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Climate change is a global challenge and requires a global solution. Through analysis and dialogue, the Center for Climate and Energy Solutions is working with governments and stakeholders to identify practical and effective options for the post-2012 international climate framework. Read more

 

International Emissions Trading & Global Climate Change: Impacts on the Cost of Greenhouse Gas Mitigation

International Emissions Trading & Global Climate Change:  Impacts on the Cost of Greenhouse Gas Mitigation

Prepared for the Pew Center on Global Climate Change
December 1999

By:
Jae Edmonds, Michael J. Scott, Joseph M. Roop, and Christopher N. MacCracken, Battelle, Washington, DC

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Several factors influence the costs of greenhouse gas mitigation. This report illustrates the importance of one such factor—international emissions trading—in reducing the costs of carbon control. The authors find that an international greenhouse gas emissions trading regime will significantly lower global mitigation costs. Specifically, the report finds:

  • The costs of controlling carbon emissions would be significantly lower if trade is permitted than if each country is required to meet its obligations alone.
     
  • Providing greater flexibility in trading mechanisms—for example, allowing trading among various greenhouse gases and across emissions sources, and allowing trades to occur over time—lowers the costs.
     
  • Emissions trading reduces the potential for "leakage" of jobs, industry, and emissions compared to a control case with no trading because changes in world fuel prices would be moderated through the availability of trading.
     
  • While broader participation in trading is likely to yield greater benefits, any amount of trading will lower the costs for those participating. If a climate policy regime is in place that allows emissions trading, all parties—with or without obligations—are better off trading than not.
     
  • Issues of program design and institutional structure must be addressed carefully to realize the full economic potential of trading regimes.
     
  • By making transparent the core structure and assumptions of economic models, the Pew Center hopes to provide policy-makers and consumers of economic information with tools to better understand the important assumptions driving the models’ projections of costs.
     

This report is the first in a series designed to explore how economic models address the climate change issue. The first phase of this effort will make a direct and significant contribution to economic modeling in the following four areas: (1) review of existing models and identification of their key assumptions; (2) investigation of the models’ theoretical frameworks; (3) encouraging best practices in modeling specific aspects of the climate change issue; and (4) integrating innovative modeling practices into a state-of-the-art assessment of the costs of climate change and the policies used to address it.

The second phase of the Pew Center’s economics program will focus on how businesses react to climate change—and policies to ameliorate it—in the context of sound business strategy and practice. The Center is in a unique position to provide insight into the inner working of firms through the participation of our Business Environmental Leadership Council.

The Center and authors appreciate the valuable input of several reviewers of previous drafts of this paper, including Ev Ehrlich, Judi Greenwald, Eric Haites, Elizabeth Malone, and others.

Executive Summary

One of the earliest and most robust findings of economics is that, where relative costs of performing an activity differ among individuals, business firms, or regions, there are almost always potential gains from trade. In today’s jargon, trade can always be win-win. Traditional approaches to addressing environmental problems have generally not taken advantage of this potential. Rather, command and control regulatory policy instruments have been the tools of choice. While these tools can be effective in reaching an environmental goal, they can also be expensive. Recently environmental policy-makers have begun to explore ways of obtaining more environmental benefits per dollar expended, and the use of emissions trading has been on the cutting edge of these efforts. Because climate change is an issue that requires a sustained policy commitment over the course of a century, attention to the cost of policy intervention is especially important. This paper explores the degree to which trade among parties to an international agreement can reduce the cost of greenhouse gas reductions.

International trade holds the potential of reducing costs of controlling world emissions of greenhouse gases (GHGs) because the nations of the world experience very different costs for achieving emissions reductions on their own. However, the potential gains from trade, like the costs of compliance themselves, may be very unevenly distributed across the world’s participants. While all of the parties to an agreement stand to gain collectively under trade in emissions rights as compared with "independent compliance" (i.e., each country meeting its obligations alone), non-participants in the agreement may either benefit or not depending on their own particular circumstances. The detailed rules for trading affect how effective trading could be, as well as the level of gains that would be captured in practice. Details of the trading rules will influence both the total gains from trade and distribution of such gains. Key issues include definitions of the emissions rights to be traded, the rules for crediting carbon sinks, and regulations governing participation in the trading framework. In addition, there are economic uncertainties, such as the behavior of countries that have significant market power in supplying emissions credits, and the transaction costs associated with trading and enforcement. These effects could significantly increase the costs of mitigation compared to the most favorable case and could reduce the amount and benefits of trading.

