A Proposed Global Climate Policy Architecture: How to Set Comprehensive Emission Targets Jeffrey Frankel Harpel Professor, Harvard Kennedy School Harpel

A Proposed Global Climate Policy A Proposed Global Climate Policy Architecture: How to Set Architecture: How to Set

Comprehensive Emission TargetsComprehensive Emission Targets

Jeffrey FrankelJeffrey Frankel Harpel Professor, Harvard Kennedy SchoolHarpel Professor, Harvard Kennedy School

Climate Governance Workshop, Climate Governance Workshop, Oct. 20, 2009Oct. 20, 2009

Last Exit Copehagen?Last Exit Copehagen? The Goethe-Institut Boston & Center for European Studies The Goethe-Institut Boston & Center for European Studies

J. Frankel, HarvardJ. Frankel, Harvard 22

What successor to the 2008-12 regime?What successor to the 2008-12 regime?ideally in Copenhagenideally in Copenhagen

in Decemberin December • Features of Kyoto worth building on --

– Politics: Quantitative limits maximize national sovereignty– Economics: Market mechanisms– Thus (2001) “You’re Getting Warmer: The Most Feasible Path

for Addressing Global Climate Change Does Run Through Kyoto.”

• What is missing:– Participation by US, China, & other developing countries– A mechanism for setting targets far into the future– Any reason to expect compliance.


Desiderata for the next stage, Desiderata for the next stage, requirements for the next multilateral treaty requirements for the next multilateral treaty

• Comprehensive participation – getting US, China, India, et al, to join

• Efficiency -- esp. trading

• Dynamic consistency – a credible century path

• Equity -- re poor countries

• Compliance -- No country will join if the plan implies, ex ante, big economic sacrifice overall.

• Robustness -- No country will stay in if compliance implies, ex post, huge economic cost in any given period.


ProposedProposed Architecture for Architecture for Quantitative Emissions TargetsQuantitative Emissions Targets

• Unlike Kyoto, my proposal seeks to bring all countries in & to look far into the future.

• But we can’t pretend to see with a fine degree of resolution at a century-long horizon.

• How to set a century of quantitative targets? – A decade at a time, in a sequence of negotiations; – but within an overall flexible framework of formulas,– building confidence as it goes along.


• unlike other approaches based purely on:

– Science (concentration goals),

– Ethics (equal emission rights per capita),

– or Economics (cost-benefit optimization).

• Why the political approach? The usual proposed paths are not time-consistent: it is not credible that successor governments will abide by today’s leaders’ commitments.

The formulas are designed pragmatically,based on what emissions paths are possible politically:


““An Elaborated Proposal For Global Climate Policy An Elaborated Proposal For Global Climate Policy Architecture: Specific Formulas and Emission Architecture: Specific Formulas and Emission

Targets for All Countries in All Decades,” Targets for All Countries in All Decades,”

suggests a framework of formulas that produce precise numerical targets for CO2 emissions in all regions for the rest of the century.

in 2009 Aldy-Stavins book,in 2009 Aldy-Stavins book,


The formulas are driven by 6 axioms:The formulas are driven by 6 axioms:1. The US will not commit to quantitative targets if China &

major developing countries do not commit to targets at the same time, due to concerns about economic “competitiveness” & carbon leakage.

2. China & other developing countries will not make sacrifices different in character from those made by richer countries who have gone before them.

3. In the longer run, no country can be rewarded for having “ramped up” its emissions high above the levels of 1990.

4. No country will agree to join if it costs more than, say, 1% of GDP throughout the century.

5. No country will abide by targets that cost it more than, say, 5% of GDP in any one period.

6. If one major country drops out, others will become discouraged and the system may unravel.


Building on existing commitmentsBuilding on existing commitments

• Between now and 2050, the EU follows the path laid out in the 2008 EC Directive (50% below 1990),

• US follows the path in congressional bills (Lieberman: 67% below 1990; or Waxman-Markey) ,

• and Japan, Australia & Korea follow statements that their own leaders have recently made.

• China, India & others agree immediately to quantitative targets which at first merely copy their BAU paths, thereby precluding leakage.


When the time comes for developing countries’ cuts,When the time comes for developing countries’ cuts,

• their emission targets are determined by a formula that incorporates 3 elements, designed so they are only asked to take actions analogous to those already taken by others:

– a Progressive Reduction Factor,

– a Latecomer Catch-up Factor, and

– a Gradual Equalization Factor.


The targeted reductions from BAU agreed to at Kyoto The targeted reductions from BAU agreed to at Kyoto

in 1997 were progressive with respect to income.in 1997 were progressive with respect to income.

-30%

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2.699 3.699 4.699

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500 1,000 2,000 5,000 10,000 20,000 50,000

1996 GDP per capita (1987 US dollars, ratio scale)

Cuts ↑

Incomes →


The three factors in the formulasThe three factors in the formulas

• Progressive Reduction Factor: – For each 1% difference in income/cap =>

target is 0.14% greater emissions abatement from BAU (as also agreed at Kyoto).

