April 13, 2009
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster
Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.
How urgent is it that large emitters in the developing world be brought into an international agreement to control greenhouse gases? As discussed in this week’s commentary by Jae Edmonds, Leon Clarke, Joshua Lurz, and Marshall Wise, the answer critically depends on the ultimate goals of climate policy. Early participation by developing countries is urgent if the goal is to rapidly stabilize atmospheric greenhouse gas concentrations. However, under a more moderate stabilization target there is much greater flexibility to offset delayed participation by developing countries through greater abatement in wealthy countries and through more global abatement in the latter part of the century.
Stabilizing Atmospheric CO2 with Incomplete International Cooperation
By Jae Edmonds, Leon Clarke, Joshua Lurz, and Marshall Wise
Most policymakers concerned about global warming have in mind some ultimate objective for limiting the amount of projected climate change, or atmospheric carbon dioxide (CO2) accumulations. Much of the debate has focused on climate stabilization targets consistent with limiting CO2 concentrations to either 450 parts per million volume (ppmv) or 550 ppmv (currently, CO2 concentrations are 385 ppmv, compared with preindustrial levels of about 280 ppmv). According to the Intergovernmental Panel on Climate Change, these stabilization targets are consistent with keeping eventual mean projected global warming to about 1.5oC and 2.5oC above current levels, respectively (this would be on top of temperatures rises of about 0.75oC over the last century).
Economists and climate scientists have developed a number of models to estimate global emissions prices that are consistent with ultimately stabilizing atmospheric CO2 concentrations at these target levels and minimizing the global burden of mitigation costs over time. To carry this out requires a uniform price on emissions from different regions within a given year (to equalize marginal abatement costs across different countries). The emissions price must also rise at roughly the rate of interest (about five percent) over time (to equate the discounted marginal abatement costs at different points in time).
However, it is unlikely that the world will address climate change in this wholly cooperative fashion—more likely, it will be years before developing countries are willing to comprehensively price their emissions, and even when they do, it may be at a lower rate than prevailing in the European Union and United States. How much of a problem is delayed participation by developing countries in terms of raising the overall burden of global mitigation costs, and what does this imply for appropriate near-term emissions pricing goals for the United States, if eventual targets for global stabilization are still to be met?
To explore these questions, we used our MiniCAM model and the following assumptions: that industrialized countries impose a common emissions price in 2012, China joins the agreement at a later date, and other countries join whenever their per capita income reaches that of China at the time of China's accession into the emissions control agreement. In one scenario, countries entering into the control regime would immediately price emissions at the same level as in industrialized nations, while in another case the emissions price for late entrants into the agreement converges gradually over time to the price in industrialized countries.
The model is designed to examine long-term, large-scale changes in global and regional energy systems in response to carbon policies. Given the many uncertainties-such as the costs of future emissions-reducing technologies (for example, nuclear power, carbon capture, and storage technologies) and emissions growth in the absence of controls (which is highly sensitive to assumed population and productivity growth)—the predictions should not be interpreted literally. But the results do provide some flavor for the proportionate increase in global abatement costs, and in required U.S. emissions pricing, due to delayed developing country participation.
We started with the more moderate climate stabilization target for CO2 of 550 ppmv. In the ideal case, with full and early emissions pricing by all countries, global emissions and emissions in the United States rise above current levels before peaking around 2035 to 2050, and progressively decline thereafter. Global emissions prices rise to about $6 per ton of CO2 (in current dollars) in 2025 and to about $20 per ton by 2050. By midcentury, annual global GDP losses are 0.2 percent (most other models also suggest global GDP losses of less than 1 percent by midcentury under this stabilization target).
With delayed participation, even if China joins between 2020 and 2035, the implications for emissions pricing in developed countries can be significant but are not that dramatic under the 550 ppmv stabilization goal. Compared with the globally efficient policy (with a globally harmonized emissions price at all times), near-term emissions prices in developed countries rise from between a few percent and 100 percent under the different scenarios, and discounted global abatement costs are higher by about 10 to 70 percent.
Emissions pricing policies implied by the 450 ppmv target are far more radical. Under globally efficient emissions pricing, CO2 prices rise to about $35 per ton by 2025 and about $130 per ton by midcentury, while global and U.S. emissions are roughly 5 percent and 40 percent below 2000 levels in 2025 and 2050 respectively. Global GDP losses approach 2 percent by midcentury.
Moreover, the 450 ppmv concentration is so close to present-day levels, and demand for fossil fuels is rising so rapidly in developing nations, that delayed participation has severe consequences for early participants in this case. Developed countries would have to achieve a reduction of more than 85 percent (relative to 2005 emissions) in 2050 to stabilize CO2 at 450 ppmv if the developing countries don't begin participating until 2020. Even more drastic reductions would be required if the delay is longer. Discounted global abatement costs are anything from about 30 to 400 percent higher than under globally efficient pricing in most cases, and near- and medium-term emissions prices can be ten times larger with China's accession delayed until 2035.
Why does delayed participation matter so much in one stabilization scenario, but not the other? Under the less stringent concentration target, there is much greater flexibility for offsetting delayed emissions reductions in developing countries through greater abatement by all countries later in the century. In contrast, to prevent CO2 concentrations from rising above 450 ppmv (present levels are already more than 380 ppmv) the remaining emissions that can be released by all countries in the world, without exceeding that limit, are so limited that forgone emissions reductions in nonparticipating countries must be largely made up by far more aggressive reductions in participating nations. In other words, there is little opportunity to catch up later. The problem is compounded by emissions leakage as rapidly declining fuel demand in developed countries exerts downward pressure on global fuel prices, which in turn makes fuel use and emissions an economically more attractive option in countries without mitigation policies.
Perhaps not surprisingly, the urgency of widespread participation in international emissions agreements hinges critically on the appropriate long-term climate stabilization target. Unfortunately, there are also strong incentives for countries to be "free riders," to benefit from others' emissions mitigation efforts without undertaking their own mitigation.
In the globally efficient policy, developing countries bear about 70 percent of discounted abatement costs out to 2100 (as their emissions in the absence of controls expand rapidly relative to those in developed countries). However, developed countries bear "only" about 20 to 35 percent of global abatement costs when China's accession occurs in 2035 and new entrants face lower starting prices. Ironically, the overall cost to China may actually be higher as a result of delayed participation than if they joined immediately. Side payments and other types of compensation could create incentives for earlier actions in developing regions. However, agreeing on who gets what level of compensation will, almost certainly, be highly contentious.
Views expressed are those of the author.
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