Jeffrey Frankel Harpel Professor, Harvard Kennedy School

1. After Copenhagen:What is the Politically Feasible Pathto Comprehensive Targetsfor Greenhouse Gas Emissions? Jeffrey Frankel Harpel Professor, Harvard Kennedy School Mossavar-Rahmani Center for Business & Government Luncheon Seminar, March 11, 2010

2. Questions • Did the “Copenhagen Accord” (Dec. 2009) constitute progress? • How should we proceed, so as to get comprehensive country targets for emissions of GreenHouse Gases?

3. 1. What is the definition of progress? • It is useless to evaluate negotiations by whether or not they produce a sweeping communiqué, • such as Bali agreement to limit warming to 2°C • or G-8 at L’Aquila, Italy, in 2009: • They are just words. • Modest targets, if short-term & credible, are worth far more than aggressive targets, if long-term & non-credible.

4. Definition of progress? • Keep in mind the Herculean tasks of bridging • the gap between rich countries & poor, • the gap between environmental aspirations & economic costs that people are willing to pay, • the gap between what leaders say, &what commitments are enforceable/credible. • Progress ≡ steps toward specific credible commitments by a large number of countries.

5. Assume that the climate regime will continue to follow Kyoto • Features of the Kyoto Protocol worth building on -- • Politics: Quantitative limits maximize national sovereignty • Economics: Market mechanisms, esp. internatnl. permit trading • Thus (2001)“You’re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto.” • What was sorely missing from Kyoto: • Participation by US, China, & other developing countries • A mechanism for setting targets far into the future • Any reason to expect compliance.

6. The best recent news • 102 countries (81% of global emissions), responded to the Jan.31, 2010, deadline of the Copenhagen Accord by submitting plans for reducing emissions. • Six big non-Annex I countries named quantitative targets • even though they didn’t have to. • Of course many, like China, are vague • about base year and seriousness of commitment • India & China’s 2020 target ≈ BAU. • But that is not a problem. (BAU is what I had proposed.) • It is an important step forward, • suggesting that Pres. Obama’s in-person breakthrough on the last day of COP15 may indeed lead somewhere.

7. Emissions targets taken on under Copenhagen Accord(Jan 31, 2010 deadline) 7

8. Emissions targets taken on under Copenhagen Accord(Jan 31, 2010 deadline) 8

9. Lessons from Copenhagen • Progress is not possible in the UN meetings • Small member countries will obstruct. • Delays due to walkout; • 6 trouble-maker countries blocked adoption of “Copenhagen Accord.” • The UNFCCC Secretariat is not up to it: • Leaving 38,000-44,000 registrees out in the cold is unforgivable incompetence. • The important decisions can only be made by a small steering group, like the old G-7.

10. 2009’s good global governance development: • Big emerging market countries finally have representation, • now that the G-20 has supplanted the G-8. • Korea chairs the G-20 in 2010, and may be able to bridge between Annex I & developing countries. • and in the Major Economies Forum

11. 2.My Proposal: formulas for pragmatic targets, based on what emission paths are possible politically: • unlike other approaches based purely on: • Science (concentration goals), • Ethics (equal emission rights per capita), • or Economics (cost-benefit optimization). • Why the political approach? • Countries will not accept burdens that they view as unfair. • Above certain thresholds for economic costs, they will drop out.

12. “An Elaborated Proposal For Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades,” in 2009 Aldy-Stavins book, suggested a framework of formulas that produce precise numerical targets for CO2 emissions in all regions for the rest of the century. The goal: No country suffers loss (PDV) > Y=1% GDP, by signing up ex ante, nor in any one period suffers a loss > X=5% GDP, by abiding ex post.

13. Proposal Stage 2:When the time comes for developing country cuts, targets are determined by a formula incorporating 3 elements, designed so each is asked only to take actions analogous to those already taken by others: • Stage 1: • Annex I countries commit to the post-2012 targets that their leaders have already announced. • Others commit immediately not to exceed BAU. • a Progressive Reduction Factor, • a Latecomer Catch-up Factor, and • a Gradual Equalization Factor.

