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International Climate Change Agreements: An Overview

International Climate Change Agreements: An Overview. Ann Chou April 14, 2010 Professor Nordhaus ECON 331b. The Kyoto Protocol. Objective: Annex I countries commit to a 5% average decrease in 1990 global greenhouse gas emission levels during 5-year commitment period (2008-2012)

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International Climate Change Agreements: An Overview

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  1. International Climate Change Agreements: An Overview Ann Chou April 14, 2010 Professor Nordhaus ECON 331b

  2. The Kyoto Protocol • Objective: • Annex I countries commit to a 5% average decrease in 1990 global greenhouse gas emission levels during 5-year commitment period (2008-2012) • Current Standing: • 36 of 37 Annex I countries have ratified Kyoto • U.S. has not ratified • Other UNFCCC members have ratifed but have no emission commitments

  3. The Kyoto Protocol • Characteristics: • Binding targets for Annex I countries • “Common but differentiated responsibilities” • “Bank and Borrow” • Flexibility Mechanisms • International Emissions Trading • Joint Implementation • Clean Development Mechanism • Consequences of non-compliance

  4. Modeling Kyoto: Is it Cost-effective? • Manne and Richels use MERGE 3.0, Model for Evaluating Regional and Global Effects of greenhouse gas reduction policies • An intertemporal market equilibrium model that maximizes discounted utility over nine regions • Assumptions • Endogenous technological diffusion • Autonomous energy efficiency improvement rate of 40% of the rate of growth of GDP • Try to answer… • What is the problem of “carbon leakage?” • What are the efficiency gains from flexible mechanisms?

  5. Kyoto: “Carbon Leakage” • What is “carbon leakage”? • The reduction in emissions by Annex I countries is offset by actions of non-Annex I countries • Carbon leakage through… • Price • Comparative advantage • Remedy: Subject everyone to emissions limits

  6. Kyoto: Why Have Flexibility Mechanisms? • Cost Effectiveness • “Where” flexibility allows cost of mitigation to decrease significantly • Allows countries to mitigate where the marginal costs are lowest • Manne and Richels also find that any limits to carbon emission purchase results leads to inefficiency • Best Solution: Allow full global trading without any carbon emission purchase constraints

  7. Kyoto: Why have flexibility mechanisms? • Joint Implementation • Earn credit allowances through emission reduction units (ERU) when Annex I countries collaborate on emission removal or emission reduction project • Clean Development Mechanism • Earn credit allowances through emission reduction credits (CERs) when Annex I country finances emission removal or emission reduction projects in non-Annex I projects • Jury is still out… • Unclear rules and regulations—transaction costs • CDM assumes that abatement or mitigation is cheaper in developing countries

  8. The Bigger Picture: • Objective: • “…stabilization of greenhouse-gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system…”

  9. The Problem of Non-participation and Non-compliance • Non-participation • High economic costs • Inefficiencies • Notions of fairness • E.g. United States passes Byrd-Hagel Resolution to not sign Kyoto 95-0 in the U.S. Senate. • Non-compliance • No enforcement measures • Tragedy of the commons without full participation • Challenges of international governance

  10. Copenhagen Accord • A letter of intent… • No deadline for renewal of binding international agreement • No hard-and-fast rules to play by • Long-term plans—2 degree Celsius target • Developed countries pledged financial resources to developing countries • Annex I and non-Annex I countries submit emissions reduction targets by Jan 2010 • Non-Annex I/non-LDC must engage in nationally appropriate mitigation actions • Non-Annex I/LDC under voluntary mitigation measures

  11. Copenhagen Accord • Carbon Leakage • Developing countries are involved in mitigation • Moving towards full participation • Cost-effectiveness by trading • Still not trading • NAMA and guaranteed funding from developed countries • Decrease in transaction costs • Non-participation/non-compliance • U.S. and China participation • Still no compliance measures

  12. Conclusion • Findings from MERGE 3.0 study • Greater trading is more cost-efficient and JI/CDM does not mirror trading • Trading houldnot be limited • Carbon leakage • Kyoto forever is, in the long-term, less stable for emissions mitigation and more costly • Changes found in Copenhagen • Participation of developing countries • Incremental movement toward full global trading • Weaknesses of long-term cost assessment • All efficient solutions rely on full participation and full compliance—is this possible?

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