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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart I Measuring responsibility
close this folder1 Introduction
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View the documentThe greenhouse effect
View the documentWhat was decided at Rio?
View the documentProtocol negotiating difficulties
View the documentKey issues for climate change negotiations
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Key issues for climate change negotiations

The major greenhouse gas emitters have not yet committed themselves to major emission reductions. Nor have the international donors backed up their words with money and action. The authors of this book explore a way that the greenhouse management contract between rich and poor states can be constructed in an open, efficient, and equitable manner.

These issues are not solely political and economic, however. They are also technical and scientific in nature, relating as they do to complex and poorly understood issues of climate and ecology. In Part 1, four authors explain these issues and produce a technical and scientific foundation for determining who is responsible for climate change.

In Chapter 2, Kirk Smith explains the science that underlies comparisons of different greenhouse gas emissions from different nations and time periods, that is, the indices that can be used. Implicitly or explicitly, an index of some sort must be used so that choices among options can be made. He concludes that there are some hidden value judgements in choosing indices and that the choice of index depends strongly on the particular policy question being asked.

In Chapter 3, Susan Subak compares the results of applying five different indices to the question of relative national contribution to global greenhouse gas emissions. These are:

1 cumulative carbon dioxide emissions from fossil fuel combustion only;
2 cumulative carbon dioxide from fossil fuel and land use changes;
3 current annual carbon dioxide emissions;
4 an expanded list of current emissions including methane from landfills and fossil fuel production;
5 a comprehensive range of current greenhouse gas emissions from energy, land use change, and agricultural sources.

When allocated on a per capita basis, each measure produces a different distribution of national responsibility for past and present contributions to climate change. Subak shows how the scientific and technical dimensions of building indices of responsibility have significant political and economic implications for different polluters. In short, depending on which index is chosen for the protocols that allocate responsibility, the Convention will impose differential burdens on states of widely varying characteristics. The outcome will be widely varying incentives and disincentives for future action under the Convention. It is incumbent on policy makers, therefore, to pay careful attention to these technical issues.

Drawing on these technical and scientific foundations, Dilip Ahuja, Kirk Smith and Joel Swisher present a simple, transparent method in Chapter 4 to determine who should pay the cost of creating a global greenhouse regime. A composite indice is proposed that includes both ability to pay on the one hand, and historical contribution to climate change on the other. The former index confronts the issues of equity and economic realism that will affect participation rates of the poor. The latter index embodies the polluter pays principle and reflects the practical politics that the poor, small polluters are not likely to constrain their behaviour unless the wealthy, big polluters recognize that they have occupied the available 'ecological space' and must compensate latecomers for this pre-emption.

Smith, Swisher and Ahuja's approach provides a powerful philosophical and practical underpinning for discussions of the distribution of cost associated with managing climate change. If accepted, it would influence the outlook of key parties even if they are unable to accept specific numbers based upon it in actual negotiations. Such indices can be recomputed to investigate alternative yardsticks of ability to pay and historic responsibility for climate change. Whatever the final numbers, what is crucial to creating an effective global greenhouse regime is that it rests on these twin principles of equity and polluter pays responsibility.

In Part II, Peter Hayes confronts directly the deceptively simple question: who should pay? In Chapter 5, he introduces a method to calculate the likely costs to developing countries of complying with a global convention of climate change. He calculates the incremental cost of abating carbon dioxide emissions from the use of fossil fuels by the following procedure.

He begins by estimating projected emissions and required reductions of carbon dioxide that meet stringent IPCC emission targets which would restrain the growth of realized temperature and sea level to 0.1C and 3 cm per decade respectively. To achieve this goal, the global permitted emission in 2025 is about 2.7 gigatonnes of carbon as carbon dioxide. This target is about 60 per cent of projected global emissions in that year, or about 50 per cent of emissions in 1990. Each country is required to reduce its emissions from projected 1995 levels so that it eventually reaches its fraction of this global permitted emission in 2025. This fraction is set to equal current national sink rights distributed to nations on the basis of current population and land area (although some other allocational criteria could and probably should be used to avoid problems associated with defining sinks, as noted in Chapter 4). High, medium and low marginal abatement cost curves are applied to these profiles of carbon abatement over time. In this way, the method generates a stream of annual incremental abatement costs for each country.

In Chapter 6, Hayes applies the quantitative allocational rules developed in Chapter 4 to the range of numerical estimates of the cost of carbon emission abatement and coastal protection from Chapter 5. He presents two rules that have been proposed to allocate the cost to various parties of meeting emission targets imposed by a climate change agreement. These rules are 'obligation to pay,' teased on each nation's historic emissions and ability to pay; and the UN scale of payments.

