Policy Architectures to Address Climate Change IPIECA Beijing, China October 2005

1
Policy Architectures to Address Climate Change
IPIECABeijing, ChinaOctober 2005
Jonathan Pershing (jpershing_at_wri.org)Director,
Climate, Energy and Pollution ProgramWorld
Resources Institute http//www.wri.org
2
Options for longer-term architectures

• Kyoto extended (top down, cap and trade)
• Technology focused (RDDD)
• Development focused (emphasis on energy, water,
  air, health in climate-friendly approach)
• Sub-international (regional, local, bilateral)

3
Kyoto Extended

• Kyoto continues, albeit modified
• New targets negotiated for 2nd and subsequent
  periods, with additional countries added to Annex
  B
• Structure of emissions trading system retained
  while CDM is streamlined
• Potential for additional areas of agreement
  around technology, adaptation and financial
  assistance to developing countries
• Key advocates EU and others
• Focus, inter alia, on temperature target (e.g.,
  2ºC)

4
Probability Functions Temperature and
Concentration
Source Malte Meinshausen, 2005
5
Change in Deployment of Reference Technology
under Stabilization at 2 C
Source Edmonds, 2005 (Based on a reference case
of IPCC SRES B2)
6
EU-15 Projected KP Progress
7
EU Emissions Trading Price Traded Volumes
Source Point Carbon's Carbon Market Daily
8
International markets (through CDM) also
developing
January 2004 April 2005
680 million in contracts
Source World Bank, 2005, State and Trends of
the Carbon Market
8
9
Others are experimenting too

• Goal A regional cap-and-trade program initially
  covering CO2 emissions from power plants
• Stabilize emissions at current levels through
  2015
• Reduce by 10 by 2020
• Region statistics
• 9 states represent 14 US GHG emissions
• 3.2 of world GHG emissions (?Germany)

9
10
Assessing Kyoto Extended

• Barriers
• Market development blocked by rejection of caps
  by US, key developing countries
• Selection of long term target difficult
• Project offset design unwieldy
• Possible Solutions
• Key players move for domestic reasons, ultimately
  deciding global market system is advantageous.
• Fragmented market evolves with links emerging
  over time
• Multiple long term goals emerge that satisfy
  national political needs
• Revision to project design moves forward,
  including for policy based offsets, and
  benchmarking standards

11
Sector/Technology

• New agreements adopted (under Kyoto or
  independently) that seek to promote technology
  development/deployment/diffusion
• While likely to lead to economic inefficiencies
  may be more politically palatable

12
Emissions by sector, sub-sector and gas, 2000
Source WRI, CAIT
13
Multiple technologies can contribute to
stabilizing concentrations
Source Pacala and Socolow, Science, 2004
14
but most technologies penetrate slowly
Shares of world primary energy supply 1850-2000
Source Christian Azar (2005) ?Near-term
technology policies for long-term climate targets
15
Funding for technology is not keeping pace
Energy-related RD investment by government
OECD public RD expenditures on energy
(Source) Christian Azar (2005) ?Near-term
technology policies for long-term climate targets?
(Source) IEA (2002)
16
Cooperation does not mean harmonization
Technologies which enable US and EU to reduce
carbon intensity by 1/3 by 2050
USA
EU
(Source) RITE
17
Assessing Technology

• Barriers
• Competitiveness concerns
• Resource constraints
• Potential for picking wrong technologies
• Possible Solutions
• Government incentives for RD, demonstration
  projects, and large scale implementation
• Ancillary benefits drive technology prices down
• International partnerships
• BAT
• RDD
• Public/private
• Government purchase contracts (market pull)
• Potential Models
• IPIECA, IPHE, IEA IAs, CGIAR, REEP

18
Development focused

• New agreements adopted (under Kyoto or
  independently) that seek to promote development.
  
• Focus is not on climate policy, but on welfare
  and distributional equity as well as local
  environmental benefits.

