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Policies to Counteract Global Warming Financial Markets can Overcome the China – US Impasse. Graciela Chichilnisky UNESCO Professor and Director, Columbia Consortium for Risk Management Columbia University, New York UNCTAD Expert Meeting on Trade and Climate Change: - PowerPoint PPT Presentation
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Policies to Counteract Global Policies to Counteract Global WarmingWarming
Financial Markets can Overcome Financial Markets can Overcome the China – US Impassethe China – US Impasse
Graciela ChichilniskyGraciela ChichilniskyUNESCO Professor and Director,UNESCO Professor and Director,
Columbia Consortium for Risk ManagementColumbia Consortium for Risk ManagementColumbia University, New YorkColumbia University, New York
UNCTAD Expert Meeting on Trade and Climate Change:UNCTAD Expert Meeting on Trade and Climate Change:Trade and Investment Opportunities under CDMTrade and Investment Opportunities under CDM
Geneva, April 27 2009Geneva, April 27 2009
Global Warming Signals Global Warming Signals
Antartica – Melting glaciers and ice Antartica – Melting glaciers and ice sheetssheets
Global Warming Signals Global Warming Signals
Permafrost melts - Alaska sinksPermafrost melts - Alaska sinks
Changing human Changing human settlementssettlements
Melting glaciers - Melting glaciers - AntarticaAntartica
Melting ice sheets Melting ice sheets AntarticaAntartica
Melting ice AntarticaMelting ice Antartica
Patagonia - Melting Patagonia - Melting glaciersglaciers
Global Warming SignalsGlobal Warming Signals
Outbreak of malaria in AfricaOutbreak of malaria in Africa
Global Warming SignalsGlobal Warming Signals
China’s industrial growthChina’s industrial growth
Global Warming SignalsGlobal Warming Signals
Desertification of 25% of China land Desertification of 25% of China land massmass
Global Warming SignalsGlobal Warming Signals
Australia’s longest draught on Australia’s longest draught on recordrecord
Global Warming SignalsGlobal Warming Signals
Solar farm in SpainSolar farm in Spain
Water WarningWater Warning
Colorado River dries up - 2002Colorado River dries up - 2002
Water WarningWater Warning
Lake Mead’s record low - water to Lake Mead’s record low - water to Las Vegas Las Vegas
Fires from drought - Fires from drought - 20062006
EndangeredEndangered
PrimatesPrimates
EndangeredEndangered
Sea mammalsSea mammals
EndangeredEndangered
DisappearingDisappearing
DisappearingDisappearing
SummarySummary The world today – the Kyoto ProtocolThe world today – the Kyoto Protocol Financial Markets Role: Carbon Market Financial Markets Role: Carbon Market
++ Energy Limits and Future Global NeedsEnergy Limits and Future Global Needs China - US ImpasseChina - US Impasse Organizing Principles: Three Building Organizing Principles: Three Building
Blocks Blocks Derivative Markets can Overcome the Derivative Markets can Overcome the
ImpasseImpasse Next Generation Kyoto ProtocolNext Generation Kyoto Protocol
The world todayThe world today
The The Kyoto ProtocolKyoto Protocol created the first created the first global agreement on energy use, 1997global agreement on energy use, 1997
International Law in 2005International Law in 2005 Industrial Nations agreed to limit their CO2 Industrial Nations agreed to limit their CO2
emissions and reduced targets by 2012emissions and reduced targets by 2012 Introducing KP Carbon Market - I helped Introducing KP Carbon Market - I helped
create a $30B carbon market in 2006, $50B create a $30B carbon market in 2006, $50B in 2007in 2007
$25-30 per ton: carbon price signal -- major $25-30 per ton: carbon price signal -- major economic incentives for Clean Energy economic incentives for Clean Energy
But But only a first steponly a first step
The Kyoto ProtocolThe Kyoto Protocol Has no limits on developing nations’ emissionsHas no limits on developing nations’ emissions that represent 30% of global emissions – China is 18%that represent 30% of global emissions – China is 18% KP KP Clean Development MechanismClean Development Mechanism (CDM) (CDM)
created major financial incentives for clean energy created major financial incentives for clean energy investment in developing nations investment in developing nations
$8B in CDM project in 2006 and $15B in 2007 – 20% $8B in CDM project in 2006 and $15B in 2007 – 20% reduction EU emissionsreduction EU emissions
China 60%China 60% Carbon market - the largest commodity market in Carbon market - the largest commodity market in
the world?the world?