• Latecomer Catch-up Factor: – Gradually close the gap between the latecomer’s starting

point & its 1990 emission levels, at the same rate as US. (Goal: avoid rewarding latecomers for ramping up emissions).

• Gradual Equalization Factor: – In the long run, rich & poor countries’ targets converge

in emissions per capita. (Goal: equity)


The resultant paths for emissions targets, The resultant paths for emissions targets, permit trading, the price of carbon, permit trading, the price of carbon, GDP costs, & environmental effectsGDP costs, & environmental effects

• estimated by means of the WITCH model of FEEM, Milan, co-authored & applied by Valentina Bosetti.


Bottom line:

• In one version, concentrations level off at 500 ppm in the latter part of the century.

• No country in any one period suffers a loss as large as 5% of GDP by participating.

• Present Discounted Value of loss < 1% GDP.


The 11 regions: The 11 regions:

• EUROPE = – Old Europe +– New Europe

• US = The United States• KOSAU = Korea + S. Africa

+ Australia (3 coal-users)

• CAJAZ = Canada, Japan & New Zealand

• TE = Russia & other Transition Economies

• MENA = Middle East + North Africa

• SSA = Sub-Saharan Africa• SASIA= India &

the rest of South Asia• CHINA = PRC• EASIA = Smaller countries

of East Asia• LACA = Latin America &

the Caribbean


Dates at which developing countries are askedDates at which developing countries are asked

• to limit emissions to BAU:

– Lat Am 2010

– MENA 2010

– China 2010

– India 2010– SEAsia 2010– Africa 2025

• to cut emissions below BAU,

• for 500 ppm goal:

– 2035– 2025– 2030

– 2050– 2050– 2050

• to cut emissions below BAU,

• for 460 ppm goal:

– 2020– 2025– 2025

– 2025– 2025– 2050


OECD Emissions

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Simulated Emissions

CAP

Emissions path for rich countriesEmissions path for rich countries Fig. 2bFig. 2b

Predicted actual Predicted actual emissions exceed emissions exceed caps, by permit caps, by permit purchases.purchases.


NON OECD Emissions

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CAP

Emissions path for poor countriesEmissions path for poor countriesFig. 4bFig. 4b

Predicted actual Predicted actual emissions fall emissions fall below caps, by below caps, by permit sales.permit sales.


World Industrial Carbon Emissions

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Emissions path for the worldEmissions path for the worldFig. 5bFig. 5b

Global peak Global peak date ≈ 2035date ≈ 2035


Price of Carbon Dioxide Price of Carbon Dioxide

Fig. 6bFig. 6b Price of Carbon Permits

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$/tC

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rises slowly over 50 rises slowly over 50 years, then rapidly.years, then rapidly.


Concentrations stay below 500 ppm goalConcentrations stay below 500 ppm goalFig. 7bFig. 7b

Carbon Concentrations (CO2 only)

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Temperature rises 3° rather than 4°Temperature rises 3° rather than 4°Fig. 8bFig. 8b

Temperature increase (above pre-industrial)

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Yes, I know. The pay-off is a let-down.


The latest paper The latest paper co-authored with Valentina Bosettico-authored with Valentina Bosetti

• See if we can hit concentrations = 450 ppm– Assumes EU target in 2015-2020 is 30 % below 1990

levels, rather than 20 %.

– Developing country starting dates moved up.

– Parameters in LCF & GEF tightened.– Answer, so far: 460 ppm, but not within the constraints.

• Eventual extension: introduce uncertainty, especially in the form of stochastic growth processes. – Robustness will need: updates & within-decade indexation.


Preliminary results from target cuts severe Preliminary results from target cuts severe enough to reach a 450 ppm target by 2100...enough to reach a 450 ppm target by 2100...


300350400450500550

600650700750800

pp

mv

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……show GDP losses ofshow GDP losses of 6-7% for most 6-7% for most countries in the later decades, countries in the later decades, to hit 450 ppm. to hit 450 ppm.

GWP Losses wrt BaU in 450 CO2 only Scenario

-10.00%

-8.00%

-6.00%

-4.00%

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0.00%

2.00%

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

USA

OLDEURO

NEWEURO

KOSAU

CAJAZ

TE

MENA

SSA

SASIA

CHINA

EASIA

LACA

WORLD


Appendix I: Commitments recently made by country leadersAppendix I: Commitments recently made by country leadersEuropean Union • The EU emissions target for 2008–2012 was agreed at Kyoto: 8 % below 1990. • Brussels in 2008:

– In the 2nd 2015–2020 period, target = 20 % below 1990. – For the 3rd period (2022–2027), and thereafter up to the 8th period (2048–2052),

the EU targets progress in equal increments to a 50 % cut below 1990.Japan• PM Fukuda in 08: Target = 60 % below 2000 by 2050. (Assume equal increments over 2010- 2050.)