A number of global economic models have been used to estimate the effects of emissions trading. Empirical results derived from these models can be summarized as follows:

  • Costs of controlling carbon emissions would be significantly lower if trade in carbon emissions allowances were permitted than if each nation had to meet its emissions reduction responsibilities alone. The broader the trade possibilities, the lower the costs of control.
     
  • All parties with GHG emissions mitigation obligations benefit from trade. Both permit buyers and permit sellers will benefit.
     
  • Parties without obligations may be better or worse off under a trading regime relative to a regime that does not allow trading. However, given a regime that allows trading among parties with obligations, parties without obligations will be better off trading (i.e., selling emissions reductions) than not trading.
     
  • Because the costs of fuels could be affected by emissions control and emissions trading, countries and regions may be affected whether or not they participate in emissions reduction and in emissions trading. Parties without obligations may be either better off or worse off after obligations are established for others. For example, if emissions trading is prohibited, the prices paid to fossil fuel producers are reduced, and the energy-exporting countries are worse off relative to a no-control case. Emissions trading mitigates this effect. Results for other non-participating regions are more ambiguous.
     
  • Gains from trade are sensitive to the difference between the base case and target emissions and to the difference in marginal (incremental) abatement costs among countries. For any limit to emissions, the higher the future level of emissions is expected to be without intervention, the more difficult and costly mitigation is expected to be. Although the gains from trade depend on the differences between countries’ marginal abatement costs, not their absolute level, the analysis in this paper shows that the gains from trade are larger for more ambitious emissions targets.
     
  • The actual cost savings from trade in emissions are likely to be less than the theoretical savings shown in most analyses performed with integrated assessment models because these models do not include the various measurement, verification, trading, and enforcement costs that would characterize any real trading system. Programs must be carefully designed to assure that the potential gains from trade are realized.
Christopher N. MacCracken
Jae Edmonds
Joseph M. Roop
Michael J. Scott
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Developing Countries & Global Climate Change: Electric Power Options in India

Developing Countries & Global Climate Change: Electric Power Options in India

Prepared for the Pew Center on Global Climate Change
October 1999

By:
P.R. Shukla, Indian Institute of Management, Ahmedabad
William Chandler, Battelle, Advanced International Studies Unit
Debyani Ghosh, Indian Institute of Management, Ahmedabad
Jeffrey Logan, Battelle, Advanced International Studies Unit

Download Entire Report (pdf)

Foreword

Eileen Claussen, Executive Director, Pew Center on Global Climate Change

The electric power sector in India is characterized by low per capita energy use, rapid growth in demand, heavy losses in transmission and distribution, and tariffs well below average costs. Coal dominates usage, which combined with hydropower represents 85 percent of generated power. The power sector is responsible for half of India's carbon dioxide emissions, which were 92 million tons in 1995. Even with the prospect of market and industrial reforms, the 'business-as-usual' path for India in 2015 increases both generating capacity and carbon dioxide emissions by around 150 percent over 1995 levels. But the scenarios modeled in this study show that growth in emissions can be reduced to only 60 percent greater than 1995 if progressive sustainable development policies are implemented.

What are the drivers that will influence future technology choices in India?

  • The ability of India's power producers to fuel-switch and lower carbon dioxide emissions is heavily dependent on the availability and cost of alternative fuels (especially natural gas). In the scenario simulating stricter local environmental controls, this restriction steers decision-makers to sulfur control equipment and does not necessarily lead to reductions in coal use. On the other hand, striving to attain sustainable development goals can reduce costs and capacity needs, and achieve the most dramatic reductions in carbon dioxide emissions.
  • Market reforms can lower costs by 11 percent and carbon emissions by 7 percent through a reduction in the need to build more power plants through increased supply efficiency and earlier availability of new technologies.
  • More widespread adoption of cost-effective energy efficiency measures could also reduce carbon emissions by 23 percent and sulfur dioxide emissions by 60 percent, by reducing demand for power by around 15 percent.

