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Developing Countries & Global Climate Change: Electric Power Options in Korea
Prepared for the Pew Center on Global Climate Change
Jin-Gyu Oh, Korea Energy Economics Institute
Jeffrey Logan, Battelle, Advanced International Studies Unit
William Chandler, Battelle, Advanced International Studies Unit
Jinwoo Kim, Korea Energy Economics Institute
Sung Bong Jo, Korea Energy Economics Institute
Dong-Seok Roh, Korea Energy Economics Institute
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
The Republic of Korea straddles the line between developed and developing countries. Power demand is expanding rapidly - a "business-as-usual" path doubles consumption by 2015 - and the economy is driven largely by basic, energy-intensive industries. In addition, Korea imports over 90 percent of its fuel. Because of this, the energy choices Korea makes are complicated and may have ramifications for the global environment that outstrip the nation's size. They could leave Korea's greenhouse gas emissions virtually unchanged - or more than double them.
What will be the likely drivers of the technology choices for the next twenty years of new power generation?
- Economic forces pulling Korea toward additional restructuring of the power sector and reform of industrial policy can reduce emissions of carbon dioxide by 9 percent relative to the baseline, with slightly lower costs per unit of electricity generated. Increasing the supply of natural gas and reducing import tariffs on that fuel have similar impacts.
- Economic concerns also might lead to more widespread adoption of cost-effective energy efficiency measures and, by reducing demand for power by 15 percent, could also reduce carbon and sulphur dioxide emissions by almost 25 percent.
- Further tightening of local environmental requirements might shift technology choices toward natural gas and nuclear and achieve reductions in the emissions of sulphur dioxide (59 percent) and carbon dioxide (28 percent), with only a small increase in costs. Developing Countries and Global Climate Change: Electric Power Options in Korea is the second in a series examining the electric power sectors in developing countries, and will be followed by four more case studies of India, China, Brazil, and Argentina. The report's findings are based on a lifecycle cost analysis of several possible alternatives to current projections for expanding the power system.
The Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. The Pew Center believes that climate change is serious business and a better understanding of circumstances in individual countries helps achieve a serious response.
Climate Change And Kyoto: Where We Are And Where We Are Going
Eileen Claussen, Executive Director
The Pew Center on Global Climate Change
Catherine N. Stratton Lecture Series
Massachusetts Institute of Technology (MIT)
October 6, 1999
It is perhaps easiest to begin a discussion of climate change and the national and international politics of climate change with the acknowledgement that what emerged from Kyoto in December of 1997 was a political deal, and not an agreement in substance. The United States and the "Umbrella Group," (including Canada, Australia, New Zealand and Japan) entered the final negotiating session hoping for a framework with a moderately stringent binding target for developed countries, binding obligations for developing countries, and a series of so-called "flexibility mechanisms," including emissions trading and joint implementation. The European Union argued for more stringent binding targets for developed countries only. And while most European countries were not totally opposed to the concepts of joint implementation and emissions trading, they were certainly skeptical of their value, and leery of how they might be implemented. The developing countries entered the negotiations committed only to insuring that they accepted no new commitments, a view that is consistent with the Berlin mandate, the internationally agreed authorizing language for the Kyoto negotiations.
What emerged from Kyoto? A collage with the Umbrella Group's framework, the European Union's targets, and no commitments for developing countries beyond what already existed in the Framework Convention on Climate Change. It is an agreement in principle, lacking in details and explanations on most issues, and subject to widely varying interpretations. Now that 18 months have elapsed since Kyoto, it is relevant to ask what has happened in the interim, and assess where we are going on the climate change issue.
We can begin this discussion with a review of European Union perceptions and activities. In Europe, there have been several changes that have occurred since the Kyoto Protocol was negotiated. For one thing, there is a growing interest on the part of many European countries in the concept and practice of emissions trading. The United Kingdom is now in the process of planning a domestic emissions trading experiment. The Danish government already has secured legislative authority to implement a trading program, and other emissions trading programs are under development in Norway and Sweden. These efforts may lead to a Scandinavian-wide trading system, or perhaps be folded into an EU-wide trading system (beyond the EU "bubble" of Article 17) being considered for the entire community by 2005. There is also an interest in Europe in experimenting with other approaches. The Germans are implementing a tax program, and the British have also proposed a carbon levy. In the Netherlands, a more traditional "policies and measures" program has been passed by the parliament. It is clear from all of this activity that there is a fair amount of planning and experimentation taking place in Europe, all within the context of the Kyoto agreement and the targets agreed in 1997.
But perhaps what binds Europe together the most on the climate change issue is the jaundiced view held of the United States by many in Europe. There is a strong sense among European governments that the U.S. negotiated the Kyoto agreement with no intention of ever implementing significant domestic emission reductions. This is the genesis of the widely held view that United States' implementation, if it was to occur at all, would be politically possible only if most of the reductions required were shown to be without cost or at a very low cost (with the majority purchased abroad through emissions trading and the Clean Development Mechanism). These impressions were key ingredients in the development of the European policy of limiting the quantity of emission reductions that can be taken outside a nation's borders, and are also at play, along with economic competitiveness considerations, in European reluctance to ratify the Kyoto Protocol without prior U.S. ratification.
Where, then, is the United States on the issue of Kyoto implementation? The Congress, of course, established a basic policy when the Senate supported the Byrd-Hagel resolution on July 25, 1997 by a vote of 95 to 0. This resolution urged the Administration not to negotiate an agreement with binding targets for the United States without the adoption of binding targets in the same compliance period by countries in the developing world. It also stipulated that the Administration should not be a signatory to a treaty that would result in serious harm to the economy of the United States. Since the Kyoto Protocol does not contain commitments for the developing world, many in the Congress have been vigilant in their efforts to see that there is no "backdoor implementation" of the Protocol on the part of the Administration. Over the past 18 months, there have been numerous proposed amendments and riders to appropriation bills that are strongly anti-Kyoto, most of which would prohibit the Executive Branch from speaking of, spending money on, or writing rules and regulations to implement the Kyoto Protocol. And while none of these amendments or riders has passed in its strongest form, many have passed in at least some form.
And what of the position and activities of the Administration? Upon negotiating the Protocol, and also upon signing it in November of 1998, the Administration has been clear that it does not view the agreement as complete, since it lacks the "meaningful participation" of key developing countries. It has studiously avoided being either vocal or positive about the agreement, and has not entered into a public dialogue on how it might be implemented domestically. The Administration has spoken publicly about climate change and the weather, and has attempted to work with the Congress to soften some of the language on proposed riders and amendments. In a more proactive way, it has attempted to show the Congress that Kyoto implementation can be virtually "free" if roughly 80% of the emission reductions are obtained abroad. Internationally, it has mounted a vigorous campaign to convince developing countries that they must "meaningfully participate" in the Kyoto agreement if the United States is to eventually ratify it. And it has pursued efforts to see that the emissions trading and Clean Development Mechanism rules are agreed.
It is easy to conclude from this summary of activity in the United States that the current mood would not allow for ratification of the Kyoto Protocol. The Administration is unlikely to submit it to the Senate for its advice and consent in the near term, and, even if it were submitted, it would stand little chance of ratification. Too much delay in submission, however, would clearly diminish the likelihood of meeting the targets contained in the first budget period (2008-2012). Administrative process in the United States is time-consuming. For the Kyoto Protocol to become U.S. law, the Senate would have to grant its advice and consent; both Houses of Congress would have to pass implementing legislation that would then have to be signed by the President; and a designated Agency would have to draft rules and regulations that would have to go through formal notice and comment procedures before they could be finalized and then implemented. Given that such legislation and regulation would clearly result in regional and sectoral economic impacts, similar but more significant in both size and scope than those of the acid rain provisions of the Clean Air Act, the odds of all of this activity occurring by 2008 are very small indeed. We should not forget that it took more than a decade from the first discussions of how to regulate sulfur dioxide emissions for acid rain purposes to the promulgation of rules and regulations under Title IV of the Clean Air Act. There is no reason to believe that imposition of greenhouse gas emission controls would proceed on a more rapid timetable.
What of the developing world? Activity there has been concentrated on understanding the potential of the Kyoto mechanisms for delivering investment dollars for clean development. This has been a difficult challenge as the negotiations have become more technical and as the international meetings are more widely separated in time, making exchanges of views within the G-77 less frequent. But moving beyond the mechanisms, it is clear that developing countries are highly unlikely to take on new binding commitments. This is based in part on their fear that emission limitations would place unacceptable constraints on their economic development, as well as the view that, even among environmental issues, climate change is less of a priority than either air or water pollution. Finally, there remains a strong view that the developed world needs to take action first in a significant way. And experiences over the past year in both Argentina and Kazakhstan, where developing baseline information and growth assessments have proven remarkably intractable, suggest that even for countries that are willing to consider voluntary targets, the path forward is difficult.