Under the UN scale, the OECD (North) pays about 77 per cent, the former Soviet Union and Eastern Europe (East) about 14 per cent, and the developing world (South) about 9 per cent of total UN cost. In the obligation to pay (OTP) index, the North's OTP is about 73 per cent; the East's about 20 per cent; and the South's about 7 per cent. Hayes argues that negotiations are likely to proceed therefore by countries making bids to vary their contribution relative to the UN scale until consensus is reached. The obligation to pay index provides a sound, transparent baseline against which to measure the fairness of departures from the UN scale.

In Chapter 6, Hayes treats the South's incremental cost, minus the South's obligation to pay, as the responsibility of the wealthy countries of the North and transfers it to the North's account. The annual transfer from North to South is estimated at $29-34 billion in the medium and high marginal abatement cost cases respectively. (There is no economic case based on incremental cost for transfer from the North to the South in the low cost case, although Hayes cites the need to finance front end costs of abatement measures and to increase scientific and technical capability in developing countries as reasons for providing funds in any case.) He concludes by examining how the substantial funds required might be collected and transferred by carbon taxes, or earned by the sale of traceable permits or abatement services that would also push countries toward equalizing their marginal abatement costs at a global level.

An alternative approach would have been to construct a global marginal abatement cost curve from national marginal abatement cost curves; and to apportion reduction activity to each country up to the marginal cost that delivers the desired total emission each year. The reduction activity would be paid for according to the relative obligation to pay for each country (as updated periodically). On this basis, no country would be asked to reduce emissions more than the then-current marginal cost level, and no nation would remain unpenalized for failing to undertake reductions found to be cheaper than the current marginal cost criterion. While attractive in principle, it remains difficult to put this approach into computational practice due to the lack of meaningful global and national marginal abatement cost curves as well as difficulties associated with allocating and quantifying emission rights over time.

The small island states most vulnerable to the impacts of climate change have been among the most vocal proponents of a strong Convention. In Chapter 7, Michael Wilford enumerates a proposal emanating from the Alliance of Small Island States that an insurance fund be established to cover the costs of adaptation to sea-level rise. Precedents exist for this approach in the oil and nuclear industries, but neither approaches the scale or scope of a fund that would cover losses implied by the greenhouse effect. The moral influence of these small states whose very existence is at stake is evident in the Convention article cited above which declares that vulnerable states are eligible for extra assistance.

A major difficulty that hampers calculations of the required funding by the rich countries of the incremental costs of developing countries is our ignorance as to the shape of the latters' emission abatement curves at various levels of required reduction. Part III contains the work of eleven authors who are deeply immersed in the empirical calculation of incremental costs associated with climate change and greenhouse gas abatement. These authors present abatement cost curves at the national or regional level in Asia, Africa, Australia, and Eastern Europe/Russia. All conclude that significant cost savings will likely accrue at the outset of carbon reduction programmes, although the absolute cost levels vary widely.

In India, (Chapter 8), Jayant Sathaye and Amulya Reddy show that while emissions are likely to grow, there are substantial opportunities to abate emissions or to fix additional carbon at low costs or a net saving. They demonstrate that India could largely offset its carbon emissions by fixing carbon in forestry reservoirs, thereby emphasizing the importance of the sink issue in determining responsibility for cost. However, they also identify public and private institutional and informational obstacles to the realization of this potential. They argue that a basic needs economic strategy will itself enhance development and reduce emissions. They conclude optimistically that for the first time ever, fundamental interests of the rich and poor countries are aligned in the climate change area - provided that these multiple barriers to abatement can be overcome.

In West Africa (Chapter 9), Ogunlade Davidson notes that although Africa contributes only a small fraction (about 3 per cent) of total global carbon emissions, its energy usage and greenhouse gas emissions will grow substantially. He estimates that emissions can be reduced in this region by between 13 and 36 per cent (depending on the country) by the year 2025, simply by introducing economically justified carbon conservation measures. As in other developing countries, he finds that a significant number of financial, institutional and technical obstacles exist which block the region from implementing these abatement options.

Because the generally poor management of energy and related institutions also hinders the effective implementation of these measures, he concludes that institutional reform is an essential ingredient of a carbon abatement strategy. He also finds that lack of investment finance is a major obstacle to energy development in the region. Weak capital markets and heavy indebtness require major economic reforms. These steps alone, however, will be inadequate to the task unless supplemented by external financing.

In Brazil (Chapter 10), Jose Moreira and Alan Poole present an aggregate cost curve for abating carbon emissions from Brazil's fossil fuel and biomass energy use which incorporates eighteen categories of abatement technology. Brazil is unusual in that a large fraction of its electricity is generated by hydropower and a large amount of alcohol from biomass is used in the transport sector. Moreover, the authors did not include steps related to re- or de-forestation in Amazonia in determining the potential for Brazil to abate or to offset its energy-related emissions. Nonetheless, they identified abatement potential that amounts to about 16 per cent of projected energy-related emissions, much of which can be obtained at negative cost (that is, at a savings).

