by Gerald Pech

1. Presentation for Aiesec Development Leadership dayIs there a role for leadership in mitigating climate change? by Gerald Pech 29 September 2014

2. Overview • Leadership is great in business • The leader gets rewarded and society benefits from their innovative contributions • So does leadership also help in tackling climate change? • Here things are more protracted Is There a Role for Leadership in Mitigating Climate Change?

3. Overview • Leadership in international negotiations • here the leader does not necessarily gain the most from being leader • and it is unclear whether leadership greatly changes the outcome • Leadership at the national level • here leadership would be particularly helpful but leaders are not particularly encouraged to lead • Leadership in business • here some incentives seem to work in the right direction, but not a central role for tackling climate change Is There a Role for Leadership in Mitigating Climate Change?

4. Overview • 1 The Economics of Climate Change • a. Costs and Benefits of Mitigating Climate Change • b. The 2C-Target: Implications for Kazakhstan • c. Benefits from Cooperation • 2 Leadership • a. Leadership in International Cooperation • b. Leadership at National Level • c. Leadership in Business • 3 Final Thoughts Is There a Role for Leadership in Mitigating Climate Change?

5. The economics of climate change

6. Costs and Benefits of Climate Change Mitigation Is There a Role for Leadership in Mitigating Climate Change?

7. Likely Range of Temperature Paths Is There a Role for Leadership in Mitigating Climate Change?

8. How Can the Economic Effects of Climate Change be Assessed? • Temperature ranges as scientists tell us • There is risk of “catastrophic climate change” • The economist computes “output loss” at different temperature levels • Figuring out impact on different industry sectors • agriculture and fisheries as the main losers • coastal real estate another • and extrapolating share of industries in future economic output Is There a Role for Leadership in Mitigating Climate Change?

9. DICE model 6 4 damage in % of output IPCC estimate 2 0 1 2 3 4 5 global mean temperature increase oC source: Nordhaus (2013)

10. What Is Missing? • only market or near-market sectors • loss of species (-) • greater risk of natural disasters (-) • health effects (-) • accessibility of artic sea routes (+) • Difficult to quantify

11. Cost of Mitigating Climate Change? • Some measures would not cost anything but rather save costs • improved home insulation, energy saving light bulbs • 15% of CO2 emissions in US fall in this category • Increasing energy efficiency of household appliances, power generation, transport • Rebalancing energy mix • Offset projects • Carbon capture • Post-combustion removal from atmosphere Is There a Role for Leadership in Mitigating Climate Change?

12. The 2C-Target: Implications for Kazakhstan Is There a Role for Leadership in Mitigating Climate Change?

13. The 2C-Target • Cancun agreement (United Nations Climate Change Conference 2010) says: 2 C above pre-industrial level • Is it “optimal”? • Probably not too far off the mark • If it would be done in an economically efficient way, limiting the temperature rise to 2.3 C would be optimal, says Nordhaus • But if countries incur unnecessary costs it might be reasonable to allow more, say 4 C Is There a Role for Leadership in Mitigating Climate Change?

14. How Is It Achieved? • Two thirds of already discovered carbon assets could not be commercialized before 2050 (World Energy Outlook 2012) • or carbon capture technology used at implausible level • to have a 50% of meeting the target • which would require a limit of 450 parts of CO2 equivalent per million particles in the atmosphere – hence “450 scenario” Is There a Role for Leadership in Mitigating Climate Change?

15. What Does It Mean for Kazakhstan? • Production of fuels has to become more energy efficient – some of this might result in cutting costs, but overall producing fuels will become more costly • avoiding flaring gas from oil drilling sites, oil tar sands of Canada, carbon pricing (?) • Demand will be directed towards less carbon intensive energy sources • demand for carbon fuels will decrease Is There a Role for Leadership in Mitigating Climate Change?

16. What Does It Mean for Kazakhstan? 150$ 135$ 50$ 85 mio barrels a day

17. What Does It Mean for Kazakhstan? • As demand for carbon fuels decrease • Prices for carbon fuels will come down • Making the most costly kinds of crude uneconomical • But Kashagan should be ok Is There a Role for Leadership in Mitigating Climate Change?

18. What Does It Mean for Kazakhstan? source: World Energy Outlook 2012 Is There a Role for Leadership in Mitigating Climate Change?

19. Is There a Role for Leadership in Mitigating Climate Change?

20. Benefits from Cooperation Is There a Role for Leadership in Mitigating Climate Change?

21. Benefits from Cooperation • Different countries have different “marginal abatement costs” • Depending on how much mitigation efforts they already have undertaken • A small group of countries would find it infeasible to cut emissions sufficiently to have a global impact • Yet the economics of international cooperation have some strange properties Is There a Role for Leadership in Mitigating Climate Change?