The United States (Now way above Kyoto targets)• We assume average annual emissions growth rate is cut ½ during 2008–12,

– to 0.7 % per year, so that emissions in 2012 are 31.5 % above 1990; • and flat over 2012–2017. • Then we implement the Lieberman–Warner formula

• emissions in 2050 reach 67 % below 1990 => 98.5 % below 2012. => Reductions of 2.6 % per year.

Australia PM Rudd in 08: plans to cut emissions to 60 % below 2000 by 2050

Korea (Would be the first non-Annex I country to take a target.)• Pres. Myung-bak Lee, March 2008: “tabled a plan to cap emissions at current levels over

the first Kyoto period” and “vowed his country would slash emissions in half by 2050,”– Emissions have risen 90 % since 1990.

• It is hard to imagine applying the brakes so sharply as to switch from 5 % annual growth to 0.

• My interpretation: emissions flatten between 2007 and 2022China• Reportedly announced plans to start cutting emissions in 2030, presumably vs. BAU (ahead of the 2007 G8 summit, according to Germany’s environment minister -- FT 3/12/07.)


Appendix II: More on hitting 450 ppmAppendix II: More on hitting 450 ppm

• Our 1st pass at attaining 450 ppm concentrations entailed:– negative emissions allocated to W. Europe by

2065 !– Very big purchases of permits from developing

countries. Seems unlikely.– And even then does not quite hit 450 ppm.

• At a 2nd pass, we tightened parameters & moved up further the dates at which developing countries start cutting below BAU.


450 ppm goal 450 ppm goal with even earlier starting dates with even earlier starting dates

for developing countries,for developing countries, so they peak ≈ 2030so they peak ≈ 2030

NON OECD Emissions

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{


OECD Emissions

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{

450 ppm goal 450 ppm goal with even earlier starting dates for developing countrieswith even earlier starting dates for developing countries

=> permit => permit purchases purchases by richby richcountriescountriesare are smaller.smaller.


450 ppm goal 450 ppm goal with even earlier starting dates for developing countrieswith even earlier starting dates for developing countries

Global emissions peak ≈ 2025Global emissions peak ≈ 2025

World Industrial Carbon Emissions

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bau Simulated Emissions


Environmental EffectivenessEnvironmental EffectivenessConcentrations actually level off at 450 ppm by 2050 !Concentrations actually level off at 450 ppm by 2050 !


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Environmental EffectivenessEnvironmental EffectivenessTemperature increase (above pre-industrial)

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Even though the 450 ppm target is achieved by mid-century, the pay-off in further temperature moderation, relative to 500 ppm, is not large. There are diminishing returns to CO2 abatement in two senses: The marginal cost of abatement rises in dollar terms, and the marginal cost of temperature moderation rises in terms of CO2.


Price of Carbon for 450 ppm casePrice of Carbon for 450 ppm case

Price of Carbon Permits

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Reaches $100 / ton already by 2010 (=> ≈ 25¢/gal. of gasoline or heating oil);

$1,800 / ton by 2100.


Resulting Per Capita EmissionsResulting Per Capita EmissionsThanks to the beyond-2050 convergence rule, emissions/capita again nicely converge.

Per Capita Emissions

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2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 2105

USA

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NEWEURO

KOSAU

CAJAZ

TE

MENA

SSA

SASIA

CHINA

EASIA

LACA

World


But again the 5% of GDP loss constraint is But again the 5% of GDP loss constraint is violated violated during the latter decades,during the latter decades, for at least 3 regionsfor at least 3 regions

GWP Losses wrt BaU in Stricter Beyond 2050 Scenario

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100

USA

OLDEURO

NEWEURO

KOSAU

CAJAZ

TE

MENA

SSA

SASIA

CHINA

EASIA

LACA

WORLD


The PDV of cost, as share of GDP, The PDV of cost, as share of GDP, also exceeds the 1% thresholdalso exceeds the 1% threshold

(discount rate = 5%)(discount rate = 5%)

• The global cost is 1.8% of GWP.

PDV of cost as share of GDP to attain 450 ppm concentrations target

(discount rate = 5%)

USA W.Europe

C&EEurope

Kor.SAfr.Austra.

Can.Jpn.NZ

Transtn.Ec.s

2% 1% 2% 1% 1% 2%

ME&NAfr S-S Afr. S.Asia China SE Asia Lat.Amer.

3% -1% 0% 4% 1% 2%

Paper:Paper: http://ksghome.harvard.edu/~jfrankel/SpecificTargetsHPICA2009.dochttp://ksghome.harvard.edu/~jfrankel/SpecificTargetsHPICA2009.docAvailable at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm#On%20Climate%20ChangeAvailable at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm#On%20Climate%20Change

Harvard Project on Harvard Project on

International International

Climate Climate Agreements; Agreements;

directed bydirected by

J.Aldy & R.Stavins.J.Aldy & R.Stavins.

Thanks to Thanks to ValentinaValentina

BosettiBosetti

Documents

A Proposed Global Climate Policy Architecture: How to Set Comprehensive Emission Targets Jeffrey Frankel Harpel Professor, Harvard Kennedy School Harpel