What can we then say broadly about the state of Kyoto implementation? The answer seems to reside in two circles. In the first circle, we have the United States declaring that it will not ratify the Kyoto Protocol without binding commitments from developing countries, and the developing countries arguing that they will not accept new commitments without U.S. and other developed country actions to implement the Kyoto Protocol. In the second circle, we can see the United States indicating that it will not ratify the Protocol if there is a ceiling on the quantity of emission reductions that can be taken abroad, and the European Union firmly announcing that the United States and others must be forced to accomplish at least half of their emission reductions domestically. What we need is to find a way out of these circles, move the process forward, and actually begin to address the problem of climate change. And there are some encouraging signs in the United States that suggest that a way out is not impossible.
The first change that has occurred since the winter of 1997 relates to the broader acceptance of the science of climate change on the part of both the general public and among opinion leaders in the United States. While climate change skeptics remain, the fact that there has been and will be a change in the climate is far more widely accepted than it had been in the pre-Kyoto period. This has made it easier for both businessmen and politicians to turn their attention toward the solutions - the technologies and the policies - that will be necessary to address the problem. Thus while Kyoto still remains a bone of contention, even a lightning rod, the reality of climate change, and the necessity of finding ways to deal with it, have changed the nature of the debate in the United States.
Perhaps the strongest indicator of this change can be seen in the business community. As in other issues, responsible businesses are ahead of government in their willingness to acknowledge and work on this issue. This progressive stance became obvious when a large group of mostly Fortune 500 companies affiliated with the new Pew Center on Global Climate Change. In doing so, these companies announced publicly that they accepted the science, would establish their own emission reduction targets and meet them, viewed Kyoto as a first although incomplete step, and believed that addressing climate change can be compatible with sustained economic growth. The Center's Business Environmental Leadership Council now numbers 21 companies with combined annual revenues in excess of $550 billion. Some have already announced their emission reduction targets, all of which are at least as stringent as those in the Kyoto Protocol. One large Pew affiliated company, DuPont, has established a goal of a 65% reduction below 1990 levels by 2010, with an additional commitment of obtaining 10% of their energy needs from renewable sources. This is a stunning target, far in excess of the Kyoto negotiated 7% required for the United States as a whole. Even those companies that oppose significant action (being led primarily by the energy and transportation industries) have modified their positions. Many are inventorying their emissions, looking at technological solutions, and publicly claiming that they, too, are searching for solutions.
As the business community has split and become more openly progressive on the need to address the climate change issue, the Congress has also begun a slow transformation. Three bills dealing directly with climate change, the Murkowski-Hagel bill, the Chaffee-Lieberman bill, and the Lazio bill, have been introduced, and although their prospects for passage remain unclear, the fact that there is Republican-sponsored legislation that acknowledges the importance of the climate change issue reflects a significant shift in attitude. And it is no coincidence that most opinion polling done since Kyoto, of both the general public and opinion leaders, reinforce these views. In fact, many of the polls suggest, by wide margins, that there is a general recognition of the importance of this problem, an acceptance of the consensus science, a view that the United States should be a leader in developing technological solutions, and, interestingly, support for the Kyoto agreement even in the absence of action and commitments by other countries.
Finally, there is an enormous amount of energy that is now going into the definition of the Kyoto mechanisms and other issues left undone in the core Kyoto agreement. This energy, coming from government officials, environmental NGOs, and businesses, is a factor to be considered both in the United States and abroad. If the common view was that climate change was not a serious issue, or that the Kyoto agreement was, for all practical purposes, dead, it is unlikely that such a high degree of effort would be spent on defining it and refining it. Yet even in the United States, where the skepticism is clearly strong, working through the nuts and bolts of the agreement remains a priority for government and business alike.
What, then, can we say about the future of the Kyoto Protocol? Three things seem clear. First, given the political realities surrounding the Kyoto Protocol in the United States, it is unlikely that the treaty will enter into force in time to deliver on the first set of targets (2008-2012). Of course, if all other major emitting countries ratified the Protocol (including Europe and Russia), it is possible that entry into force could occur without the United States. But the chances of ratification from all of these countries in the absence of U.S. ratification are small. Second, the Kyoto mechanisms could be fully negotiated over the next several years, given the current state of debate and interest, although they would not take effect until the agreement entered into force. And finally, developing countries are unlikely to take on binding targets in the next decade, although many are taking significant actions. Whether they could be persuaded to continue taking these actions, even if it was clear that all developed countries (including the United States) had begun to take their Kyoto targets seriously, remains unclear.
These conclusions, in turn, raise a number of questions that deserve serious discussion. First, is it conceivable that the United States could ratify the Kyoto Protocol without developing country binding commitments? While unlikely, it is plausible if three conditions are met: first, US targets would have to be achieved without major difficulty, either because of changes in the economy, or by making them less stringent (either by lengthening the time required to meet them, or by reducing the level of reduction required); second, the Kyoto mechanisms would have to be available for use; and third, the biggest emitters in the developing world would have to be able to show convincingly that they are taking steps to reduce their emissions growth, and that these would continue during the period covered by the Protocol.
The second question that requires a response relates to whether a serious domestic emissions reduction program would be possible in the United States in the absence of a ratified international agreement. Such an effort would be necessary both to spur developing country activity, but also as a prerequisite for a serous response to the climate issue. Again, the development and implementation of such a program might be possible, beginning with either legislation that would protect emissions baselines for companies that voluntarily reduce their emissions, or with a credit for early action law that would actually provide an incentive for action. Such an effort could also possibly be expanded into proposals that would provide incentives for capital stock turnover or for the development of the carbon free technologies that would be necessary in the coming decades. Other market-based approaches might also win favor as the public policy debate moved forward.
Third, it is important to ask whether other countries that are responsible for significant emissions might move forward without the United States. At the present time, this seems highly unlikely, particularly since, even within Europe, some countries (e.g., the Netherlands) have tied their ability to ratify the Kyoto Protocol to U.S. ratification. But if it appears that U.S. ratification is increasingly unlikely over the next decade, it is not impossible for Europe to rethink its position and, in response to a green public, move forward unilaterally with emission reductions and incentives for technology development. Whether such an effort could actually take hold and spread to other large emitters (e.g., Japan) without U.S. participation is impossible to judge at this time.
All of these questions beg the obvious question: would it be better to throw out the Kyoto Protocol and start again? The answer here can only be a resounding "no!" When 150 countries spend almost a decade negotiating a complex international treaty, turning away from it in one or two years would raise more questions than could be answered. What would substitute for the Kyoto Protocol that would both be a start in addressing the issue and be more politically palatable, not only in the United States, but also elsewhere in the world? And how could such a proposal to abandon the Kyoto Protocol come from the United States, a country that engineered most of the Protocol's design? And if the United States did submit an alternate proposal, would it be credible to any country at all? The reality is that the Kyoto Protocol is unlikely to be cast aside even if it does not deliver on its 2008-2012 target, although it is almost certain to evolve over time with amendments and supplements that make it more effective, more comprehensive, and more practical. How then should we proceed?
There are at least three sets of actions that would go some distance in both moving the debate forward and achieving some real emission reductions. First, it is important to continue work on negotiating and clarifying the Protocol itself. Sensible rules and guidelines dealing with the operation of the Kyoto mechanisms (Clean Development Mechanism, joint implementation, and emissions trading) that do not involve re-negotiation of what was negotiated in Kyoto (i.e., no artificial ceilings) would be a start in making governments and affected entities more comfortable both with the process and with the product. There are, as yet, no protocols for achieving or assessing compliance. These need to be developed and negotiated. How sequestration, in forests and soils, should be treated requires considerable work, and should be undertaken in a thoughtful and systematic way. Many of these tasks are already included in the Buenos Aires Plan of Action. And whether the target dates in the plan can be met or not, the work should continue until satisfactory agreements are reached.