Market Solution with Equity Market Solution with Equity Two sides of the Coin Two sides of the Coin
The Kyoto Protocol The Kyoto Protocol Only a First StepOnly a First Step
KP’s provisions end in 2012KP’s provisions end in 2012 Like Cinderella, it turns into a pumpkinLike Cinderella, it turns into a pumpkin By designBy designAdditionally:Additionally: As the USA does not participate KP lacks As the USA does not participate KP lacks
control on 31% of global emissionscontrol on 31% of global emissions Lacking limits on developing nations’ Lacking limits on developing nations’
emissions hinders US participationemissions hinders US participation US - China ImpasseUS - China Impasse
Progress in USAProgress in USA Economic incentives of Kyoto Protocol are Economic incentives of Kyoto Protocol are
enormous. Many in the US want part of them, enormous. Many in the US want part of them, Obama wishes to ratify Kyoto.Obama wishes to ratify Kyoto.
California wants to participate in KP emissions California wants to participate in KP emissions markets – and hundreds of cities and townsmarkets – and hundreds of cities and towns
US Supreme Court agreed Fall 2007 that US Supreme Court agreed Fall 2007 that Federal government can enforce emissions limitsFederal government can enforce emissions limits
It is generally accepted that global businesses It is generally accepted that global businesses (e.g. automobile industry) may benefit from KP (e.g. automobile industry) may benefit from KP guidelines, and could suffer economic losses guidelines, and could suffer economic losses without the benefit of KP economic incentives at without the benefit of KP economic incentives at homehome
The FutureThe FutureGlobal NeedsGlobal Needs
Emissions Limits for Developing Emissions Limits for Developing Nations?Nations?
USA participation in the Kyoto USA participation in the Kyoto Protocol processProtocol process
A US led Climate Agreement?A US led Climate Agreement?
The world needs more The world needs more energyenergy
To move forward inTo move forward inthe global negotiationsthe global negotiations
Must overcome China – US ImpasseMust overcome China – US Impasse
The interests of the industrial and The interests of the industrial and developing nations are so opposed developing nations are so opposed
thatthat
Once again, we need Once again, we need a two - sided coina two - sided coin
Organizing PrinciplesOrganizing Principles
A way forward that involvesA way forward that involves Clean Technology TransferClean Technology Transfer Future Emissions Reductions by Future Emissions Reductions by
Developing Nations, China + India: Developing Nations, China + India: Article 4 UNFCCCArticle 4 UNFCCC
CDM as a foundation of a major CDM as a foundation of a major technology - driven financial technology - driven financial investment 60% benefits to China investment 60% benefits to China
Two Building BlocksTwo Building Blocks Modest extension of CDM Modest extension of CDM – New Negative – New Negative
Carbon Technology - Efficient Carbon Capture Carbon Technology - Efficient Carbon Capture + Storage Technology specifically favorable + Storage Technology specifically favorable for developing nations with low emissions for developing nations with low emissions (Africa & LA) (Africa & LA) NatureNature 2008- 2008- ScienceScience 2009 2009
Powered by renewables (solar CSP power plants)Powered by renewables (solar CSP power plants)
New Financial Mechanism New Financial Mechanism modest extension modest extension of carbon market can reproduce in financial of carbon market can reproduce in financial terms Article 4 of UNFCC -- while providing terms Article 4 of UNFCC -- while providing the equivalent of limits on developing nations the equivalent of limits on developing nations emissionsemissions
Blueprint for Sustainable Blueprint for Sustainable DevelopmentDevelopment
Clean and Abundant Energy available worldwideClean and Abundant Energy available worldwide Supporting sustainable growth in developing Supporting sustainable growth in developing
nationsnations Providing a global market for industrial Providing a global market for industrial
technologytechnology Transforming fossil fuels into a clean alternativeTransforming fossil fuels into a clean alternative Solar thermal sources of energy that Solar thermal sources of energy that reducereduce
atmospheric carbon concentrationatmospheric carbon concentration Investment to renovate the $43 trillion power Investment to renovate the $43 trillion power
plant industry worldwide (IEA)plant industry worldwide (IEA)
Global EnergyGlobal EnergyTodayToday
89% fossil – gas coal, oil89% fossil – gas coal, oil 10% nuclear, geothermal and 10% nuclear, geothermal and
hydroelectrichydroelectric Less than 1% solar power – photo-Less than 1% solar power – photo-
volteic and solar thermal.volteic and solar thermal.