Developing Countries and Global Climate Change: Electric Power Choices in India is the third in a series examining the electric power sectors in developing countries, including four other case studies of Korea, China, Brazil, and Argentina. The reports findings are based on a lifecycle cost analysis of several possible alternatives to current projections for expanding the power system.

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. The Pew Center believes that climate change is serious business and a better understanding of circumstances in individual countries helps achieve a serious response.

Executive Summary

Electricity consumption in India has more than doubled in the last decade, outpacing economic growth. The power sector now consumes 40 percent of primary energy and 70 percent of coal use. This sector is the single largest consumer of capital, drawing over one-sixth of all Indian investments over the past decade. Despite these huge expenditures, electricity demand continues to outstrip power generating capacity, leaving a 12 percent electricity deficit and a 20 percent peak power shortage.

The government has assumed the predominant role in electricity supply in the post-independence era. State electricity boards (SEBs) and power corporations plan and govern power plants financed with state funds. SEBs in particular are wide open to political influence and tariff distortions. Operational inefficiencies grew in the absence of competition and financial discipline, undermining the power sectors financial health. By the early 1990s, the sector was overdue for sweeping reforms to enhance revenues and mobilize investment in the short run, and to change ownership and the regulatory structure in the long run. Reforms underway fall broadly into the categories of SEB corporatization, privatization of power corporations, unbundling (vertical divestiture), and regulatory restructuring.

Despite enhanced competition from other fuels, coal remains the mainstay of power generation in India. The present power technology mix relies on domestic coal to provide three-fifths of the countrys power; large hydroelectric dams provide about one-quarter. Gas-fired power has grown from almost nothing to one-twelfth of total generation in the last decade due to the reduced risk associated with lower capital requirements, shorter construction periods, diminished environmental impacts, and higher efficiencies. Nuclear power contributes less than 3 percent to total generation and renewables (other than large hydro) just over 1 percent. India has a significant program to support renewable power, exemplified by wind power capacity that rose from 41 megawatts in 1992 to 1,025 megawatts in 1999.

Power transmission and distribution has suffered from losses amounting to over one-fifth of generated electricity, more than double the level of most countries. An institutional restructuring process began in 1989 to consolidate various suppliers and distributors under an agency called "Powergrid." Faced with unreliable power supply, many industries have invested in on-site power generation that now accounts for 12 percent of total capacity.

The phenomenal rise in agricultural electricity consumption is due to greater irrigation demand by new crop varieties and the very low price of electricity provided to that sector. The average electricity tariff in India is 20 percent below the average cost of supply. The gap is mainly due to subsidized rates for agriculture. Industrial consumers pay higher costs and provide a cross-subsidy that was worth over US$5 billion in 1997, equal to almost half of power sector investments that year.

Concerns about the environmental impacts of power plant projects have grown in the past twenty years. The power sector contributes about half of Indias carbon, sulfur, and nitrogen oxide emissions. Hydroelectric projects also have generated social concerns. Dam construction has forced the relocation of many Indians, a problem the government has handled poorly. Managing environmental and social impacts has therefore drawn considerable attention in policy-making, project development, and operations. 

Debyani Ghosh
Jeffrey Logan
P.R. Shukla
William Chandler
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Press Release: New Analysis Outlines Opportunities for Korea and India to Reduce Emissions and Maintain Economic Growth

For Immediate Release:
October 27, 1999

Contact: Lisa McNeilly(Bonn)/Kelly Sullivan(USA)
(202) 289-5900

New Analysis Outlines Opportunities for Korea and India to Reduce Emissions and Maintain Economic Growth:  Studies Presented at COP 5

BONN, GERMANY-— Two case studies presented today at COP 5 outline realistic opportunities for Korea and India to address the challenge of climate change. The studies commissioned by the Pew Center on Global Climate Change examine ways to reduce emissions without comprising economic growth.

