Road to Copenhagen: The Need for a New Framework

By Johanna Peace, Devon Swezey, and Leigh Ewbank, Breakthrough Fellows

It's official: India won't accept binding caps on its emissions of greenhouse gases. Indian Environment Minister Jairam Ramesh made the case clear last Thursday:

"India will not accept any emission-reduction target--period," Ramesh said. "This is a non-negotiable stand."

India's announcement is the latest frustrating news for those following the efforts of climate negotiators as they struggle to eke out an international agreement by this December's UN summit in Copenhagen. It's frustrating because the fundamental dissonance between what developed countries demand and what developing countries are willing to give appears to be the single most intractable roadblock standing in the way of a successful treaty. In fact, this very problem has impeded progress on international climate negotiations for decades.

China is also predictably inflexible when it comes to emissions reduction targets. Its May 20 position paper on the Copenhagen conference makes no mention of reduction targets, and instead demands that industrialized nations cut their emissions 40% below 1990 levels by 2020. Chinese officials have repeatedly stated that China will not adopt binding targets because it does not bear the same responsibility as the developed world for historic greenhouse gas emissions.

The EU and the US favor domestic cap and trade systems and seek to expand them into a global carbon market. But in the developed world, this model hasn't worked. Under Kyoto, participating nations promised to reduce emissions below 1990 levels by 2012--instead, their emissions have been rising steadily. From 1990-2006, emissions increased in Japan by over 5 percent; in the US by 14 percent; in Canada by 20 percent; and in Australia by 30 percent.

The cap and trade model isn't likely to start working, either. Though supporters of ACES (the latest attempt to establish a domestic cap-and-trade system in the US) claim it will reduce emissions by 17% below 2005 levels by 2020, analyses by the EPA and the Breakthrough Institute reveal that the bill will not require any emissions reductions below projected business-as-usual growth for at least another decade.

Meanwhile, the developing world is looking on, and not surprisingly, they're opting out of the failed cap-and-trade model. China, for instance, has consistently argued that such a system would be incompatible with its institutions.

They might not be jumping on the emissions reduction bandwagon, but major developing countries are not dragging their feet either. Recent weeks have seen China and India sharpen their focus on another approach to addressing climate change: investment. The Indian government plans to invest $100 billion in solar energy production over the next decade, with a target of 20 GW by 2020. In China, officials will soon unveil a massive ten-year renewable energy investment plan on the order of $440-660 billion. This new stimulus spending will dramatically expand China's renewable energy capacity, and could triple the nation's 2020 targets for wind and solar power.

China is pulling ahead as the world's first renewable energy superpower, and India is poised to join it. This means they'll come to Copenhagen with major leverage over finger-wagging Western countries that press for emission cuts from developing nations but do little to invest in renewable energy at home. If China and India can point to substantial domestic renewable energy investment, they'll bolster their case for continuing to reject emissions reduction targets.

So surely it's time to stop fighting a battle we're not going to win. Instead, hope for achieving a successful agreement in Copenhagen lies in adopting an alternative framework that eschews emissions targets in favor of something more workable.

Fortunately, there are already indications that the outlines of such a framework may be emerging, at least for developing countries. China appears open to the idea of carbon intensity targets--essentially slowing the growth of emissions--and India has proposed creating global innovation centers for the rapid development and diffusion of zero-carbon technologies. Both nations have called on developed countries to share clean technologies to foster low-carbon development.

This alternative framework could focus on targets for clean energy investment and deployment. The greenhouse gas emissions displaced by new energy technologies could be calculated relative to a projected business-as-usual trend. By pushing for emissions reduction through targets for clean technology investment, such an approach would mollify developing country leaders wary of setting binding emissions targets, and also result in real emissions reductions in the short term.

Senior U.S. climate negotiator Jonathan Pershing hinted that negotiations could move in that direction when he proposed that, instead of emissions targets, developing countries like China could be asked to commit to actions such as energy efficiency and renewable energy deployment:

"We're saying that the actions of developing countries should be binding, not the outcomes of those actions."