In Thailand (Chapter 11), Peter du Pont, Somthawin Patanavanich, Mark Cherniack, and Michael Philips demonstrate that the most rapidly growing source of carbon emissions, the electric power sector, can be curbed significantly at a low or negative cost. They project that Thailand's carbon dioxide emissions from fuel combustion will double over the next decade, from 24 to nearly 50 million tonnes annually. They estimate that an aggressive demand side management effort in the power sector could reduce emissions by 2.5 million tonnes annually by the year 2001 at an average cost of conserved carbon of about US$1901tonne. While still nascent, Thailand's electric utility has an aggressive programme to tap this potential saving and may offer a good model for other countries to emulate.

In Central and Eastern Europe (Chapter 12), Stanislav Kolar produces aggregate cost curves based on detailed local research to demonstrate that carbon abatement can be achieved with major economic savings until high levels of carbon abatement are reached. Kolar points out that all the countries of the former Soviet Union are grossly energy inefficient. Equally, they also offer massive and relatively cheap carbon abatement. He concludes that energy efficiency is their most effective means of reducing carbon dioxide emissions and can achieve the twin goals of economic development and environmental protection. He concludes that these states have considerable flexibility as to which combination of price reforms and regulations would serve best to realize this potential.

Finally, in Australia (Chapter 13), Hugh Saddler examines estimates of the cost and scope of emission abatement measures and reviews estimates of the impact on the Australian economy of achieving various levels of abatement. Relative to a business-as-usual scenario, he reports that about 20 per cent of projected emissions can be abated with economically justified carbon abatement steps. He also notes that the local manufacturing-versus-import content of equipment needed to implement this strategy is a crucial determinant of the macroeconomic impact of carbon abatement - a variable that many developing countries may do well to examine carefully.

Generally, these studies indicate that abatement is possible at negative cost or a savings at the outset of the abatement strategy, but that costs will become positive fairly quickly. The studies also point to the obvious and urgent need for demonstration carbon abatement programmes and additional research into costs to obtain much better cost estimates necessary for the formulation of sound policy.

Politics will not end once robust analysis and widely accepted estimates of the cost are available. Part IV returns to these realpolitik considerations which will intrude into future negotiations over protocols to the Convention. For example, big wealthy countries anticipate a new wave of technological innovation associated with greenhouse gas abatement. As the major donors, they will seek to tie resource transfers to exports of their own equipment and services. For their part, recipient states will seek minimal ties on these funds. Aid flows justified on the grounds of greenhouse abatement will be no more or less susceptible to mismanagement, waste and corruption than existing development assistance.

In Chapter 14, Peter Hayes outlines some of the practical political issues that will arise in negotiations over resource transfers from the North to the South on the scale justified by the earlier chapters. Simply moving money across the North-South divide may only worsen existing development difficulties by creating an ongoing technological dependency. Studies of energy efficiency and related carbon abatement show that a wide range of scientific, technological and managerial capabilities must be created in developing countries to achieve effective carbon conservation. Financial shortages are a critical obstacle to the emergence of an endogenous technological capacity needed to reduce greenhouse gases - but they are only one of a range of issues that must be resolved before such programmes can be realized.

In Chapter 14, Hayes also analyses the potential for regional greenhouse initiatives in Pacific Asia as a precursor to a global climate change convention. He concludes that demonstration abatement projects in developing countries of Asia and the Pacific are needed urgently to demonstrate the viability of schemes such as traceable permits and trade in abatement services. He emphasizes that 'first in, first served' will dominate the emerging markets for greenhouse abatement markets and related technological competitiveness.

In summary, the authors of this book believe that signing the Climate Change Convention was only the first step on a long path to creating a greenhouse gas regime. It remains to be seen whether the parties to the Convention can muster the domestic political will needed to meet the commitments contained or implicit in the Convention.

In this respect, the 'review and pledge' procedure implied by Articles 4 and 10 of the Convention is particularly important. In Article 4, countries undertook to prepare and to communicate national greenhouse gas inventories using common methodologies and to implement mitigation measures on sources and sinks of emissions. In Article 10, they created an international body that will 'assess the overall aggregated effect of the steps taken by the Parties in the light of the latest scientific assessments concerning climate change.' Implementing these two commitments will create an iterative dynamic that will lead to stronger action under the Convention in the future.

Action, however, will require that resources be allocated to match the rhetoric of the Convention. The parties to the Convention must adopt a transparent method of calculating obligations and cost if the commitments on funding and technology transfer are to be fulfilled. The studies reported in this book illustrate the complex and difficult issues that must be addressed in such a method. At this stage, however, it is not the specific method nor its results that are important. Rather, what is vital is that negotiators of protocols to the Convention develop parallel ways of thinking that facilitate communication and agreement on these concerns. We hope that this book contributes to this task.