Table Of ContentINTERNATIONAL ENVIRONMENTAL AGREEMENTS
ON CLIMATE CHANGE
FONDAZIONE ENI ENRICO MATfEI (FEEM) SERIES ON ECONOMICS, ENERGY
AND ENVIRONMENT
This series serves as an outlet for the main results of FEEM's research programmes in the
areas of economics, energy and environment.
The Scientific Advisory Board of the series is composed as follows:
Kenneth J. Arrow
Department of Economics,
Stanford University, Stanford, California, USA
William J. Baumol
C.V. Starr Center for Applied Economics,
New York University, New York City, USA
Partha Dasgupta
Cambridge University, Cambridge, United Kingdom
Siro Lombardini
University of Turin, Turin, Italy
Karl-Goran Maler
The Beijer Institute, Stockholm, Sweden
Ignazio Musu
University of Venice, Venice, Italy
Henry Tulkens
Center for Operations Research and Econometrics (CORE)
Universire Catholique de Louvain, Louvain-la-Neuve, Belgium
Domenico Siniscalco (Series Editor)
Director, Fondazione Eni Enrico Mattei, Milan, Italy
and
University of Turin, Turin, Italy
Giorgio Barba Navaretti (Series Associate Editor)
Fondazione Eni Enrico Mattei
and
University of Milan, Milan, Italy
The titles published in this series are listed at the end of this volume.
International Environmental
Agreements on Climate Change
Edited by
Carlo Carraro
University of Venice, Italy
and Fondazione Eni Enrico Mattei, Milan, Italy
SPRINGER-SCIENCE+BUSINESS MEDIA. B.V.
Library of Congress Cataloging-in-Publication Data is available.
ISBN 978-90-481-5155-4 ISBN 978-94-015-9169-0 (eBook)
DOI 10.1007/978-94-015-9169-0
Printed on acid-free paper
All rights reserved
© 1999 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 1999
Softcover reprint of the hardcover 1st edition 1999
No part of the material protected by this copyright notice may be reproduced or utilized
in any form or by any means, electronic or mechanical, including photocopying,
recording or by any information storage and retrieval system, without prior
permission from the copyright owners.
Table of Contents
1. Introduction 1
2. The Structure of International Environmental Agreements
Carlo Carrara 9
3. Negotiating Greenhouse Abatement and the Theory of
Public Goods
Mike Hinchy and Brian S. Fisher 27
4. C0 Concentration Limits, the Costs and Benefits of
2
Control, and the Potential for International Agreement
Stephen C Peck and Thomas J. Teisberg 37
5. Necessary Conditions for Stabilization Agreements
Zili Yang and Henry D. Jacoby 57
6. Burden Sharing, Joint Implementation, and Carbon Coalitions
Glenn W Harrison and Thomas F. Rutherford 77
7. On Stabilizing C0 Concentrations-Cost-Effective Emission
2
Reduction Strategies
Alan Manne and Richard Richels 109
8. Exploring a Technology Strategy for Stabilizing Atmospheric C0
2
Jae Edmonds and Marshall Wise 131
9. Economic Impacts of Multilateral Emission Reduction
Policies: Simulations with WorldScan
J. C Bollen and A.M. Gielen 155
10. The Optimal Timing of Greenhouse Gas Emission Abatement,
Individual Rationality and Intergenerational Equity
Richard S.J. To/ 169
11. Implications of Emissions Limitations Protocols and
Concentration Stabilization Trajectories for Developing
(Non-Annex I) Countries
P.R. Shukla 183
12. Additionality, Transactional Barriers and the Political Economy
of Climate Change
Thomas Charles Heller 203
Index 225
v
1
Introduction
Climate change is one of the major environmental concern of many countries in
the world. Negotiations to control potential climate changes have been taking
place, from Rio to Kyoto, for the last five years. There is a widespread consciousness
that the risk of incurring in relevant economic and environmental losses due to
climate change is high. Scientific analyses have become more and more precise on
the likely impacts of climate change. According to the Second Assessment Report
of the Intergovernmental Panel on Climate Change, current trends in greenhouse
gases (GHGs) emissions may indeed cause the average global temperature to
increase by 1-3.5 °C over the next 100 years. As a result, sea levels are expected
to rise by 15 to 95 em and climate zones to shift towards the poles by 150 to 550
km in mid latitudes. In order to mitigate the adverse effects of climate change, the
IPCC report concludes that a stabilization of atmospheric concentration of carbon
dioxide - one of the major GHGs - at 550 parts per million by volume (ppmv)
is recommended. This would imply a reduction of global emissions of about 50
per cent with respect to current levels.