14. The three factors in the formulas • Progressive Reduction Factor: • For each 1% difference in income/cap => target is γ% greater emissions abatement from BAU. • Latecomer Catch-up Factor: • Gradually close the gap between the latecomer’s starting point & its 1990 emission levels at λ per year. (Goal: avoid rewarding latecomers for ramping up emissions). • Gradual Equalization Factor: • In the long run, rich & poor countries’ targets converge in emissions per capita at δ per year. (Goal: equity)

15. Where do the parameters come from? • They would be negotiated. • But a good start is to use parameters implicit in targets that have already been agreed. • The degree of progressivity in the PRF can be estimated from observed pattern • in allocations agreed among Annex I countries in 1997 (γ=.14). • Now will update with numbers volunteered by countries Jan. 31, 2010. • We estimated Latecomer Catch-up parameter from the speed with which US targets close the gap: currentvs.1990 emission levels • in Lieberman-Warner(2008) & Waxman-Markey bills(2009) => λ =.3per 5-yr. period. • Will now update to Obama goals (2010) & switch to 2005 benchmark. • Initially we set speed of Gradual Equalization .1 = δ, per 5-yr. budget period(which comes to dominate per capita targets toward the end of the century).

16. The targeted reductions from BAU agreed to at Kyoto in 1997 were progressive with respect to income. Cuts ↑ γ =.14 Incomes → This is how we set the parameter in the Progressive Reductions Factor

17. The numbers submitted by countries, Jan. 31, 2010,under the Copenhagen Accord,were also progressive a - BAU - Emissions targets for 2020 expressed vs. BAU (WITCH model) a Jan 31, 2010 numbers under Copenhagen Accord Regression line Cuts ↓ Income per capita

18. The resultant paths for emissions targets, permit trading, the price of carbon, GDP costs, & environmental effects • estimated by means of the WITCH model of FEEM, Milan, co-authored & applied by Valentina Bosetti.

19. EUROPE = Old Europe + New Europe US = The United States KOSAU = Korea + S. Africa + Australia (3 coal-users) CAJAZ = Canada, Japan & New Zealand TE = Russia & other Transition Economies MENA = Middle East + North Africa SSA = Sub-Saharan Africa SASIA= India & the rest of South Asia CHINA = PRC EASIA = Smaller countries of East Asia LACA = Latin America & the Caribbean The 11 regions:

20. to limit emissions to BAU: Lat Am 2010 MENA 2010 China 2010 India 2010 SEAsia 2010 Africa 2025 Dates at which developing countries were asked • to cut below BAU, • for 500 ppm goal: • 2035 • 2025 • 2030 • 2050 • 2050 • 2050 • to cut emissions below BAU, • for 460 ppm goal: • 2020 • 2025 • 2025 • 2025 • 2025 • 2050

21. ◙ In one version, concentrations level off at 500 ppm in the latter part of the century. ◙ Constraints are satisfied: -- No country in any one period suffers a loss as large as 5% of GDP by participating. -- Present Discounted Value of loss < 1% GDP. Co-author: V.Bosetti Global peak date ≈ 2035

22. Emissions path for rich countriesFig. 2b } Predicted actual emissions exceed caps, by permit purchases. A property I have come to regard as useful: permits are a relatively small share of reductions.

23. Emissions path for poor countriesFig. 4b } Predicted actual emissions fall below caps, by permit sales.

24. Price of Carbon Dioxide Fig. 6b rises slowly over 50 years, then rapidly.

25. Concentrations stay below 500 ppm goalFig. 7b

26. Paper:http://ksghome.harvard.edu/~jfrankel/SpecificTargetsHPICA2009.docAvailable at: http://ksghome.harvard.edu/~jfrankel/currentpubsspeeches.htm#On%20Climate%20Change

27. Temperature rises 3° rather than 4°Fig. 8b Yes, I know. The pay-off is a let-down.

28. Appendices • 1) Trying to hit more aggressive targets • 2) Extensions for future work: • Updating • Uncertainty • 3) Trade policy: In the meantime, before all countries participate, what border measures are appropriate regarding carbon-intensive imports?

29. 1) The latest paperco-authored with Valentina Bosetti • See if we can hit concentrations = 450 ppm • Assumes EU target in 2015-2020 is 30 % below 1990 levels, rather than 20 %. • Developing country starting dates moved up. • Parameters in LCF & GEF tightened.

