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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

International Climate Change Agreements: An Overview

Ann Chou

April 14, 2010

Professor Nordhaus

ECON 331b

the kyoto protocol
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
the kyoto protocol1
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
modeling kyoto is it cost effective
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?
kyoto carbon leakage
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
kyoto why have flexibility mechanisms
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
kyoto why have flexibility mechanisms1
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
the bigger picture
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…”
the problem of non participation and non compliance
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
copenhagen accord
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
copenhagen accord1
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
conclusion
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?