In this context, countries are negotiating to achieve a world-wide agreement on
GHGs emissions control in order to stabilize climate changes. Despite the agreement
on targets achieved in Kyoto, many issues still remain unresolved. First, the
protocol is not yet ratified, and ratification depends on the way policies are going
to be designed to achieve the Kyoto targets (e.g. the role of flexible instruments).
Second, the protocol has to be implemented, and legal and economic issues,
including monitoring and reporting, compliance and sanctions, have to be discussed.
Third, it is clear that the Kyoto protocol is only a first important step to keep
under control GHGs concentrations and that most of the work has yet to be
done. In particular, it is crucial to negotiate:
• on targets beyond the year 20 12;
• on the way in which countries which did not sign the Kyoto protocol, mostly
developing countries and LDCs, can set credible and effective targets, thus
joining the group of signatories.
No global agreement on climate is indeed going to be environmental effective in
the next 50 years without the involvement of many of the countries which did not
commit to emission control under the Kyoto protocol. Hence, it is crucial to
analyse whether there exist the conditions for an agreement on climate change to
be signed by all or almost all countries of the world. This is one of the major
goals of this book which contains several papers which address the issue of the
1
C. Carrara (ed.), International Environmental Agreements on Climate Change, 1-8.
© 1999 Kluwer Academic Publishers.
2
strategies and incentives that must designed in order to increase the number of
countries which are committed to reduce their own emissions. The second goal
is to quantify the costs of GHGs abatement in those countries which signed the
Kyoto protocol under different scenarios on future decisions taken by developing
countries about their own GHGs emissions. Third, this book analyses whether
current decisions, or at least those that are currently under debate, are optimal
and equitable, both from a temporal and from geographical viewpoint.
In order to understand whether or not the future beyond Kyoto is likely to be
characterized by an increasing number of signatories of the protocol, which
strategies can be designed to increase the number of signatories, which are the
costs of different scenarios on the future of the Kyoto protocol, let us recall from
the first paper of this book, 'The Structure of International Environmental Agree
ments' by Carlo Carrara, some of the basic features of international negotiations
on climate change control. These can be summarized as follows:
• All world countries are involved and required to take a decision on whether
or not to sign a protocol with important implications on their energy - and
economic - policies.
• No supra-national authority can enforce such a protocol, which must therefore
be signed on a voluntary basis.
• No commitment to co-operation is likely to be credible. Only positive economic
net benefits, which may include environmental benefits, can lead countries to
adhere to an international agreement on climate change control.
• Climate is a public good. As a consequence all countries are going to benefit
from the action taken by a subgroup of one or more countries. There is
therefore a strong incentive to free-ride.
• Parties involved in the negotiations seem to be conscious that an agreement
signed by all world countries is not likely and that the effort of GHGs emission
abatement has to be concentrated on a sub-group of (more developed)
countries. This is indeed the outcome of Kyoto but, as said above, it is necessary
to enlarge the number of signatories. Is this possible? How?
The answer to these questions provided in Carrara's paper is not encouraging.
Since the framework convention of Rio, actual environmental negotiations on
climate change aim at inducing all world countries to sign a global environmental
agreement to reduce greenhouse gas emissions. Even after Kyoto, where only a
subset of countries agreed on emission reduction targets, policymakers are still
negotiating on the way to induce the non-signatories to sign the protocol. The
paper by Carlo Carrara in this volume shows, from a game-theoretic viewpoint,
that the emergence of agreements signed by all countries is quite unlikely, even
in the presence of appropriate and multi-issues negotiation strategies and transfers.
If countries are non-myopic, the best we can expect is a coalition structure in
which multiple regional environmental agreements to control climate change are
signed. The proposal is therefore to achieve a set of regional climate agreements
similar to the ones that regulate international trade. It is clear that, despite the
3
WTO agreement on free trade at the global level, much better results are achieved
within each trade bloc (European Union, NAFTA, Mercosur, etc.). This paper
suggests that something similar could endogenously emerge for climate change
control, if countries are not forced to negotiate on a single agreement.
The same basic considerations on the public good nature of climate control are
the basis of the second article, 'Negotiating Greenhouse Abatement and the
Theory of Public Goods' by Mike Hinchy and Brian Fisher. This paper elaborates
the public good interpretation of negotiating an abatement agreement in a general
equilibrium context, the premise being that sharing the costs of abatement is
analogous to sharing the costs of production of a public good. This has the
advantage of permitting efficiency and equity to be addressed concurrently. The
elaboration illustrates a number of difficulties encountered in negotiating an
abatement agreement when applying the theory of public goods. These can be
summarized as: the need to obtain some measure of agreement about (consump
tion and production) abatement costs in different countries and their
interdependence depending on the level and distribution of abatement; the likely
need to reach agreement on side payments to address differential welfare impacts
and the possible impact of these side payments, how to deal with impacts on
non-abating countries and their responses to these impacts. The authors conclude
that although a simple rule to approximate the public goods solution concept
cannot be found in the general equilibrium context, indicator variables could be
a useful basis for negotiations.
