCO and the partnerships with Intel and Microsoft to develop educational material and community centres for increasing computer literacy in the developing world * World Bank and PPP efforts to improve water supplies in developing countries, critical for sustainable development, environmental integrity and the alleviation of poverty and hunger.

I believe that what we know now about global warming justifies imposition of a modest tax on carbon emissions by the U.S. and other developed nations. This is a first step toward assuring that future generations will not find the concentration of atmospheric gases increased so much that it cannot be practically reversed before changes in the Earth’s climate cause calamitous damage. [...] The U.S. should propose a small carbon tax as an alternative to the current national emission targets on the table for Kyoto. It is a first step that is more consistent with the state of scientific knowledge and the extent of international consensus; and it is a first step that is more likely to be politically acceptable in the U.S. today.

The biofuels sector is in the midst of turmoil, and many people are asking whether biofuels will be able to deliver on their climate change, energy security and rural development objectives.

Whether biofuels will emerge from the current deadlock will depend on the policies and strategies that countries adopt, says The Biofuels Market: Current Situation and Alternative Scenarios.

The new UNCTAD report discusses "alternative decision paths" governments may consider in relation to biofuels and provides insights on the global repercussions those different choices may imply. The scenarios are linked to the following specific issues:

* The role of government targets for biofuel use.
* Links between biofuels and the greenhouse gas markets.
* Prospects offered by the unfolding of new biofuel technologies and the related intellectual property rights issues.
* Trade potential available to developing countries.
* Possible changes that could occur in current production and trade patterns, should alternative biofuel feedstocks become commercially available.

The report represents a new contribution by UNCTAD to the analysis of this dynamic and complex sector of the world economy.

This activity was made possible by the generous financial contribution of the Ministry of Environment, Land and Sea of Italy. UNCTAD has been working on the trade and development implications of biofuels since 2005, through its Biofuels Initiative.

© 2009 United Nations

This paper discusses the design of efficient environmental policies in general and reviews omissions and shortcomings of the presentation of the economic dimensions of climate change in the Intergovernmental Panel on Climate Change (IPCC) Working Group III's Report: "Climate Change 1995 Economic and Social Dimensions of Climate Change: Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change" (Cambridge Univ. Press, Cambridge, UK, 1996).

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