22. The Economics of Cooperation • Everyone can be made better off if they all join in the effort to mitigate • But for each country it is tempting to take the “free rider position” • Similar to the well-known “prisoners’ dilemma” • That only some countries cooperate and others stay on the sidelines may be a stable outcome • the threat of stopping to cooperate does not work • stronger medicine is needed to encourage widespread participation Is There a Role for Leadership in Mitigating Climate Change?

23. Cost of Emission Reduction from Finus/van Ierland/Dellink (EG 2006)

24. Collective action and Leadership

25. Leadership in International Cooperation Is There a Role for Leadership in Mitigating Climate Change?

26. Does Leadership Promote International Cooperation? • Does president Obama’s use of administrative powers to cut carbon emissions encourage Chinese reciprocity? • China has recently taken action against the emissions • But mainly because citizens complain about local impact of emissions • At the international level, Obama’s action may just make it less likely that China moves Is There a Role for Leadership in Mitigating Climate Change?

27. Lessons of the Kyoto Protocol • Kyoto, negotiated 1997, in force 2005-2012 • Of the main emitters, only EU, Japan and Eastern European transition economies have joined • Kazakhstan ratified in 2009 Is There a Role for Leadership in Mitigating Climate Change?

28. The Enforcement Problem • Even when countries join, there is no guarantee that they keep their pledges • Signatories miss out on their targets: • EC target: - 8% on base year 1990 • compliance gap in 2007: 6.5% • Canada target: -6 % • compliance gap: 31.1 % Is There a Role for Leadership in Mitigating Climate Change?

29. Is There a Silver Bullet? • Punishment for countries which do not join or which do join but renege on their pledges • Could take form of a “carbon tariff” on imports from those countries which might be acceptable under WTO rules • If a country allows unrestricted emissions this might be considered a “price dumping policy” under WTO rules and entitle others to retaliate • As of yet untested! • But WTO itself has looked more febrile recently Is There a Role for Leadership in Mitigating Climate Change?

30. Leadership at National Level Is There a Role for Leadership in Mitigating Climate Change?

31. What National Leadership Can Achieve • President Obama’s use of administrative powers to cut carbon emissions certainly moved the US in the “right” direction • There has been the argument that many countries would benefit from reducing carbon dioxide emissions • by reducing local environmental effects and earning tax revenue Is There a Role for Leadership in Mitigating Climate Change?

32. And Kazakhstan? • Highest emissions of CO2 per capita in Europe and Central Asia • Still heavily subsidizes (in the end consumption of) carbon fuels • Yet started to introduce a market for trading carbon emission allowances • and requires all companies with more than 20,000 t CO2 equivalent emissions in 2012 to use allowances Is There a Role for Leadership in Mitigating Climate Change?

33. Problems to Overcome • Politicians are probably interested in political costs (of emission abatement) rather than economic costs • Voters whose livelihoods are directly threatened by mitigation efforts (oil workers in Oklahoma) are vocal and effective opposition • “Under my administration, America is producing more oil today than at any time in the last eight years.” (Obama, cit. in McKibbins, 2014) • Is there a “grand bargain” at national level? • Easier in post-industrial societies and easier in Europe than the US Is There a Role for Leadership in Mitigating Climate Change?

34. Leadership in Business

35. How Is Business Affected? • As target of government regulation • or as potential target of regulation • incentive to pre-empt government action by announcing voluntary measures • but also make adjustments to expected future government policies • As competitor for costumers and employees • both tend to value a company’s reputation for “environmentally responsible behavior” Is There a Role for Leadership in Mitigating Climate Change?

36. Attracting Qualified Employees • A reputation for ecologically and socially responsible behaviour is vital for an employer to attract graduates • for 15% of German college graduates it is the most decisive factor in their choice of employer • for 67% it is one decisive factor Is There a Role for Leadership in Mitigating Climate Change?

37. Leading in the Battle for Hearts and Minds • Sir Richard Branson of Virgin Airlines and his pledge to make 10 bn available for research • But other companies made pledges at last week’s UN event • Incentives work in the right direction: • If your competitor makes a pledge, it increases incentives for you to make a pledge • So this is an example where leadership works Is There a Role for Leadership in Mitigating Climate Change?

38. Final Thoughts • Whilst leadership in business clearly has the effect of motivating followers to make pledges • voluntary contributions are unlikely to solve the problem on their own • Companies are only “indirectly” motivated and keeping pledges is a different matter • In the end, tackling climate change is the job of governments, not private businesses • There, national leadership would be helpful • But international leadership has its limits Is There a Role for Leadership in Mitigating Climate Change?

39. Sources • Nordhaus, D., The Climate Casino, Yale UP 2013 • Klein, Naomi, This Changes Everything • Krugman, P., Gambling with Civilization, NY Review of Books 7 November 2013 Link • McKibben, B., Will We Lose the End Game, NY Review of Books 10 July 2014 Link • IPCC website Link • IEA, World Energy Outlook, 2012 Link • OECD, Energy Subsidies and Climate Change in Kazakhstan, ENV/EPOC/EAP(2013)7 Link Is There a Role for Leadership in Mitigating Climate Change?