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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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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


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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


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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


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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


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Several Debates

  • Top down global policy framework fully integrated across countries

  • Coordination within UNFCCC of national policy frameworks around a common carbon price


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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


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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)


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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


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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


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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


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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


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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


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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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