Second, a treaty is only as good as the actions of its parties in fulfillment of their treaty commitments. The United States and 178 other countries are now party to the Framework Convention on Climate Change. And while this treaty was judged by its parties to be inadequate to the task of dealing with the climate change issue, it does obligate the parties to take measures to reduce their emissions. In light of the obvious fact that Kyoto, or any progeny of Kyoto, does or will demand more actions rather than less, the United States and other governments should be implementing substantive programs that seriously respond to the overall Convention goal of stabilizing atmospheric concentrations of greenhouse gases at levels that will prevent dangerous anthropogenic interference with the climate system. The extent to which these programs are already tested or experimental, voluntary or mandatory, incentive-based or requirement-based remains to be debated and decided. But the fact that they need to be designed, discussed and implemented is incontrovertible.
And finally, neither the Framework Convention nor the Kyoto Protocol deal in a satisfactory way with what an equitable international commitment might actually be, now and in the long term. If we are to emerge from the current quagmire of "who goes first," we will need the outlines of a broader framework that is based on a realistic assessment of what is actually occurring around the world on this issue, and takes into account, at a minimum, the issues of responsibility (past, present and future) and the ability to pay for climate mitigation. Beginning this dialogue within national governments is essential; and taking it forward into the international arena is a necessity if we are to make progress in addressing the very serous and challenging issue of climate change.
Developing Countries & Global Climate Change: Electric Power Options for Growth
By: Mark Bernstein, Pam Bromley, Jeff Hagen, Scott Hassell, Robert Lempert, Jorge Munoz, David Robalino, RAND
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
Understanding the possibilities for greenhouse gas emission reductions in developing countriescan inform the debate over long-term equitable commitments and global participation in a climate change regime. This study investigates policy and technology choices in the electric power sector that can lower carbon dioxide and other air emissions, while maintaining or improving economic growth.
The standard projection shows electric sector CO2 emissions in developing countries nearly tripling over the next twenty years as a result of investments of approximately $1.7 trillion. This sector already represents 10 percent of global emissions. The study presents four alternative paths for new power generation that could maintain economic growth and reduce new emissions to levels below this projection:
- Including the costs of electricity delivery - not just generation - makes planning and investment decisions more efficient and makes distributed renewable energy more viable, decreasing CO2 emissions by up to 2.5 percent;
- Increasing privatization of the electricity sector could reduce CO2 emissions by up to 1 percent and boost economic benefits by up to 5 percent;
- Using low-emissions technologies - for example, increasing the use of natural gas and renew-ables - could reduce CO2 emissions by almost 25 percent while producing the same economic benefits; and
- Increasing the efficiency of electricity supply and demand could reduce CO2 emissions by roughly 10 percent in one scenario.
T hese findings were based on an aggregated analysis and may not hold for individual countries.For similar benefits to accrue, specific reforms that account for national conditions would have to be implemented in each country. Countries could also participate in the Clean Development Mechanism to increase the available up-front financing to accomplish these reforms.
This report is the fourth in a series by the Center for Climate and Energy Solutions examining policy questions both domestically and internationally. Five case studies - evaluating electric power options in more detail - will be published for Argentina, Brazil, China, India, and the Republic of Korea.
The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new coopera-tive approach and critical scientific, economic, and technological expertise to the global climate change debate. The Pew Center and its Business Environmental Leadership Council believe that climate change is serious business. Better understanding of those sensible actions that reduce emissions without hurt-ing the economy brings us closer to a serious solution.
In 1995, 34 percent of global carbon dioxide (CO2 ) emissions were produced by electric power generation, approximately one-third of which came from developing countries. Between 1995 and 2020, developing countries will invest roughly $1.7 trillion building 50 percent of all new global power generation capacity. If these investments are made according to business-as-usual (BAU) investment trends, CO2 emissions from developing country power generation will nearly triple their 1995 levels within 20 years.
This report presents the results of a RAND study that suggests that BAU investment trends are not the only path to strong economic growth. If developing countries adopt different policies and plan-ning methods for their power generation sectors, technologies other than those included in BAU projec-tions could provide lower local and global environmental impacts and produce similar or even higher economic benefits. This study compared the possible impacts that different policies and technology mixes could have on economic growth, air pollution, and CO2 emissions from new electric power genera-tion in developing countries.
In order to consistently and quantitatively examine the economic and environmental impacts of different policies and mixes of power generation technologies, this study developed a simulation model that sought to capture the macro-level relationships between electric power generation, economic growth, and capital investment in the world's developing countries. The simulation model was used to compare current forecasts and BAU trends for electric power to several policy alternatives that also met projected capacity needs. The policy alternatives investigated in this study were: the inclusion of infra-structure costs in new capacity investment decisions; the acceleration of private-sector participation in power generation; the use of low-emissions technologies; and improvements in energy efficiency.
Figure ES-1 presents the range of potential CO2 emissions based on this study's findings. The upper bound of this range shows that accelerated privatization could, under some circumstances, increase new CO2 emissions up to 20 percent relative to BAU investment trends that include infrastruc-ture costs. Other scenarios could decrease the expected growth. Low-emissions technologies could reduce that growth by almost half.
Press Release: New Study Shows Options In Developing Countries To Lower Emissions and Maintain or Improve Economic Growth
For Immediate Release:
June 16, 1999
Contact: Kelly Sullivan/Heather Fass
New Study Shows Options In Developing Countries To Lower Emissions and Maintain or Improve Economic Growth
Study Identifies Four Policy Alternatives for New Power Generation
WASHINGTON, D.C. — A report released today by the Pew Center on Global Climate Change concludes that developing countries can reduce emissions from power generation while maintaining or improving economic growth.
Current projections show a near tripling of carbon dioxide emissions from electric power in developing countries over the next 20 years, which represents 10 percent of all projected emissions. The role of developing countries in any eventual international protocol on climate change is one of the major outstanding issues in determining long-term equitable commitments and global participation in a climate change regime.
"The findings in this study - Developing Countries and Global Climate Change - represent a major step forward in the climate change debate," said Eileen Claussen, executive director, Pew Center on Global Climate Change. "This study shows that developing countries do not have to choose between protecting the environment and ensuring their economic future - they can do both."
The study was conducted for the Pew Center by RAND, a non-profit corporation that seeks to improve public policy and decision-making through research and analysis. Originally founded by the US Air Force to focus on national security issues, RAND has addressed many of the nations' most pressing policy problems for more than 50 years. Today, RAND's research includes topics as diverse as national security, energy and the environment, health care and education, and numerous other topics.
The report assesses the $68 billion likely to be invested annually in new generation capacity. While "business as usual" trends nearly triple carbon dioxide emissions within 20 years, the report details four alternative paths that decrease carbon dioxide and other emissions relative to current expectations, without impeding economic growth.
- First, including the costs of electricity delivery - not just generation - makes planning and investment decisions more efficient and makes distributed renewable energy more viable, decreasing carbon dioxide emissions by up to 2.5 percent;
- Second, increasing privatization of the electricity sector could reduce carbon dioxide by up to one percent and boost economic benefits by up to five percent;
- Third, increasing the use of natural gas and renewables could reduce carbon dioxide emissions by almost 25 percent with the same economic benefits; and
- Fourth, increasing the efficiency of electricity supply and demand could reduce carbon dioxide emissions by up to ten percent.
The findings were based on an aggregated analysis and may not hold for individual countries.
"The study findings offer a blueprint for progress," said Claussen. "But progress in the developing world will not build itself. The industrialized world has an important role to play in supporting reforms that will allow these benefits to accrue."
Claussen also noted that participation in the Clean Development Mechanism or other international mechanisms could increase the available up-front financing to accomplish these reforms.
This overview report will be followed by five detailed case studies examining electric power generation in Argentina, Brazil, China, India and the Republic of Korea.
The findings in the study will be highlighted in a print advertisement supported by the Pew Center, which is scheduled to appear in The New York Times, The Washington Post, National Journal, Roll Call and The Economist.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
The Pew Center includes the Business Environmental Leadership Council, which is composed of 21 major, largely Fortune 500 corporations all working with the Pew Center to address issues related to climate change. The companies do not contribute financially to the Pew Center - it is solely supported by contributions from charitable foundations.
Turning Down the Heat: Finding Solutions for Global Warming
April 22, 1999
Good morning. Thank you for inviting me to speak here in this idyllic setting, with the White River and the mountains, truly a perfect backdrop for Earth Day 1999. The subject of the program Turning Down the Heat: Finding Solutions for Global Warming is also ideal. Addressing global warming will be one of the great challenges of the 21st century, a challenge that must be met by both my generation and your generation. It is clearly a multi-year and multi-generation task - and a topic where even the best minds may have difficulty charting a sustained and effective course. But for us to begin on the path toward solutions, we should start with a modest list of needs:
First, we need to begin with a realistic assessment of where we are in addressing this issue, both nationally and internationally;
Second, we need to begin now to seriously reduce our greenhouse gas emissions;
Third, we need to chart a course for a long term response, and begin laying the groundwork for that response; and
Finally, we need to muster the will to stay the course until we are successful in meeting the challenges of global warming.