A more empirical approach to the issue of coalition formation, i.e. of the
emergence of climate agreements, is adopted in 'C0 Concentration Limits, the
2
Costs and Benefits of Control, and the Potential for International Agreement' by
Stephen Peck and Tom Teisberg. In this paper, a two-region version of the CETA
model is used to firstly identify possible cost and benefit assumptions that would
make particular C0 concentration ceilings optimal. For the range of assump
2
tions used, the optimal target concentrations were found to range from about 550
ppmv, for the high emission control benefits and low emission control costs case,
to about 1100 ppmv at the other end of the spectrum. Secondly, international
emissions control is considered in relation to the use of tradeable emission permits
in order to distinguish the range of welfare outcomes and corresponding emission
permit allocations that are favoured by one or both regions over the no control
situation. The bargaining range, which identifies the emission targets that both
groups of countries would agree upon, for case assumptions in which there are
high emission control benefits and low emission control costs is found to be
reasonably large. Two possible permit allocations based on 1990 GDP or 1990
population proportions are analysed in order to see if these produce welfare
outcomes that lie within the bargaining range. Some of the rules tested are found
to lie in the bargaining range under adequate cost and benefit assumptions. The
final considerations examine whether negotiations about the total quantity of
emission permits can be undertaken separately from negotiations about the
4
allocation of permits between regions. This is found to be possible as the optimal
amount of emissions is virtually unaffected by the allocation of emission permits
between regions.
Using the analytical framework proposed in Carrara's paper, we can say that Peck
and Teisberg analyse under which conditions a climate agreement is profitable. They
provide however no analysis of the stability (or credibility, or sustainability) of the
agreement. This is done by Henry Jacoby and Zili Yang in 'Necessary Conditions
for Stabilising Agreements'. With a view to establishing systems by which to test the
credibility of atmospheric stabilization implementation schemes, the authors specify
three categories of conditions which would have to be met if a stabilization agreement
is to be achieved and prove sustainable: The first condition concerns the absolute
levels of the economic burdens; the second concerns equity and is called the progres
sivity of burdens; the final condition relates to the scale of international payments
in any permit trading scheme. The credibility of the implementation proposal, a C0
2
target of 550 ppmv, is tested by using the EPPA model. The principal findings are
that the WGI and WRE pathways are in conflict with the absolute burden condition,
though trading can help keep the later present welfare losses within or near the limits
assumed and it appears that international financial flows could be managed. In
addition, WGI or WRE, with or without trading, will all fail on the grounds of the
progressivity of burdens unless the control agreement incorporates a flexible system
of adjustment. Given these results, the authors conclude by querying the wisdom of
establishing numerical concentration targets 'prematurely'.
The issue of burden sharing is also addressed in 'Burden Sharing, Joint
Implementation and Carbon Coalitions' by Glenn Harrison and Thomas
Rutherford. This paper evaluates how the cost of abatement and the allocation
of the burden of abatement is influenced by joint implementation (JI). It
furthermore examines the issue of 'fair' distribution of burden when emissions
trading and JI strategies are employed. Simulations are carried out with a CGE
model based on the IIAM model with extensions to consider tradeable permits,
JI and endogenous burden sharing. It is concluded that finding a politically
acceptable way of sharing the burden-therefore sharing it equitably-is rendered
less difficult if emission permits are tradeable. In addition, it is concluded that it
is unnecessary to consider a trade-off between efficiency and equity, as it is the
very combination of the two that resolves the burden-sharing problem. The
authors believe that a suitable combination of policies with respect to joint
implementation and tradeable permits allows for the gains from trade in carbon
abatement to be distributed in such a way as to mitigate the global equity problem
arising from an OECD commitment to abate.
The role of developing countries and the relevance of their participation in the
climate agreement is analysed in 'On Stabilizing C0 Concentrations- Cost
2
Effective Emission Reduction Strategies' by Alan Manne and Richard Richels.
This paper seeks to define cost-effective strategies for limiting C0 concentra
2
tions to alternative levels and their implications for near-term mitigation decisions
and long-term participation by developing countries. The MERGE model is used