The studies are the subject of a roundtable discussion today at COP 5. Talks here will depend on a clear understanding of actions taken by developing countries to address local environmental and economic concerns, and how these actions might impact greenhouse gas emissions.

Similar to other developing countries, power demand in both India and Korea is outpacing economic growth. Electricity consumption in India and Korea has more than doubled in the last decade, and both countries expect to at least double their power supply again over the next 15 years. The energy choices these countries make today will affect the local and global environment for years to come.

"This analysis shows that there are reasonable and realistic opportunities developing countries can and are taking today to begin responding to the challenge of climate change," said Eileen Claussen, President of the Pew Center on Global Climate Change. "The recommendations offer a clear roadmap for progress, moving the debate from the theoretical to the practical."

The Korea Energy Economics Institute and the Advanced International Studies Unit at Battelle completed the case study on Korea's electric power choices. The Indian Institute of Management, Ahmedabad, also worked with Battelle to conduct the analysis on India's electric power choices.

The studies are part of a series that began with an overview report, Developing Countries and Climate Change: Electric Power Options for Growth, which was released earlier this year. In addition to the case studies on India and Korea, the series also will include reports on Argentina, Brazil, and China. All the case studies are being conducted and completed by in-country authors to ensure a balanced and informed assessment.

The studies use a least-cost model to test the effect of various scenarios on the mix of power generation technologies. The impact of these technology choices on costs and emissions are estimated through 2015.

The Korean analysis yielded several interesting insights:

  • Additional restructuring of the power sector and reform of industrial policy can reduce emissions of carbon dioxide by 9 percent relative to the "business-as-usual" path, with slightly lower costs per unit of electricity generated. Increasing the supply of natural gas and reducing import tariffs on that fuel have similar results.
  • Korea could boost economic performance, improve environmental quality, and ensure greater energy security by accelerating energy efficiency efforts. By reducing demand for power by 15 percent, these efforts could also reduce carbon and sulfur 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 sulfur dioxide (59 percent) and carbon dioxide (28 percent), with only a small increase in costs.
  • Korea's economy and environment could benefit from advanced technologies such as fuel cells and wind power if research and development is accelerated and capital costs decline as a result.

The Indian case study also identified several key opportunities:

  • Strict control of local pollutants may not necessarily lead to reduced coal consumption, because of limited supplies of low-cost natural gas. On the other hand, striving to attain sustainable development goals can reduce costs and capacity needs, and achieve the most dramatic reductions in carbon dioxide emissions (60 percent over 1995 levels, but 35 percent below business-as-usual).
  • High economic growth does not have to lead to excessive coal emissions; instead, stricter emissions control and greater financial resources might cause a shift to cleaner fuels and more energy-efficient coal technologies.
  • Natural gas use increases in all scenarios, indicating that enhancing the gas supply is a vital energy policy measure. For those cases where gas use increases the most, the analysis shows that carbon emissions can be reduced from 11 percent (by accelerating market reforms) to 23 percent (by more widespread adoption of cost-effective energy efficiency measures).

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 supports businesses in developing marketplace solutions to reduce greenhouse gases, produces analytical reports on the science, economics and policies related to climate change, launches public education efforts, and promotes better understanding of market mechanisms globally. Eileen Claussen, former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs, is the President of the Pew Center.

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.

Climate Change: A Challenge to the Conventional Wisdom

Climate Change: A Challenge to the Conventional Wisdom

Eileen Claussen
Executive Director, Pew Center on Global Climate Change

World Aviation Conference
San Francisco, California

October 20, 1999

Good morning. I had a lovely flight to San Francisco yesterday. So let me begin by thanking you for making that possible. And we can wait until my presentation is over to see whether you think I deserve a smooth flight back. I must tell you that I accepted your very kind invitation to speak at the World Aviation Congress because I thought it would be a perfect place to challenge two pieces of what could be called "the conventional wisdom:" the first is that industry always opposes responding to environmental problems by initially doubting the scientific basis of the problem, then arguing that responding to the problem is too costly, and finally, arguing for a delayed timetable for the response; the second is that leadership on public policy issues must always come from government.