My less than optimistic view is that we are far from coming to grips with this issue, both as a nation and as a world. And we certainly have not yet shown that we have the will to stay the course. In fact, I think the best way to illustrate our situation would be to think briefly of a painting by Pieter Brueghel titled "The Fall of Icarus." As many of you know, in Greek mythology, Icarus is the son of Daedulus, an architect and inventor who developed the labyrinth. When Daedulus and Icarus were later imprisoned in the labyrinth, Daedulus created wings of wax for both himself and his son so they could escape. They managed to flee the labyrinth and flew away. But Icarus, failing to heed his father's advice, flew too close to the sun, his wings melted, and he fell into the sea and drowned. In the Brueghel painting, as Icarus falls into the sea, no one pays any attention. The ploughman continues ploughing his field, the ship does not come to the rescue. If there is a disaster, it is someone else's disaster, and does not warrant a change in course. Well, Icarus we shouldn't be; the ploughman we cannot be.
So let us begin with a realistic assessment of where we are, and then perhaps we can chart a course for change.
Where We Are
Beginning with the science, which is the basis for dealing with this issue, I believe we can simply say that sufficient scientific knowledge exists that supports taking action. The world's best scientists agree that the earth will warm somewhere between 1.5 and 6.3 degrees Fahrenheit over the next century. They also agree that that warming will have significant impacts on the world in which we live: sea level is projected to rise between 6 and 37 inches, because water expands when heated, and because some glacial ice will melt. In addition, we can expect to lose some ecosystems, stress our already depleted water supplies, see our crop production and agricultural practices change with regional consequences, and see increases in the spread of infectious disease. Extreme weather events may also increase in frequency. Most scientists also agree that rising temperatures can be attributed, at least in part, to human activity, and, absent any effort to alter that human activity, will only result in greater temperature increases over time.
But this emerging consensus of concern has not resulted in a similar consensus for action. While it is true that opinion polls in the United States and globally suggest, by a strong margin, that the public believes that global warming is a serious issue, it is still not high on either national or global agendas. And this view is confirmed and strengthened in a survey of opinion leaders done recently for the Pew Center. In this research, completed in January of 1999, we found that 68 percent of opinion leaders (based on a sample drawn from the 1998 edition of Who's Who) believe that global warming represents a serious threat, and 61 percent are of the view that it is happening now. Seventy-six percent of these opinion leaders also believed that the United States should reduce emissions even in the absence of action by other countries, a conclusion that is supported across party lines. The strongest reasons for taking action include the desire to leave a legacy for future generations, and avoiding human suffering, and ecosystem loss.
In partial response to green public opinion, discussions of global climate change in Europe have been more constant and more politically charged than in the U.S.. And European governments have taken a more aggressive stand in the international negotiating process. But even in Europe, actions have not equaled words. Most EU governments continue to struggle with making significant reductions (beyond those garnered from loss of the industrial base in the former East Germany, or the phasing down of coal use in the United Kingdom), and some expect their emissions to grow substantially. In the United States, the debate is highly polarized, and the Administration and the Congress have been unable to agree on either a program to slow the growth in greenhouse gases, or on the funding needed for climate technology development.
But on neither continent (and certainly not in other parts of the world) has the public's concern been translated into public action. Consumer automobile purchases reflect low gasoline prices, and not the need to reduce carbon emissions. Green energy markets (where non-fossil energy is supplied) are beginning to grow, but consumer purchasing of green power still remains a choice of the few and not the many.
This lack of public will translates easily into a lack of political leadership. For while the Kyoto Protocol was agreed in December 1997, with an overall 5 percent reduction below 1990 levels to be achieved by 2012, government consultations on implementation of the agreement have been slow and contentious. The European Union, for example, has chosen to use these ongoing negotiations to redefine some of the basic parameters that were agreed in Kyoto, while the United States has indicated that it will not make any attempt to ratify the agreement until other agreements (that further define the Kyoto market mechanisms and that more deeply involve developing countries) are completed. The work plan agreed to in Buenos Aires in November 1998 contains over 152 separate items - an indication that not that much - or at least not enough -- was actually agreed the year before in Kyoto.
But if this picture looks bleak - with a concerned, but unmotivated public and a lack of leadership from governments - it is important to note that some shifts in behavior have actually occurred over the past year. In the United States, this shift can be seen in two ways. Most importantly, some in the private sector have begun to take significant actions to deal with their own emissions. BP Amoco, for example, has set a target to reduce its own emissions by 10% below 1990 levels by the year 2010. Shell International has a target of 10% below 1990 levels by 2002. United Technologies has committed to reduce its energy and water consumption per dollar of sales by 25% below 1997 levels by 2007. DuPont will reduce it global greenhouse gas emissions by 45% below 1991 levels by 2000. And Baxter International has reduced the global warming impact of its emissions by 81% since 1990. All 21 companies affiliated with the Pew Center on Global Climate Change are beginning to inventory their emissions and assess their opportunities for emission reductions. And while these companies are the exception rather than the norm, they do reflect a change - and a beginning.
I believe that we are also seeing a change up on Capitol Hill. At the beginning of this year, 12 Senators from across the political spectrum, including Senators Chaffee, Lieberman, Mack, Voinovich, Jeffords, Baucus, and Warner, introduced a climate change bill that would provide credit to companies that reduce their emissions when a regulatory program to control greenhouse gas emissions is enacted. Senators Murkowski, and Hagel are considering legislation that would provide incentives for technology research and development. It is also likely that we will see bills dealing with climate change introduced in the House over the next several months. So while these bills represent a wide range of views, they do indicate a change of tone and substance - the Congress recognizes that climate change is an issue that cannot be avoided and it is at the table thinking about possible solutions. And as I mentioned earlier, support for reducing greenhouse gas emissions even outside of an international agreement, is supported by opinion leaders without regard to political party.
A Short Term Plan
Addressing the climate change issue will require actions both in the short term and the long term - in the short term because without early and constant action we will not be able to address all of our long-term concerns. I would like to suggest that there are at least four items we can tackle now.
First and foremost, we should try to put in place a straightforward system to give credit to those corporations and entities that want to take early action to reduce their greenhouse gas emissions. We should not force progressive companies to make a choice, on the one hand, of investing in emission reducing technology now and risk being punished for it later, or, on the other hand, to forego investment to develop or install climate friendly technology for a decade or more. Failure to adopt a program to give credit for early action will essentially compel industry to defer action to avoid the uncertainty of how their actions will be treated by the government when more comprehensive programs are put in place.
Congress should step up to this issue and provide a legislative framework that will allow industry to undertake the emission reductions that will change our current course of emissions growth and result in a downward emissions trend. Of course I do not want to paper over some of the difficult questions that must be answered if we are to have an effective credit for early action program. How do we assure that the reductions that are credited are real and verified? How do we provide enough of an incentive for action, and yet do not over-mortgage the budget allocation for the United States in the Kyoto Protocol should it be ratified and enter into force? And how should we handle high-growth sectors, where emissions per unit of output may be significantly decreased, but where overall company-wide emissions may rise with vastly increased output? I would simply argue that these questions are all relevant for future carbon control activities, and we would do well to begin to work on the answers now.
It is also critical in the short term that we put in place programs and incentives for the development and diffusion of clean, green technologies. While it is important to take account of sectoral capital cycles, it is also important that we do not readily accept future investments in equipment that is not climate-friendly where alternatives are available. Such an effort should start now, but should not be geared to short term investments. Consider the 50 plus year lifetimes of power generation equipment, heating and cooling systems, and aircraft. Or consider the lifetime of simple refrigerators and freezers, where efficiencies have improved approximately 70 percent over the past 10 years, but where the old appliances still predominate in U.S. households.
As we move forward on a lower emissions path, and as we begin to invest in cleaner technologies, we must also focus our analytical efforts on developing sound methodologies and experimenting with new policy approaches. We should not fool ourselves into thinking that the requirements for addressing global climate change are simple, or even that we have a full understanding of those requirements. If we are to support carbon sequestration in trees and soils, obviously a sensible thing to do, we must develop accurate baselines and accounting systems. If we wish to control all greenhouse gases, we will need to significantly improve our ability to count those emissions in ways that can easily be monitored and verified. As we move toward establishing corporate baselines and conducting inventories, we need to deal with issues ranging from how to account for baseline changes as a result of mergers and acquisitions to whether to include employee travel as part of company-wide emissions reduction plans.