19
Per Capita Emissions
Source WRI, CAIT
20
Air Quality
Poor
Good
Source http//maps.ciesin.org/esi/esi_indicators
/viewer.htm
21
Global Energy Poverty
Source IEA WEO, 2002
22
Number of People without Electricity
900
800
700
600
500
millions
400
300
200
100
0
1970
1980
1990
2000
2010
2020
2030
South Asia
East Asia/China
Latin America
Middle East
Sub-Saharan Africa
North Africa
Source WEO 2002
23
Transport Options
Policies have stimulated development of
dual-fueled vehicles these range from 25 100
biofuels Rationale energy prices, local jobs,
energy security
Million Tons CO2 from Transport
24
Assessing Development

• Barriers
• Some development solutions have negative impacts
  on climate
• Institutional capacity often limited
• Promotion may lead to new competitive pressures
  for donor countries
• Possible Solutions
• Create incentives for right policies
• Support institutional capacity as well as
  technology
• Adoption of environmental and development goals
  may reduce global competitiveness anxiety
• Potential Models
• Brazil dual fuel fleets, hybrid vehicle
  incentives, EE

25
Regional Agreements

• New agreements adopted at local and regional
  level that address climate.
• Focus is on trading blocs and regional groupings
  (including at corporate and governmental level)

26
Percentage of World GHG Emissions
Source WRI, CAIT
USA, EU-25, China
plus Russia, India, Japan
plus Brazil, Canada, S. Korea, Mexico
plus Indonesia, Australia, Ukraine, Iran, S.
Africa
plus Turkey, S. Arabia, Argentina, Pakistan,
Thailand
plus 141 Remaining Countries
Notes Figures are for 2000, and include the six
GHGs. CO2 from land use change and forestry and
international bunkers are not included. EU-25 is
treated as a single entity. See Table X for
values for selected member states.
27
The top 25 overlap
Top 25 in Population
Top 25 in GDP
Netherlands, (Taiwan)
Thailand
Canada, S.Korea, Australia,
S.Africa, Spain, Poland, Argentina
USA, China, (EU25), Russia, India, Japan,
Germany, Brazil, UK, Italy, Mexico, France,
Indonesia, Iran, Turkey (68 World GHG
Emissions)
Bangladesh, Nigeria, Viet Nam, Philippines,
Ethiopia, Egypt,
Congo Ukraine, Pakistan
Top 25 in Emissions (80 World GHG Total)
S. Arabia
Source WRI/CAIT
28
Top 15 Auto Producing Countries (89 of global
production)
Source International Organization of Motor
Vehicle Manufacturers, 2004
29
Top 20 Vehicle Manufacturers, 2003
30
Assessing Regional/Bilateral

• Barriers
• Climate change not usually a priority in
  bilateral relations
• No organizational structure exists to manage
  debate and through which to arrange trade-offs.
• Global benefit of any single sector/region small
  as share of total problem
• Possible Solutions
• Government incentives may be needed to
  kick-start progress
• Create new/promote existing organizational
  structures
• Must find mechanisms to link to larger global
  effort
• Potential Models
• G8, ACEA, ISO, EU ETS, US Technology partnerships

31
Concluding Comments (1)

• To date, international negotiating focus has been
  on top-down approaches
• Driven largely by economic efficiency
• But, policy is not moving to adopt globally
  efficient systems While some countries are
  moving forward, cap rejected by key players
  including US, and most developing countries
• Willingness to make transfer payments at scale
  demanded for global CDM seems limited
• Alternatives include
• Technology and sectoral approaches
• Development approaches, and
• Sub-global agreements

32
Concluding Comments (2)

• International process is moving to adopt multiple
  approaches
• Lack of significant political will has limited
  the effectiveness of each
• Final outcome likely to be a hybrid system,
  combining elements of all options
• In the near term, international process may move
  down parallel tracks Kyoto and non-Kyoto,
• Kyoto evolves as efficient mechanism, although
  perhaps with limited additional reductions in
  near term
• Non-Kyoto structure may include US and key
  developing countries,

33
Concluding Comments (3)

• As political will evolves (likely to occur as a
  consequence of new scientific information, change
  in US administration, and revised prioritization
  of climate in key developing nations) Kyoto
  structure becomes central as both global price
  setting mechanism and link between
  national/regional/sectoral efforts
• Montreal (COP/MOP1) likely to set this parallel
  track effort in play
• Could launch both Article 3.9 discussion and
  simultaneously recognize importance of
  bilateral/regional and technology efforts (e.g.,
  as under G8)
• It is not plausible that either Kyoto Parties or
  US will back down at this stage
• Planning for multiple systems will make corporate
  management of climate regime more complex