But before I challenge these views, it may be useful for me to provide a little background on the global climate change issue. I believe this issue represents one of the most significant challenges of the next century: it's a science issue and an environmental issue; a global issue and a national issue; a technology issue and a fairness issue; a business issue and an economics issue. It is not likely to go away in the short term no matter what we do. And, if we don't do anything, it won't go away in the long term either. So let me give you a brief sketch of what we know and where we stand, and then spend a little time talking about practical solutions, the Pew Center on Global Climate Change, and the aviation industry. In so doing, I hope that I can convince you that the best response to the conventional wisdom is real information, analysis, assessment, and action, and that some in industry, and in the aviation industry in particular, are clearly up to the task. My job, I think, is to inspire all of you to take on this challenge and help provide the leadership that we need and that is so sorely lacking.

But to begin at the beginning, let's look at the science. The earth's atmosphere is made up mainly of oxygen and nitrogen, but it also contains other naturally occurring gases, including water vapor, carbon dioxide, methane and nitrous oxide, that are responsible for a natural greenhouse effect. Without this natural greenhouse effect, the earth would be about 34 degrees colder than it now is. But atmospheric concentrations of these gases have been rising, particularly since the late 1800's, as has the average surface temperature of the globe, which has warmed by 0.6 degrees centigrade. In their analyses of these and other data, most of the world's best scientists are agreed on two things: that the earth will continue to warm (we estimate 1.3 to 4.0 degrees centigrade by 2100), and that human-induced greenhouse gases will be at least partly responsible for that warming. I don't want to over simplify the consensus that exists here. There remain significant uncertainties (like how the formation and dissipation of clouds affect the climate), and there remain skeptical scientists. But the greatest uncertainties surround not whether there is, or will be, a change in the climate, but rather what the impacts of that change will be, where they will be felt, and when.

What do we know about the impacts of climate change? If the amount of warming over the next century is as currently predicted, it is quite clear that there will be a rise in sea level, estimated to be between 17 and 99 centimeters. For the United States, the rate of warming is expected to be noticeably faster than the global mean rate, particularly across the northern Great Plains and the northeastern states. These temperature changes are expected to increase winter precipitation in northern latitudes, increase the frequency of extremely hot days, and decrease the frequency of frosts. Changes in the incidence of daily precipitation extremes are highly uncertain, although there is some evidence suggesting an increase in the frequency of wet extremes. The effects of these temperature and precipitation change on agriculture, water resources, coastal resources, health and ecosystems are expected to be regionally significant. For example, while climate change is not expected to threaten the ability of the United States as a whole to feed itself, regional patterns of agricultural production are likely to change, and many crops will have to be grown in more northerly latitudes. Similarly, we can expect climate change to have impacts on our nation's water supply because of increased flooding in northern latitudes and snow-melt driven basins. At the same time, the frequency and severity of dry spells and droughts is also predicted to increase, although at different times and in different regions. Sea-level rise, with concurrent increases in storm frequency and/or intensity, is likely to affect some of our coastal areas, particularly the Atlantic coast, the Louisiana delta and the San Francisco basin. But my objective here is not to give you a laundry list of possible or probable environmental effects, but simply to suggest that we know enough about the science and the environmental impacts of climate change to begin taking steps to address its consequences. We all live in worlds where we analyze risks, make decisions, and take appropriate actions based on our risk assessments. This issue is clearly at a stage where we must move beyond denial and debate, and focus ourselves on rational action.