And the learning required does not stop with methodological issues. While we may have successfully implemented a sulfur dioxide emissions trading program in the United States, this does not mean that we have fully assessed what might be required for a greenhouse gas system with inter-gas, intra-company, inter-company and inter-country trading. In fact, one of the most interesting experiments now being conducted is the BP Amoco intra-company trading program, a multi-country, multi-facility effort that has already seen five trades completed at an average price of less than $20/ton. But more experimentation and learning is necessary if we are to launch a system for the global control of all greenhouse gases that will not only reduce emissions, but will do so in a manner that supports a growing global economy.
Long Term Needs
Of course no amount of short-term activity will be sufficient for dealing with what is clearly a long-term issue. We are, after all, dealing with greenhouse gases that accumulate over decades and stay in the atmosphere for thousands of years. So I would suggest that we also begin to focus on three longer term needs: the need to build stronger international capacity to deal with climate change; the need to build global institutions capable of handling topics ranging from Clean Development Mechanism projects to monitoring, verification and compliance activities; and the need to resolve global participation concerns in ways that balance effectiveness and equity.
Negotiating a regime for the control of greenhouse gas emissions and then implementing that regime on both international and national levels are highly complex tasks. Yet the capacity of most countries, particularly in the developing world, is limited. An international system is only as good as the national systems that support it. If enough nations do not implement policies to achieve their negotiated emission reductions, then globally we will not meet our targets. If there are doubts whether some nations' reductions and calculations are real, then trading markets will suffer and compliance on the part of other countries is at risk. Help with building this kind of national capacity is necessary if we are to lay the groundwork for international implementation, and we should begin now to engage this task.
And international implementation requires strong, credible and lean institutions. While some believe that most countries comply most of the time with most international treaties, reality requires that there are institutions that build trust among countries, that minimize free riders, and that maximize the incentives to comply. These institutions do so by developing methodologies, and providing assistance with implementation. They do so by developing clear, transparent processes rather than black boxes. And they do so by being both effective and efficient, a must in a climate control regime where we will likely see the creation of a competitive market for trade in emissions reductions.
But these national and international systems will only be useful if equitable participation in the international agreement is established. Global carbon dioxide emissions totaled about 28 billion metric tons in 1995. The United States is the largest emitter of these gases, both historically and currently. We are also very high on the scale of emissions per person. If we go back to 1950, our cumulative carbon emissions total 180 billion tons. Russia, the number 2 emitter, is 2/3 less, followed by China, Germany and Japan. To get more personal about it, our emissions amount to about 19 tons per person per year. But per capita emissions are 12 tons in Russia, 10 tons in Germany, 9 tons in Japan, 2 ½ tons in China, and less than ½ ton in Kenya.
For now, only 39 countries - albeit 39 of the higher emitting countries - are required to reduce their emissions of greenhouse gases. But just as there are wide disparities among countries in terms of responsibility for carbon emissions, so also are there wide disparities in the ability to pay for reductions, and the opportunities countries have for making reductions without reducing economic growth. Annual GDP per capita calculations using purchasing power parity vary from $460 to $26,000, the latter being more than $460 per week. In fact, the world's three richest individuals hold assets that are greater than the combined wealth of the 48 poorest countries. Developed countries are ½ as energy intense (measured in terms of energy used per unit of GDP) as developing countries, which are, in turn, ½ as energy intense as the Eastern European/Former Soviet Union countries.
Yet to find solutions to global warming, most countries will have to participate in a global regime. Finding an appropriate metric for the equitable distribution of the burden will be a most difficult task, one that has not been joined in the international negotiating process in a thoughtful and thorough manner. In fact, the United States has insisted on developing country participation - not an unreasonable position if solutions to the problem are to be found, and the developing world has insisted on the lead being taken by the developed world, also not an unreasonable position, and one that is consistent with the Framework Convention on Climate Change. What remains, and what is essential, is to come to some accommodation on what can be achieved both politically and practically to satisfy both equity and effectiveness concerns. It is not too early to begin this dialogue now.
Staying the Course
Of course, finding solutions to the climate change issue will require sustained effort over decades - on the part of governments, who must establish the rules and modify them as we learn more of the science, and as technological solutions begin to manifest themselves; on the part of industry, who must innovate, manufacture, and operate under a new paradigm where climate change will drive many decisions; and on the part of the public, who must also switch to a more climate-friendly path in their purchases and in their lifestyles. Can we muster the will to meet this challenge, and can we stay the course, knowing that it will be difficult and convoluted at times?
To stir your thinking, I would like to offer this quote from Alice in Wonderland, where Alice asks the Cheshire Cat: "Would you tell me, please, which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat. "I don't much care where---" said Alice. "Then it doesn't matter which way you go," said the Cat. "---so long as I get somewhere," Alice added as an explanation. "Oh, you're sure to do that," said the Cat, "if only you walk long enough."
Well, we can't afford to walk long enough. We must know where we are going, and we must begin on the path to solutions. Today.
"Defining an Agenda for Global Action"
By Eileen Claussen, Executive Director for the Pew Center on Global Climate Change
Appeared in the Washington Post
November 2, 1998
As the world focuses on this week's meeting in Buenos Aires, it is important to set a global agenda that will spur action and help us meet the aim of the United Nations Framework Convention on Climate Change (UNFCC): stabilizing atmospheric concentrations of greenhouse gases at levels that will prevent dangerous human interference with the climate system.
This global agenda should be based on concerted action on three fronts, in the view of the Pew Center on Global Climate Change. We need to:
- Take Action Now. One of the core beliefs of the Pew Center is that we accept the views of most scientists that enough is known about the science and the environmental impacts of climate change for us to take action to address its consequences. The challenge for our generation is to do this while sustaining a growing world economy. To meet this challenge, the nations of the world must take concrete steps to reduce greenhouse gas emissions. The sooner we begin, the more likely we will be to succeed in meeting the overall goal of stabilizing greenhouse gas concentrations in the atmosphere. What is needed is a framework that will encourage companies to act sooner rather than later.
In the United States, we believe that the appropriate framework is an early action crediting program that will reward companies for actions they take to reduce emissions before the Kyoto Protocol starts providing international credit for emission reductions in 2008. This framework must be delineated by law, be clear and predictable, reward real and verifiable reductions, and be principally but not exclusively based on actions taken here at home.
- Develop Market Mechanisms. There is a growing body of evidence that market-based incentives can prompt individuals and companies to take action to protect the environment. These market mechanisms also have been proven successful in spurring technological innovation. As part of the Kyoto Protocol, countries have agreed to use several of these mechanisms in implementing greenhouse gas reductions - from emissions trading to the "clean development" framework that allows industrialized countries to get credit for financing emission-avoiding projects in developing nations.
What is needed, however, is to go beyond the language of the Kyoto Protocol and to design the rules and operating procedures that will turn its words into reality. Our goal must be to insure that climate-friendly actions make economic sense for companies, and to make sure companies are confident that their actions will be accounted for.
- Create a Fair Global Framework. What constitutes a fair response to climate change is the major question underlying many unresolved issues in the global debate on this topic. The "fairness question" drives the levels of commitment of industrialized countries and is a deciding factor in the discussion of developing country participation, the structure of market-based mechanisms, and the nature and magnitude of different countries' financial commitments to the goals of the Protocol.
We believe that three criteria should be considered in differentiating country obligations. They are: a country's responsibility for emissions that can cause climate change; a country's standard of living (or the ability to pay for efforts to reduce emissions); and a country's opportunity to reduce emissions. Based on these criteria, we can divide countries into three groups: those that must act now; those that should act now, but differently; and those that could act now if it were feasible.
Resolving these three issues is critical to the success of the Kyoto agreement, and it is our hope that they are the focus of the conversations in Buenos Aires and in the international negotiations to come.
Press Release: New Study Provides Framework To Determine Fair Commitments For All Countries In Global Climate Treaty
For Immediate Release:
October 29, 1998
Contact: Kelly Sullivan
New Study Provides Framework To Determine Fair Commitments For All Countries In Global Climate Treaty
Using Country-Specific Data, Report Addresses Major Obstacle Of Contributions By Industrialized and Developing Nations
WASHINGTON, D.C. - A new study released today by the Pew Center on Global Climate Change could help address one of the most significant and polarized issues in the debate over a global climate change treaty. The examination of global equity, released just days before the next major meeting of Framework Convention on Climate Change in Buenos Aires, for the first time differentiates the obligations of countries based on three criteria: responsibility for the emissions that cause climate change, standard of living or the ability to pay for mitigation, and the opportunity countries have to reduce greenhouse gas emissions.
