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Session on Integrating National and International Approaches to Carbon Pricing Policies: Developing a Global Framework

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Session on Integrating National and International Approaches to Carbon Pricing Policies: Developing a Global Framework Warwick J McKibbin CAMA, ANU College of Business and Economics Presentation to ANU Climate Institute Copenhagen roundtable 14 April 2009 Outline The goal of the session

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Presentation Transcript
slide1

Session on Integrating National and International Approaches to Carbon Pricing Policies: Developing a Global Framework

Warwick J McKibbin

CAMA,

ANU College of Business and Economics

Presentation to ANU Climate Institute Copenhagen roundtable 14 April 2009

outline
Outline
  • The goal of the session
  • The Debates
    • Global versus national
    • How to set a carbon price
  • Lessons learnt from
    • Clean Development Mechanism
    • European Emissions Trading System
    • Unintended consequences (biofuels and land clearing)
    • Global financial crisis
  • Implications for Linking Systems
  • Implications for the Copenhagen negotiations
goals
Goals
  • Focus on issues related to building a global framework for climate policy
    • Linkage of national systems
    • Sustainability of the structure
    • Ability to achieve what is required (risk management)
    • Evidence of what has been tried so far
key conclusions
Key Conclusions
  • NO CONSENSUS
  • Most debates on system design are unresolved
  • Evidence so far on alternative approaches is mixed (some strong opinions on both sides)
  • There are many views on the best way to price carbon but a carbon tax or hybrid approach was mentioned favorably however some argued too much momentum in politics of cap and trade
    • the Titanic effect
several debates
Several Debates
  • Top down global policy framework fully integrated across countries
  • Coordination within UNFCCC of national policy frameworks around a common carbon price
several debates6
Several Debates
  • A targets and timetable approach with binding national targets for emissions (one size fits all)
    • Permit trading across countries to equalize the carbon price
    • CDM and other mechanisms to mimic carbon trading before countries have a firm target
  • A carbon tax or a hybrid of taxes and permits around a common price taking into account national circumstances but without international trade in permits except in bilateral deals
key points in the papers and discussion
Key points in the papers and discussion
  • Taxes or hybrids that fix a short term price are better systems under uncertainty than a traditional cap and trade permit trading system
  • Sense that the debate is shifting away from the European style emissions trading system
    • Economists mostly arguing for a tax or hybrid while acknowledging that the policy process had not moved in that direction (Nordhaus keynote)
key points in the papers and discussion8
Key points in the papers and discussion
  • European ETS
    • Some argued has a lot of flaws and needs to be modified post 2013
      • Large price volatility
      • Unclear long term signals
      • time horizon too short
    • Others argues it has been a useful experiment and although many problem it will continue
      • Has reduced emissions
      • Has enlarged through more installations, more countries, allowing for CDM
    • Unlikely to survive if a new global agreement is not reached
slide9

Key points in the papers and discussion

  • CDM
    • Evidence is that the CDM has not reduced actual emissions globally (additionality)
    • Survey data shows that 75% of all projects already commenced before CDM approval given (evidence of no effect or evidence that expectations matter?) 67% in China – mostly hydro
    • Survey of CDM project developers show that they would have done the project anyway
key points in the papers
Key points in the papers
  • Global Financial Crisis
    • Shows that the future is highly uncertain
    • Shows that the costs of commitments to targets over long period of time are almost impossible to predict with any accuracy
    • Shows that system design including institutions are critical to long term system survival
key points in the papers11
Key points in the papers
  • Land Use
    • Need to broaden linkages to include terrestrial carbon and a broader range of opportunities for emission reductions outside energy systems
key points in the papers12
Key points in the papers
  • Sustainability of the system politically and economically matters
    • Should not only focus on how a system reduced emissions but also how the climate policy framework affects the transmission of shocks between countries
conclusions
Conclusions
  • The design of the global policy framework would not emerge from Copenhagen in 2009
  • The issue of linkage is a very young debate driven by negotiating inertia and national implementation plans rather than practical system wide design
  • Countries are unlikely to make meaningful and credible commitments under the current negotiations until relative costs are taken into account explicitly
  • Pricing carbon (especially long term) is a necessary but not sufficient condition for addressing the climate problem
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