Rational action. It is probably a concept that we can all find appealing. But it seems to me that it is easier to say it than to take it, particularly when we are dealing with an issue like this where polarization of views is the norm, and coherent discourse and problem solving are rare. As some of you may imagine, and others of you may know first hand, this is a highly political issue, and I mean "big P" political: Republicans v. Democrats; Europe v. the United States; developed countries v. developing countries. It is also a "small p" political issue: scientists associated with the Intergovernmental Panel on Climate Change v. skeptical scientists; industry winners v. industry losers; the Kyoto Protocol as the solution to the climate change issue v. Kyoto as an agreement that will never enter into force. So perhaps I can be most helpful by giving you a little context, and then moving into a discussion of some practical paths forward.

In thinking about the climate change issue, it is both obvious and easy to suggest that climate change is a global problem that demands a global solution. And, of course, it is true. Greenhouse gases emitted in Delhi can affect the climate in Dallas, just as emissions in Chicago can affect the climate in Calcutta. On the other hand, global solutions cannot be found unless individual nations, businesses, and even individuals search for, and implement their own solutions. We have a broad global framework negotiated in 1992 and now ratified by 179 countries, including the United States, that establishes an overall goal of preventing dangerous anthropogenic interference with the climate system, and requires all countries to take policies and measures to reduce their greenhouse gas emissions, consistent with their circumstances and abilities. We also have the Kyoto Protocol, negotiated in December of 1997, and now signed by 84 countries, including the United States, and ratified by 15. This protocol establishes legally binding emission reduction targets for developed countries (7% below 1990 emission levels for the United States by 2012). It also allows for emissions trading and joint implementation among countries with targets, as well as use of a Clean Development Mechanism for project-based emission reductions between developed and developing countries. But perhaps the best way to look at the Kyoto Protocol is to look at what it does not contain, and what remains to be done.

It does not, for example, include any emission reductions or limitations beyond a first step for developed countries only. This is an obvious problem, since successfully addressing the matter requires more than one-step as well as participation from countries beyond those in the developed world. Yet the Protocol does not come to grips with what future steps might look like, for either developed or developing countries, or even what the framework for making decisions on these steps might be. What are the factors that should be considered in determining appropriate obligations for different countries or groups of countries to reduce or limit their emissions? To what extent should responsibility for the problem, past, present and future be a factor? Should it be tempered by a country's ability to pay for mitigation activities? Should emission rights be granted to countries based on historic emission levels, or should they be distributed on a per capita emissions basis? And what kind of system is effective, practical and fair?

The protocol does contain a framework for achieving emission reductions where they will be most cost-effective by including provisions on emissions trading, joint implementation, and the establishment of a Clean Development Mechanism, but it provides no specifics on how these mechanisms might work. It includes the possibility of sequestering carbon in forests and soils, but contains no specifics on how carbon that is sequestered should be included in a nation's total emissions budget. And it does not contain any provisions related to compliance, another issue that requires a serious and thoughtful response.

But as a practical matter, it seems to me that a framework for international action to deal with the climate change issue will evolve over the next decade no matter what current national and global politics suggest about the Kyoto protocol. And if you take this view of the inevitability of global action, and couple it with the view that the science is compelling enough to begin taking serious steps to address it, then the emphasis shifts to action frameworks and actions closer to home: national actions, company actions, and individual actions.

So where do we stand domestically? Unfortunately, the complications at home are as daunting as the complications abroad. While there is concern, interest, and a willingness to act on the part of the general public, some in the business community, and some in government, particularly at the State and local levels, the issue is now enmeshed in difficult and frustrating partisan politics. While the science remains somewhat controversial (although far less than even one year ago), it is the Kyoto Protocol that has raised the tensions dramatically. It is rare, in Washington, to be able to get past the question of whether to support Kyoto or declare it dead. As a practical matter, this has translated into arguments on the size and scope of the climate change budget, debates over whether Federal employees should be allowed to talk about the Kyoto Protocol, and attempts to use economic analysis to prove either that Kyoto implementation would ruin the economy or that it would be virtually free. What it has not translated into is the further development and implementation of programs that would change the expected trajectory of greenhouse gas emissions, or the passage of legislation that would either protect the 1990 baseline for companies that have voluntarily reduced their emissions over the past decade or provide incentives for more companies to move forward with emission reduction efforts.