Using these criteria, the report, "Equity and Global Climate Change," suggests that countries can be grouped into three tiers each with a different level of commitment to reduce emissions. The first tier is comprised of countries that must act now. The second tier includes countries that should act now but differently than the first tier. And, the third tier is made up of countries that could act now if feasible.
"We cannot begin to address the climate change issue until we are able to resolve what is fair to expect of each country," said Eileen Claussen, Pew Center Executive Director and a co-author of the report. "Until now, people have assumed that there would be one standard for the industrialized countries and another for developing countries. To tackle the climate change problem fairly and effectively, we must get beyond these simple divisions and agree upon a sound and constructive framework."
The Pew Center on Global Climate Change analysis confirms many assumptions about the responsibilities of certain countries but it also produces some surprises. For example, under the framework suggested by the study:
Tier one is comprised of 30 countries that have the greatest obligation to act because of their high emissions and standard of living. Many of these countries also have opportunities to improve their energy efficiency. This tier covers most industrialized countries including the U.S. and European nations, but also countries like Argentina and South Korea.
Tier two includes 52 countries that fall in the middle range using the three criteria. These countries should act in order for the international community to effectively reduce greenhouse gas emissions, but their obligations should be somewhat different than the first tier, typically because their standard of living is below the world average. Both developed and developing countries fall into this tier including China, India, Brazil, Russia, and Bulgaria.
Tier three countries, 74 in total, contribute less to the problem and have fewer resources to mitigate their emissions. This tier includes countries like Vietnam, Bolivia and Morocco.
Along with the release of its report, the Pew Center On Global Climate Change will begin running advertising in both US and international publications. Featuring a baseball scene, the ads say, "Its time to step up to the plate on climate change," and call on each country to take the field, work to the best of its abilities and do its fair share to beat the climate change problem.
"There should be no debate over the fact that the solution to global climate change requires the support of the entire international community," Claussen said. "The framework established by this report can help bridge the political divide that has stood in the way of international action and created uncertainty in markets across the globe."
A copy of the report, "Equity and Global Climate Change," is available on the Pew Center web site at http://www.c2es.org.
The Pew Center was established in May 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Pew Center is conducting studies, launching public education efforts, promoting climate change solutions globally and working with businesses to develop marketplace solutions to reduce greenhouse gases. The Pew Center is led by Eileen Claussen the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
The Pew Center's Business Environmental Leadership Council includes: Air Products and Chemicals, Inc.; American Electric Power Company; Baxter International Inc.; Boeing; BP America; CH2M HILL; DuPont; Enron Corp.; Holnam Inc.; Intercontinental Energy Corporation; International Paper; Lockheed Martin; Maytag Corporation; The Sun Company; 3M; Toyota; United Technologies; U.S. Generating Company; Weyerhaeuser and Whirlpool. DuPont and CH2M HILL are the two newest members of the council, announced earlier today.
Click here to read a copy of the report, "Equity and Global Climate Change."
Equity & Global Climate Change: The Complex Elements of Global Fairness
October 29, 1998
(Reprinted June 2000)
Eileen Claussen and Lisa McNeilly, Pew Center on Global Climate Change
Eileen Claussen, President, Pew Center on Global Climate Change
What constitutes a fair response to climate change is the main question underlying many of the unresolved issues in the climate change debate. It is behind the questions of the level of commitment by industrialized countries, the type of participation to be undertaken by developing countries, the structure of the various trading mechanisms, and the nature and magnitude of financial obligations. What has been missing from the debate, however, are consensus principles that define equity in the context of this issue.
This report, which offers insight on global equity, is the second in a series by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic and technological expertise to the global climate change debate.
Using the language already in the Framework Convention and the Kyoto Protocol and the way equity has been invoked in other international treaties as a backdrop, the report lays out a new paradigm. We suggest that three criteria—responsibility for the emissions that can cause climate change, standard of living (or the ability to pay for climate change mitigation), and opportunity to reduce emissions—should be considered in differentiating country obligations. Based on these criteria, the report suggests that it is appropriate to divide countries into three groups rather than two: those that must act now; those that should act now, but differently; and those that could act now if feasible. We hope that these ideas will stimulate debate and draw us toward an objective and transparent approach to this critical cause.
The Pew Center and its Business Environmental Leadership Council believe that climate change is serious business. Fairness demands that countries step up to the plate.
Of the many pending issues within the climate change debate, the question of what constitutes equitable international commitments may be the most difficult to address. Long-unresolved divisions about the distribution of resources and equitable access to them must be considered by climate change negotiators in order to agree on a fair and effective global response. Failing to do so may result in the most inequitable outcome of all, by leaving those who have to face the disproportionate burden of the impacts with few options to address the problem.
There are several philosophical approaches to equity, although the concept remains complex and difficult to define. It can be based on allocation of property rights or on the determination of who is most responsible. Some argue for achievement of the greatest good for the most people, while others are more concerned with minimizing the impact on the least fortunate or with plain common sense.1 There are also many aspects of equity—from maintaining a fair process to ensuring equity for a range of out-comes (baselines, limitations, compliance, monitoring, reporting, etc.). This paper does not review these philosophies in outlining general principles of equity for the climate change debate. Recognizing that pragmatic issues could dominate international discussions, the paper argues for focusing on these principles as early as possible and for using a transparent process.
We propose a new approach to equity, involving three criteria—responsibility, standard of living, and opportunity. Clearly, determining who is responsible for causing the problem is one factor in a fair response to climate change. In line with the "polluter pays" principle, this would include not only who emitted the most in the past, but also who will emit the most in the future. In addition, both national total and per capita contributions are relevant here. A second factor can be represented by national income per person. Looking at relative standards of living might affect who pays for climate change miti-gation, who takes action, and when they are required to take those actions. A third, pragmatic, factor would be opportunity. If one country can more cheaply reduce emissions than another, then it perhaps should be asked to do so.
The paper also outlines a set of principles that could guide negotiations:
- All nations should be able to maintain or improve standards of living under a global climate change mitigation regime. Consequently, climate change mitigation should focus on alternative low-carbon development paths that don't reduce economic growth.
- More broadly, the outcome of FCCC negotiations should not undermine or hinder progress toward the goal of sustainable development.
- The countries most responsible for greenhouse gas concentrations in the atmosphere should be leaders in the effort to reduce emissions.
- All nations should work to the best of their abilities — or with help from other countries — to reduce emissions either absolutely or relative to business-as-usual trajectories.
- The world should take advantage of emission reduction opportunities where they exist.
These principles and these criteria lead to differential treatment for three—rather than the current two—groupings of countries. They also may lead to different actions being asked of countries within these groups. There is a group of "Must Act Now" countries who score high on both the responsibility and standard of living factors; these should be the leaders. There is a group at the opposite end of the spectrum—"Could Act Now"—who score low on at least two factors who should not be asked to take many actions now. The middle group would consist of those countries who score higher on some factors, but lower on others—"Should Act Now, But Differently." The principles above will drive what is asked of these countries.
We hope that these principles, factors and groupings lead to improved international discussions of equity, at the very least, and, even better, to a solution that all parties believe is fair.
Discussing equity in the context of climate change could require taking on a broad range of topics. By and large, this paper will only address consequential equity (outcome), on the assumption that procedural equity (process) will be addressed in other forums, and will largely confine the discussion to the outcomes of who takes on obligations and at what degree of stringency. Negotiations on other outcomes—compliance mechanisms, monitoring and verification systems, etc.—could easily be driven by the same conclusions presented here. For simplicity of presentation, the paper only refers to emission reductions, but efforts related to sinks of greenhouse gases are assumed to be covered by the same points. One other large aspect of equity—related to the distribution of costs and benefits of climate change mitigation within countries, especially the impact on labor and competitiveness—is important enough to warrant a separate analysis.
Market Mechanisms & Global Climate Change
Annie Petsonk, Daniel J. Dudek and Joseph Goffman, Environmental Defense Fund,
in cooperation with the Pew Center on Global Climate Change.
Eileen Claussen, Executive Director, Pew Center on Global Climate Change
There is growing evidence that providing businesses and consumers with market-based mechanisms for addressing environmental problems can achieve equal or better compliance while reducing costs and spurring technological innovation. In the context of climate change, countries have agreed to use several market-based mechanisms in implementing greenhouse gas emissions reductions-from emissions trading similar to that used in the United States to reduce sulfur dioxide emissions to more experimental measures such as joint implementation and the Clean Development Mechanism.