The Long RunThe Long Run
Only renewable sources of energy will doOnly renewable sources of energy will do Wind, Biofuels, Nuclear, Geothermal, Wind, Biofuels, Nuclear, Geothermal,
Hydroelectric energy – all in limited Hydroelectric energy – all in limited supply cannot replace fossil fuelssupply cannot replace fossil fuels
Only solar energy canOnly solar energy can Less than 1% of the solar energy we Less than 1% of the solar energy we
receive can be transformed into 10 times receive can be transformed into 10 times the fossil fuel energy used in the world the fossil fuel energy used in the world todaytoday
Long Run v. Short RunLong Run v. Short Run
They require different policiesThey require different policies Long run strategies do not work for Long run strategies do not work for
the short runthe short run Yet any short term strategy must Yet any short term strategy must
accelerate renewable energyaccelerate renewable energy Or will defeat long run goalsOr will defeat long run goals
Short Run: the next 10 Short Run: the next 10 years years
No time to transform the entire fossil No time to transform the entire fossil infrastructure – it costs $43 trillion (IEA)infrastructure – it costs $43 trillion (IEA)
Negative Carbon: Reduce carbon in the Negative Carbon: Reduce carbon in the atmosphere nowatmosphere now
CSS works but does not sufficeCSS works but does not suffice ‘‘Air capture’ and solid storage – too Air capture’ and solid storage – too
expensive?expensive? Combine air capture with solar thermal Combine air capture with solar thermal
electricity: more electricity and reduce electricity: more electricity and reduce carboncarbon
Economic IncentivesEconomic Incentives
We need economic incentives for the We need economic incentives for the Short and the Long RunShort and the Long Run
The Next Generation Kyoto The Next Generation Kyoto Protocol post 2012Protocol post 2012
Bringing aboard US and the Bringing aboard US and the developing nations G77 – China and developing nations G77 – China and IndiaIndia
Innovative Derivative Innovative Derivative MarketMarket
A A derivative marketderivative market based on the based on the Kyoto Protocol carbon market – calls Kyoto Protocol carbon market – calls and putsand puts
Can overcome China – US ImpasseCan overcome China – US Impasse Based on 1992 Climate Convention Based on 1992 Climate Convention
Article 4Article 4 A market solution with equity A market solution with equity The two sides of a coinThe two sides of a coin
Blueprint for Sustainable Blueprint for Sustainable DevelopmentDevelopment
Private/Government approach, based on Private/Government approach, based on industrial technology and financial markets’ industrial technology and financial markets’ leadershipleadership
Self - funded and highly profitable derivative Self - funded and highly profitable derivative markets – carbon credits is the ‘underlying’markets – carbon credits is the ‘underlying’
Based on the Kyoto Protocol CDM - or Based on the Kyoto Protocol CDM - or successorssuccessors
Providing abundant Clean Energy to stave off Providing abundant Clean Energy to stave off impending Energy Crisis in developing nationsimpending Energy Crisis in developing nations
Mutually beneficial cooperation for industrial Mutually beneficial cooperation for industrial and developing nationsand developing nations
The two sides of the coinThe two sides of the coin
UNCTADUNCTADCapacity Building Capacity Building
MeetingMeeting Modest extensions of CDM - Accreditation Modest extensions of CDM - Accreditation
for for Negative Carbon Negative Carbon Technologies that Technologies that make CDM investments accessible to low make CDM investments accessible to low emissions nations – Africa & LA - emissions nations – Africa & LA - cogenerate electricity & carbon capture – cogenerate electricity & carbon capture – regional distribution of CDMregional distribution of CDM
Financial Mechanism - Financial Mechanism - modest extensions modest extensions of carbon market that resolves Impasse on of carbon market that resolves Impasse on Emission Limits from Developing Nations Emission Limits from Developing Nations - implementing Article 4 of the UNFCCC- implementing Article 4 of the UNFCCC