30. Bottom line • The best we can do is attain 460 ppm • Even then, we had to loosen our political/economic constraints: • We had to raise the threshold of costs above which a country drops out, as high as Y =3.4% of income in PDV terms, • and X =12 % in the worst budget period.

31. Target allocations to hit goal of 460 ppmsource: Bosetti & Frankel(Nov. 2009) Figure 2: Actual Emission per capita throughout the century, for 11 regions

32. Figure 3: Assigned targets & actual emissions for industrialized countries, aggregate 460 ppm (Note: Predicted actual emissions exceed caps by permit purchase amounts.)

33. Figure 4: Assigned targets & actual emissions for poor countries, aggregate 460 ppm (Note: Predicted actual emissions fall below caps by permit sales amounts)

34. Figure 5: Assigned targets & actual emissions for all countries, aggregate Goal: 460 ppm concentration of CO2 in year 2100

35. 7 a) 2010- 2045 Figure 7: Income Losses by Region and Period over the Century (460 ppm) 7 b) 2050- 2100

36. Figure 8: Global Income Loss-- by Budget Period,2010-2100, andPDV (discounted to 2005)

37. Figure 9:Losses by Region -- PDV (discounted to 2005 at 5% discount rate), 2010-2100

38. Figure 10: CO2 concentrationsto achieve year-2100 goal of 460 ppm

39. Figure 11: Rise in temperature under proposed targets (460ppm) vs. BAU Even though the 460 ppm target is achieved by mid-century, the pay-off in further temperature moderation, relative to 500 ppm, is not large. There are diminishing returns to CO2 abatement in two senses: The marginal cost of abatement rises in dollar terms, and the marginal cost of temperature moderation rises in terms of CO2.

40. Figure A1. Choosing country targets to minimize threshold for PDV country costs loses the simplicity of a common formula for all, (green triangles)without much gain in reducing PDV of global losses

41. Figure A2. Varying the developing country start dates tightens or loosens the CO2 concentration objective(blue diamonds)

42. Conclusions • Some may conclude that the goals of 380 or 450 ppm in CO2 concentrations are not attainable in practice, • and that our earlier proposal for 500 ppmis the better plan (Frankel, 2009). • We take no position on the best environmental goal. • Rather, we submit that, whatever the goal, our formulas will give targets that are more practical economically and politically than approaches that have been proposed by others.

43. Conclusions,continued • Our framework allocates emission targets across countries • in such a way that every country feels it is only doing its fair share and • in such a way as to build trust as the decades pass. • Otherwise, announcements of distant future goals are not credible, will not have the desired effects. • This framework—in providing for a decade-by-decade sequence of emission targets, each determined on the basis of a few principles and formulas— • is flexible enough to accommodate, by small changes in the formula parameters, changes in circumstances during the century.

44. 2. Future research • Update to fit Copenhagen Accord • Change Latecomer Catchup base year from 1990 to 2005. • Re-estimating parameters to fit latest numbers • Most important extension:introduce uncertainty, re: • Economic growth rates • Technological progress (carbon intensity at a given price) • Weight placed by political process on enviro objective • Robustnessin design of framework regarding losses: • Periodic renegotiation of parameters • & within-decade indexation of numerical targets to GDP.

45. 3. Trade • Will the global climate regime collide with the global trade regime?

46. Leakage and lost competitiveness= what “unfairness” means in rich countries Could border measures (tariffs, permit requirements for imports…) give non-participants an incentive to join, and level the playing field in the meantime? • Yes, in theory. • If properly designed, they could even be WTO-consistent, • building on precedents: Montreal Protocol, shrimp-turtle decision, Brazil tires, and D-G Lamy speeches (2 Nov., 2009). • In practice, however, border measures written by politicians will almost certainly be discriminatory, WTO-inconsistent, and undermining of climate goals.

47. What form should border measures take? • Best choice: multilateral sanctions. (Not likely.) • Next-best: national sanctions adopted under multilateral guidelines • Penalties can only be applied by participants-in-good standing • Judgments to be made by technical experts, not politicians • Penalties only in 6or8 of the most relevant sectors (aluminum…). • Third: No border measures. • Each country chooses carbon tariffs as it sees fit. • Worst choice: national measures are subsidies (e.g., free permits) to adversely affected firms.