This report, which analyzes market-based environmental policy instruments, is the third in a series by the Center. The Pew Center was established in 1998 by the Pew Charitable Trusts, one of the nation's largest philanthropies and an influential voice in efforts to improve the quality of America's environment. The Center brings a new cooperative approach and critical scientific, economic and technological expertise to the global climate change debate. The report was prepared as an input for the participants of two international conferences designed to promote a trans-Atlantic dialogue on market-based instruments and their use in mitigating global climate change. Recognizing the critical role of business in both shaping and applying market-based mechanisms, the Pew Center is working to bring businesses from both the United States and Europe together to discuss ways to do so.
The report reviews U.S. and European experience with market-based mechanisms and the ways the Kyoto Protocol on Climate Change utilizes these mechanisms. The report finds that properly designed rules for the operation of these mechanisms can provide economic and environmental integrity and signal to business and governments that any trades undertaken in accordance with the system will be valid and of value. Key elements to the success of such a system will be measurement, transparency, accountability, fungibility and consistency.
The Pew Center and its Business Environmental Leadership Council believe that climate change is serious business. Implementing emissions trading and other market-based mechanisms will be part of a serious response to the climate change problem.
This paper has been developed with a view toward promoting trans-Atlantic dialogues on market mechanisms for environmental protection. While the overarching topic for dialogue is the full panoply of environmental problems for which market mechanisms may be considered, this paper is prepared in the context of increasing global attention to the problem of climate change. The November 1998 Buenos Aires Conference of the Parties to the United Nations Framework Convention on Climate Change provides an example of the international focus on market mechanisms among governments, the private sector, and non-governmental organizations around the world.
This paper reviews market mechanisms for environmental protection, with special focus on emissions trading. Emissions trading programs place an overall limit on the amount of emissions that sources may emit, and then allow sources a degree of flexibility to determine where, when, and how to meet their total limits. Emissions trading programs provide this flexibility by allocating to sources a fixed amount of emissions allowances; any source that reduces emissions below allowable levels may save the resulting allowance increment to offset future emissions, or sell the increment to another source who may add the increment to its allowances. Compliance is determined solely by comparing actual emissions to allowable amounts.
The paper notes that five elements are essential for providing environmental and economic integrity in such programs: measurement, transparency, accountability, fungibility, and consistency. In reviewing the experiences of the U.S., New Zealand, and Europe, the paper finds that harnessing the competitive forces of the market-place in favor of pollution reduction can enable governments, industries, and non-governmental organizations (NGOs) to reach political consensus about pollution limits. Experience also indicates that when these elements are firmly in place, emissions trading programs can deliver powerful incentives to sources to innovate to develop more environmentally effective and more cost-effective ways of reducing emissions. Trading programs premised on these elements can achieve faster, deeper cuts in pollution, at far less cost than other regulatory instruments.
The 1997 Kyoto Protocol on Climate Change seeks to use market mechanisms to limit the emissions of greenhouse gases (GHGs) that are contributing to changes in the global climate. The paper examines the Kyoto Protocol framework for an innovative international market in GHG emissions reductions. The Protocol places a legally binding limit on the allowable amount of GHG emissions from most industrialized countries for the period 2008-2012. It then affords these nations the opportunity to trade allowable amounts of emissions, either directly or in conjunction with joint emissions reduction projects. It further allows these nations to implement their obligations collectively, through shared arrangements known as "bubbles" or "umbrellas."And the Protocol invites the participation of nations that have not adopted a legally binding GHG limit: it allows a limited form of trading between nations with limits and those without, where the trading involves emissions reductions obtained through cooperative projects in the latter group of nations.
The paper notes that the Kyoto Protocol respects the sovereignty of each participating nation to determine how best to implement its international obligations at the domestic level, and whether, in so doing, it should allow its private sector to participate in the international emissions trading market. The Protocol leaves open the development of internationally agreed rules to provide the transparency, the accountability, and-particularly in the case of trading with nations lacking limits on GHG emissions-the measurability that may be key to the Protocol's success. Further, the Protocol allows each nation that adopts emissions limits to decide whether to initiate programs prior to 2008 that will provide recognition and incentives for early actions to reduce emissions. The Protocol does not address the question of whether nations will, individually or collectively, place quantitative or qualitative restrictions on emissions trading.
After exploring the theory of market mechanisms, examining their implementation in selected cases, and analyzing the market elements of the Kyoto Protocol, the paper draws on lessons learned from practical experience in order to identify and evaluate options on the questions left open by the Protocol. The paper indicates that for environmental and economic effectiveness, experience weighs in favor of a limited set of rules-carefully drawn to foster measurement, transparency, accountability, fungibility, and consistency-and weighs against imposing further restrictions on the market mechanisms.
This paper includes a compilation and synthesis drawn from the sources and materials listed in Appendix I. The authors, Annie Petsonk, Daniel J. Dudek, and Joseph Goffman, are, respectively, International Counsel, Senior Economist, and Senior Attorney with the Environmental Defense Fund. The authors wish to acknowledge the insights gleaned from conversations with Christoph Bals, Marianne Ginsburg, Anke Herold, Jos Cozijnsen, Jennifer Morgan, Sascha Müller-Kraenner, Hermann Ott, John Schmitz, and Jonathan Wiener. Any errors or omissions are solely the responsibility of the authors.
This report was one input into two conferences on market-based mechanisms, which were held on 23 and 27 October, 1998, in Bonn and Paris. The conferences provided an important forum in which participants, including representatives of businesses, non-governmental organizations, and governments, shared practical experience about the use of market mechanisms, and provided valuable insights about the trans-Atlantic context for consideration of the report's findings.
Beyond Kyoto: An Agenda for the Next Decade
Speech given by Eileen Claussen, Executive Director
The Pew Center on Global Climate Change
American Enterprise Institute
September 14, 1998
I am sometimes reminded, when I talk about global climate change, of a painting by Pieter Brueghel titled "The Fall of Icarus". In Greek mythology, Icarus is the son of Daedulus, an architect and inventor who developed the concept of, and actually designed the labyrinth. When Daedulus and Icarus were later imprisoned in the labyrinth, Daedulus creates wings of wax for both himself and his son so they can escape. They manage to flee the labyrinth and fly away, but Icarus flies too close to the sun, his wings melt, and he falls into the sea and drowns. In the Brueghel painting, as Icarus falls into the sea, no one pays any attention. The ploughman continues ploughing his field, the ship does not come to the rescue. If there is a disaster, it is clearly someone elses disaster, and does not warrant a change in course.
There are two ways to apply this myth and painting to global climate change. First, we could view ourselves as Icarus approaching the sun with wings of wax. Clearly, then, we would want to change course, and fly at a different altitude. But we could also view ourselves as the ship or the ploughman, knowing, but not responding to what is about to happen. In this case, we should want to pay attention, and put in place a system so that when Icarus falls from the sky, we could move quickly to rescue him.
I would like to argue today, that we should look at the climate change issue in both ways. We, in the United States, should begin changing course, and taking steps to reduce our emissions of greenhouse gasses. We are, after all, the largest emitter of greenhouse gasses, with the largest gross domestic product (GDP), and the largest GDP per capita (expressed as purchasing power parity). At the same time, we know that this is a long term, global issue that demands a global response. So we should also be building the national and international systems to deal with this issue over time and with the active participation of all nations.
As we begin to discuss an agenda for the next decade we should take stock of where we are on the climate change issue, both domestically and internationally. Beginning with the science, or the basis for dealing with this issue, I believe we can simply say that sufficient scientific knowledge exists that supports taking steps to address mans emissions of greenhouse gasses. If we then look domestically, it is fair to say that:
- First, we are still on a course of increasing emissions of greenhouse gasses. The Energy Information Agency suggests that without policy interventions, we are likely to increase our emissions annually over the next decade.
- And second, the domestic climate change debate is highly polarized and politicized. It is centered on the Kyoto Protocol, and whether or not it should be ratified now or in some amended form at a later time. There is little focus on what should be done constructively to address the problem.
Internationally, the picture is quite different.
- First, in Kyoto, all of the countries in the world agreed that binding reduction targets should be established for developed countries. But the developing countries were and are unwilling to accept emission targets at the present time. Still, more than 50 countries have already signed the Kyoto Protocol.