This week in L'Aquila, Italy, the Major Economies Forum on Climate Change will bring together the world's largest emitters to continue climate policy negotiations. The meeting will foreshadow the likelihood of achieving a global agreement in December. If US negotiators put forth an alternative framework based on investment rather than emissions targets, there's still hope of aligning the interests of developed and developing nations in a binding agreement in Copenhagen. But if they stick to the failed framework of the past 20 years, prospects for achieving a global treaty will remain exceedingly grim.

Comments

Hi Katherine, thanks for the comment. The WashPo figure is an annual figure ($44-66 billion annually) and the figure above is the sum-total of the 10 year investment plan China is reportedly planning ($440 to $660 billion over ten years). Hope that explains it.

By Jesse Jenkins on 2009 07 20

I think there may be a typo here. The Washington post article lists China as planning to invest 44-66 billion. Thanks for the great analysis.

By Katherine Philipson on 2009 07 19

This is something that I posted on climateprogress.org on July 9, responding to Joe Romm's blog about James Hansen's HuffingtonPost article. This has relevance to "The Need for a New Framework ..." (aka "Plan B"), so I'm cross-posting it here. (Joe Romm has not yet released this from moderation quarantine -- not sure if he's going to. Some readers may find my perspectives to be offensive or objectionable.)



***



For all of Waxman-Markey's faults, I think it gets two things right: (1) allowance set-asides to fund tropical forest conservation, and (2) a meaningful price floor. These measures move U.S. policy closer to the rational and pragmatic goal of minimizing emissions within limits of cost acceptability. However, they leave W-M with no coherent policy foundation, because its other regulatory mechanisms -- the cap, trading, economy-wide linkage, banking, borrowing, and offsets -- all operate to achieve the converse objective of minimizing costs within limits of a predetermined (and unsustainable) emission cap.



The irrationality of the latter objective is demonstrated by the U.S. SO2 trading system, which continues to focus regulatory incentives on further cost reductions -- not emission reductions -- even when allowances are selling at a fraction of what was expected when the cap-and-trade system was enacted, and even when quantifiable benefits of further emission reductions would exceed costs by a factor of 25.



[Note to JR re "... So they do more than is necessary ...": That is because of banking, which has the effect of shifting the over-allocation into future compliance periods. They do more now only so they can do less later.]



Suppose that the SO2 allowances had been sold at fixed price (no emission cap), with sales revenue distributed according to the same proportionate allocation formula that was used for allowance allocation (or any other preferred formula). If the price were set at the lower limit of the original expectation level (about $650/ton, compared to the actual market of about $200/ton) then SO2 scrubber technology would have been adopted much sooner, and the more ambitious goal of the EPA's recent Clean Air Interstate Rule might have been achieved years ago without further regulatory intervention.



But that's not the kind of program that Hansen and other carbon-tax advocates are propounding for GHG regulation. Their proposals are very similar to Obama's original 100% auction, 80% tax dividend plan, the main difference being that allowances would be sold rather than auctioned. Obama, to his credit, knows how to recognize a brick wall when he sees it and he backed off on his original plan. The carbon-tax lobby, by contrast, is still banking its head against the wall in its insistence that carbon taxes operate primarily to extract revenue from the regulated industry. In my view, it is this dogged and dogmatic adherence to a "punitive" regulatory approach that leaves W-M as "the only game in town".



However, if tax revenue is used only to finance or incentivize emission reductions in the taxed industry, then I think there would be three consequences: (1) Industry costs would be dramatically lower (even if emission-reduction incentives are much higher than cap-and-trade's), so pricing instruments would lose their political stigma. (2) Price certainty, in addition to low costs, would make pricing instruments much more attractive to industry. (3) Pricing instruments would be more compatible with sectoral policies having limited scope, and hence limited political opposition. (Monolithic, economy-wide policies like W-M's tend to lead to "monolithic, economy-wide" political opposition, but the rationale for economy-wide linkage disappears when the policy objective is minimum emissions -- not minimum costs.)



Passage of W-M is not a sure bet, so it would be prudent to start thinking about some kind of viable "Plan B".

By Ken Johnson on 2009 07 11

Re "a New Framework": One alternative approach is the following:

"A Decarbonization Strategy for the Electricity Sector: New-Source Subsidies"

http://ssrn.com/abstract=1427106

(This is a draft publication submitted to Energy Policy.)

By Ken Johnson on 2009 07 08