I feel compelled to add here that the situation in the United States is unique among the countries of the world. The United Kingdom is now in the process of planning a domestic emissions trading experiment. The Danish government has already secured legislative authority to implement a trading program, and other emissions trading programs are under development in Norway and Sweden. The Germans are implementing a modest tax program. The Netherlands has a more traditional program full of different policies and measures that has been approved by their parliament. Whether these programs will work, or how well they will work, remains uncertain. But they do reflect serious attempts to experiment and move forward, to take the risk necessary to determine what approaches will ultimately be successful. There is even movement in the less developed world: privatization of the electricity sector is moving forward in India, where competition is expected to increase the use of natural gas and lower greenhouse gas emissions; Korea is beginning to plan for opening up their power sector to competition, again with a projected increase in the use of natural gas; and China, which has dramatically lowered its energy consumption per unit of output over the past decade, is on a path to continue making significant energy intensity improvements over the next decade.

Can more be done to deal with this problem than is apparent from the current level of activity? Of course. But if the U.S. government, or global governments more broadly, are either not able to come to grips with the more challenging issues that must be addressed, or unwilling to exercise real leadership, who will? I believe the answer is obvious and already in evidence, and I hope you will forgive me for the following advertisement. When the Pew Center on Global Climate Change was formed in May of 1998, there was little that was pushing 13 companies (the Washington Post, in an editorial, called them "a few brave firms") to publicly declare that

1 - they accept the views of most scientists that enough is known about climate change for them to take actions to address its consequences;

2 - that businesses can and should take concrete steps now in the U.S. and abroad to assess their opportunities for emission reductions; establish and meet emission reduction objectives; and invest in new, more efficient products, practices and technologies; 

3 - that the Kyoto agreement represents a first step in the international process but that more must be done to implement the market-based mechanisms that were adopted in principle in Kyoto, and to more fully involve the rest of the world in the solution;

4 - and that we can make significant progress in addressing climate change and sustaining economic growth in the United States by adopting reasonable policies, programs and transition strategies.

Three of these companies are leaders in your industry as well: Boeing, Lockheed Martin and United Technologies. And there was little pushing the additional 8 companies that have since affiliated with the Pew Center. And there was little pushing those companies that have already set reduction targets and established programs to implement those targets, including DuPont, BP Amoco, Shell and United Technologies. And if this isn't leadership and a serious challenge to the conventional wisdom, I'd like to know what is.

But the job is not over yet. In fact, it is barely beginning. This is not a problem that can be solved in one day or one decade. It is a long-term issue that will require a sustained and serious effort over a long period of time. And there is room for virtually everyone to play a role in developing solutions. In fact, without participation from everyone -- countries, industry sectors, companies, and individuals -- it is not clear that we can mount a serious response to the problem. And this brings me to the aviation community.

I recognize up front that you have a problem that inspires jealousy in most other industries: you have had, and are projected to continue to have, a strong annual growth rate. And with this growth rate comes a problem, for while you have been successful in reducing emissions per unit of output, continued growth will increase your total greenhouse gas contributions. Even at current levels, the aviation industry accounts for roughly 2 percent of total global carbon dioxide emissions. I also realize that this sounds like a relatively small contribution. But unfortunately most sectors make small contributions, and aviation outpaces chemicals, iron and steel, cement and aluminum. You could even compare yourselves to many countries. The global aviation sector emitted more carbon dioxide than China, Germany, France or the United Kingdom.

But I didn't come here to depress you. It seems to me that all of the players on this issue are different from one another. Their contributions to the problem differ; their opportunities for emission reductions differ; and the costs that these reductions would entail differ. There is no "one size fits all" solution, and while special pleadings have never appealed to me as ways to do business, there is much to be said for flexible systems that allow for these key differences to be addressed and resolved. So let me be specific in suggesting that you focus on three topics: governance, technology and flexibility.