- Second, there is some understanding globally that all major emitting countries must participate if we are to achieve long term success in avoiding growth in emissions of greenhouse gasses. This is particularly true given that developing country emission growth rates are expected to increase by 2.9 percent annually over the next decade.
- And third, there is broad support for flexible mechanisms to deal with established emission targets, although this support is greatest in the United States.
Finally, I would like to make one point that brings us back to where we began. And that is that irrespective of what happens to the Kyoto Protocol, the issue of climate change will not disappear and global pressure to reduce emissions of greenhouse gasses will not abate. Icarus, we shouldnt be; the ploughman we cannot be.
So what agenda would be most practical and effective in moving actions to deal with the climate change issue forward? Perhaps a modest beginning would be most appropriate.
A National Agenda
The first item on the United States agenda should be to depoliticize and depolarize this issue in Washington. If we can move beyond political agendas and focus on economically sound, stable, and serious actions to reduce greenhouse gas emissions, we will provide a platform for business planners to look to the future. And looking to the future will allow them to develop cost effective investment strategies that will permit the needed replacement of capital equipment with greenhouse friendly technologies. If we fail to do this, we risk losing the opportunity to gain competitive advantage in clean technologies. And, additionally, if we wish to be efficient, we must begin now to plan for the longer term.
Our view that we need to put politics aside and begin to develop environmentally sound and economically justified programs to reduce greenhouse gas emissions is rooted in the current state of the science. This is not to say that major areas of scientific uncertainty do not exist. They obviously do, and part of our agenda must be to continue the necessary research to address those uncertainties and to increase our knowledge of the likely effects resulting from emissions of greenhouse gasses. However, the scientific basis is too deep-rooted to disappear, and it is the combination of scientific knowledge, the international agreement among 170 countries that developed nations need to act within the next decade, and the need for developing and implementing environmentally and economically justified programs, that led us to the conclusion that we need to depolarize this issue domestically now so that we can move forward.
To facilitate moving forward to address the climate change issue, our second agenda item should be to design a straight forward system that will recognize and give credit to those corporations that want to take early action to reduce greenhouse gas emissions. We as a nation should not force progressive companies to make a choice, on the one hand, of investing in emission reducing technology now and risk being punished for it later, or, on the other hand, to forego investment to develop or install climate friendly technology for a decade or more. Failure to adopt a program to give credit for early action will essentially compel industry to defer action for the next decade to avoid the uncertainty of how their actions will be treated by the government when more comprehensive programs are put in place. We believe that the Congress should step up to this issue and provide a legislative framework that will allow industry to undertake the emission reductions that will change our current course of emissions growth and result in a downward emissions trend. If we fail to take this step, we risk falling behind other countries in the contest for the development and marketing of clean technologies. We should take a lesson from history, and compare the U.S. auto industry of two decades ago with the information technology industry of today. In the climate change case, we can anticipate that both domestic consumers and international trading partners will pay ever more attention to climate friendly technologies, and we will need policies that will more strongly encourage our domestic industry to be there first Moreover, if we fail to encourage early action we will shorten the time horizon during which those who emit greenhouse gasses will need to take action to fulfill our national commitment should the international obligations agreed in Kyoto become binding on the United States. Such a compression of the time horizon for taking action will certainly lead to higher costs than would a more orderly program initiated earlier.
Our agenda for the next decade should also include exploring the type of system that we should install over the longer term. The domestic system should be market based and should allow the economy to grow as it protects the environment. Development of such a system will require participation by all levels of government, Federal, state and local as well as the private and nongovernmental sectors. This is a problem of enormous scope that will affect every individual and business in this country and around the world. We need to work together in partnership, to achieve our objectives - protection of the environment and continued economic growth.
And as we develop our national programs, we must also assure that our system will be not only efficient, but also fair. Should every sector be treated equally? We know that the opportunities for reducing emissions are not uniform across all sectors, since some have already taken steps to reduce their energy intensity and others have not, and some have significant further possible advances and others have not. Should we consider not only responsibility for the problem, but also opportunity for dealing with it? And how should we deal with the obvious labor issues, where some sectors will clearly be impacted, and where whole regions may suffer significant consequences? Surely, equity and transition issues must become a part of our national agenda, and a key component of our deliberations as we move to design a national system for dealing with this issue over the longer term.
Thus our third agenda item must be to begin the dialogue on how to move forward over the long term and then begin taking action in accordance with the results of that dialogue. We know there are policies and programs that can lower the costs, and we should analyze and discuss all alternatives. We know there are likely to be sectors of the economy that will be more impacted than others, and we should have discussions about how to achieve our environmental and economic goals in ways that minimize the costs and impacts, and treat those who will be adversely affected in ways that are fair and equitable.
Some will say that this is a pipe dream. However, we should also learn from history here. When we were faced with the oil embargo, we became more energy efficient and economic growth was, of necessity, decoupled from energy consumption in the decade following the embargo. Today, we are more energy productive than we were 25 years ago. Thus, when we have a national will and appropriate policy support, we can achieve goals that seemed beforehand to be unachievable. Dealing with climate change provides us with a similar challenge. We should take it, and use it to strengthen our national economy.
An International Agenda
As we move to implement a national agenda, we also need to address this issue internationally. We need to consult thoughtfully with other nations so that our expectations for international programs are grounded in reality, a consultation that will be facilitated and made more effective if we are taking steps at home to address this issue. Whatever view you hold of the Kyoto Protocol, it does provide for transboundary market based programs to encourage climate friendly development. Our first international agenda item should therefore be to carefully study and understand the potential of these mechanisms and develop programs to maximize their effectiveness. Emissions trading, joint implementation, and the Clean Development Mechanism are still in their formative stages. Working out international systems that are effective, efficient and equitable, and then developing the international institutions to deal with them are not simple tasks. It will require many years of effort from governments around the world, with their private sectors actively involved. Those who would argue that the next meeting of the Parties in Buenos Aires is a failure if it does not come to conclusion on rules to implement any of these mechanisms should have their motivations examined. Decades, with many high points and low points, were spent building the World Trade Organization. Our expectations for what can be achieved and over what time frame must be realistic; we will be lucky indeed if any of the market-based mechanisms are operational by the turn of the century.
A final agenda item, and one where both the domestic and international dialogue is emotional, rather than analytical, and where the polarization is strongest, involves how best to move all nations on to a change of course. It is clear from both an environmental and an economic point of view that all nations must take steps to reduce their emissions. But fashioning a system -- and a timetable -- that deals with this issue has, despite the rhetoric, hardly begun.
The views of the developing world on the subject of what has come in this country to be called meaningful participation have barely changed since the Kyoto Conference, where any effort to define participation was met with total and complete opposition. Yes, there are several countries, particularly in Latin America, that continue to be positive about both their future role and also the need for global solutions to the climate change issue. And South Korea has indicated that it is willing to voluntarily reduce its emissions beginning in 2018. But the vast majority of developing nations have not indicated any interest in going beyond their current commitments to take policies and measures to reduce their emissions consistent with their goals of poverty alleviation and economic development.
Why not? Two answers immediately come to mind. First, the developing countries are clearly waiting to see whether the developed countries take the lead in combating climate change and the adverse effects thereof (Article 3.1 of the Framework Convention on Climate Change). The record of the developed countries, particularly the United States, in achieving the aims of the Convention has not been a strong one. And it is clear that the developing countries are waiting to see whether the Kyoto Protocol elicits a more effective response from the developed world.
And second, and equally important, we have yet to address the issue of what a framework for equitable obligations might be. The United States, which argued the most strongly for developing country action prior to Kyoto did not, in fact, put down more than a marker that would indicate future commitments from developing countries. And the only proposals that have been put forward suggest that a fair and equitable regime would require the convergence of per capita emissions among all nations. But there has been a complete absence of debate on this very important issue, a debate that will be necessary before an agreement on what should be required (and what is fair) can be reached. Clearly, this is a very important agenda item for the next decade.
It is a hefty agenda. At home, it includes depoliticizing the issue, providing a legislative framework for early, voluntary action, and designing an emissions reduction system for the long term. Abroad, it includes building the systems and institutions to deal with the market based mechanisms that are in the Kyoto Protocol, and developing an effective and equitable framework to guide the participation of all nations. But if we are thoughtful, and work both domestically and internationally to achieve consensus rather than division, we can move forward economically and begin the long process of curtailing and reducing emission of greenhouse gasses. If we set an agenda for the next decade that addresses the five issues I have discussed, we should be able to avoid the mistake of Icarus and not fly too close to the sun.