The aviation industry is already in a unique position with respect to governance. Article 2.2 of the Kyoto Protocol grants the industry special recognition, and establishes ICAO, the International Civil Aviation Organization, as the body responsible for regulating international aircraft emissions. As someone who has worked for many years with various Convention Secretariats and their Conferences of the Parties, I can only assure you that you are very lucky to be dealing with an organization that knows your possibilities and your constraints. But what is important is that you not squander your good fortune; your credibility on environmental issues is at stake here. It should be possible to develop timely and effective solutions that allow you to grow your business in sustainable ways. Find them, before others find paths that are less in your interest.

The second topic that demands some attention is that of innovation and technological change. Your industry has been a leader in the development and diffusion of new, more advanced technologies for decades. As you make investments in research and development, and as you consider priority areas upon which to focus your efforts, I would urge you not to forget that growth in the 21st century will almost certainly have to be environmentally sustainable growth. It is no accident that several of the largest global oil companies (and I am referring here to Shell and BP Amoco) have begun to think of themselves as energy companies, and have begun to significantly expand their investments in less traditional, more environmentally friendly energy sources. I didn't come here to tell you how to spend your R&D dollars. But I would like to suggest that you think carefully about what may be required over the next several decades to deal with the issue of global climate change, and that you factor this picture of the future into your longer term planning. You should be the industry that is first at the starting gate, and first at the finish line.

And finally, I urge you to think constructively about the market mechanisms that are contained in the Kyoto Protocol. These mechanisms essentially allow firms and nations to achieve the lowest cost emission reductions regardless of where they occur. And by doing this, the mechanisms provide economic incentives for innovation and lowered compliance costs. The best known example we have of how emissions trading works can be found in the acid rain trading program under Title IV of the Clean Air Act, a program which coincidentally I managed while at the Environmental Protection Agency. That program was designed to be scrupulous in its accounting system, and highly flexible and open in its trading system, a balance that has worked well to ensure that emissions are lowered and costs are as low as possible. It seems to me that the "Kyoto mechanisms," emissions trading, joint implementation and the Clean Development Mechanism have a significant potential for use by the aviation sector, and I know that ICAO is exploring their use along with other policy choices. You should carefully consider whether they would work for you, and, if you become convinced (as I am) that they could be of value, work with governments to ensure that the rules that are used to implement these provisions are simple, straightforward and result in real emission reductions.

In closing, I would like to briefly come back to the conventional wisdom. Yesterday's Wall Street Journal contained several articles on climate change. The lead story was titled "Inside the Race to Profit from Global Warming: Big Business Produces some Unexpected Converts." I call your attention to these articles not because I am quoted in them (alas, I am, and my quotes are not always diplomatic), but because I think they do point directly to the issue of leadership. If the marketplace has triumphed, at least temporarily, over government, as Daniel Yergin contends in his book "The Commanding Heights," then the marketplace will also have to stand ready to be judged by its commitment and contribution to environmentally sound solutions. The aviation industry is viewed as clean and green: technological giants in a world where technology is king. I urge you to live up to your reputation, exercise leadership, make a constructive contribution to the solution, and turn the conventional wisdom on its head.

Thank you.

Developing Countries & Global Climate Change: Electric Power Options in Korea

Developing Countries & Global Climate Change: Electric Power Options in Korea

Prepared for the Pew Center on Global Climate Change
October 1999

By:
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

Press Release

Download Entire Report (pdf)

 

Foreword

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.   

Dong-Seok Roh
Jeffrey Logan
Jin-Gyu Oh
Jinwoo Kim
Sung Bong Jo
William Chandler
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Climate Change And Kyoto: Where We Are And Where We Are Going

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

Developing Countries & Global Climate Change: Electric Power Options for Growth

June 1999

By: Mark Bernstein, Pam Bromley, Jeff Hagen, Scott Hassell, Robert Lempert, Jorge Munoz, David Robalino, RAND

Press Release

Download Entire Report (pdf)

Foreword

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.

Executive Summary

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.

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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
(202) 289-5900

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

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. 

Op-Ed: Defining an Agenda for Global Action

OPINION EDITORIAL
"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:

  1. 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.

  2. 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.
  3. 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.

Appeared in the Washington Post, Monday, November 2, 1998— by Eileen Claussen
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