Sunday, 9 December 2012

Changing the political dynamics of greenhouse gas reductions

Photo by Caveman Chuck Coker
, Creative Commons by-nd licence

Another climate conference failed miserably. Maybe we need a completely different system, a system in which forerunners are rewarded and not punished.

A stable, predictable climate is a common good. Climate change is one of the most difficult tragedies of the commons. There are great benefits to using energy and the climate costs are spread almost perfectly to everyone. No single industry or country contributes much to the problem, but some industries and countries do benefit strongly and have a large incentive to halt the negotiations and to spread doubt. This makes greenhouse gas mitigation arguably the most difficult tragedy of the commons.

It is possible to solve such tragedies, the Montreal protocol to curb emissions of chlorofluorocarbons (CFC) to protect the ozone layer seems to work well. The ozone layer is now at its thinnest, but scientists expect that is will start to become thicker soon and return to almost normal levels in several decades. However, in case of the Montreal protocol only the producers of fridges, air conditionings and spray cans were affected. Greenhouse gasses are emitted by the energy, agricultural and building sectors. These are powerful parties and this makes a global treaty difficult. Maybe it is better to solve the tragedy of the commons by allowing countries and regions that want to reduce their CO2 emissions to protect themselves against unfair competition.

Cap and trade
Under the Kyoto protocol a cap on the greenhouse gas emissions for the participating industrialized countries is set. Within this group emission rights can be traded, so that emissions are cut in the most efficient way. With a similar aim, emission can also be reduced by financing emission reductions in emerging economies and developing countries.

The problem of the Kyoto protocol is that the cap on the greenhouse emissions only makes sense if everyone is participating. Currently only 15 % of the global emissions are due to states with a Kyoto cap. Thus in practice there is no cap. This makes it possible to produce energy intensive goods outside of the treaty-area and to simply import those goods and import their high indirect energy content. This is a problem for these industries in the treaty-area, does not help the climate and will hurt the climate in many cases because these industries outside of the industrialized world are often less energy efficient.

Maybe a global cap is not needed. Maybe we can see the problem as a dynamical one. How can we develop cost efficient technologies to reduce green house gas emissions? Once renewable energy and saving energy is profitable, everyone will automatically join. Even if this “just” becomes less expensive, this would make contributing to the common good much easier.

Such technologies will be developed if there is a clear price signal; emitting CO2, wasting energy should be costly. Furthermore, economies of scale will be important to reduce the price and the increase competition.

For this, all we need are higher prices for greenhouse gas emissions in a large part of the world, but not necessarily all of the world. This part of the world should be allowed to protect itself against imports produced with cheap energy. That is all that the world would need to agree upon.

I expect that Europe would be the region that would start working this way. Due to the import levies, the playing field would be leveled and Europe's industry would be able to compete in the here and now with industries from the outside. In the long run, the Europe's industry would be come more efficient and would be world leader in green technologies. Technologies that will be needed everywhere once the prices of energy, concrete and fertilizer will start to rise due to shortages.

This is a quite attractive position. No disadvantage now, due to the levy, and likely advantages later, due to a technological leading role. It might well be that many countries would like to cooperate, get into this green region to be able to export without levies and to be part of the future.

It would especially be interesting to see how such new global rules would change the position of the United States of America. Could the energy intensive industries and climate "skeptical" crackpots still hold the population and the rest of the industry hostage?

Already now imports taxes are very complicated and differ per product and per country. To the German speaking population, I will just say: Bünderfleisch. Thus, I do not expect that a CO2 import levy would make the system much more complicated. You could limit the system to products with a high indirect energy use relative to the price. It would be sufficient to reduce the competitive disadvantage of the local industry, as you also have the long term advantages and the higher standard of living, there is no need to compute the indirect energy content of every product perfectly. It may be sufficient to just allow for the energy content of the product itself and ignore secondary contributions, such as the energy needed to build the machines, the build the roads on which it was transported, etc.

Bünderfleisch. The Treasurer of Switzerland, Hans-Rudolf Merz, acknowledges that even he does not understand all details of the import rules, while reading a "funny" explanation written by one of his civil servants. The civil servant did not understand why his text was so funny.

In Germany we have seen a similar dynamics with renewable energy. The renewable energy law (EEG) created a market by guaranteeing that the renewable power would be bought at a predetermined price. This created an incentive to produce renewable energy cheaply, as the investor could pocket the price difference as profits. The costs of renewable energy have decreased dramatically the last few years, in part also due to the EEG. Such a real market dynamics is something completely different as just giving money for research. Scientists are interested in understanding the processing and writing beautiful papers. Only the entrepreneur has the incentive to get the prices down.

An agreement that climate import levies are allowed may be easier to achieve as a global cap on greenhouse emissions. This will still not be easy, as we have seen in the conflict between the EU and China and the USA over a levy on air traffic from and to Europe. China and the USA did not want to accept the same levy as European firms for providing the same product to the same people. That China does not want any carbon taxes on gasoline for its poor population is understandable, but in case of air traffic it makes no sense that the location of the headquarters of the carrier determines the tax rate. This needs to change. The Word Trade Organization will have to allow import levies on environmental grounds.

I hope scientist from the economical, environmental and juridical sciences will take up this idea and study whether it could work.

Related information

Citizens Climate Lobby - Pushing for a US Carbon Fee and Dividend. This group wants a carbon fee would be implemented at the point of entry (well, mine, or port). That sounds similar to what I was thinking of.

1 comment:

  1. True, gas emissions as well as carbon management need to have a clearer system for it to ensure a positive outcome.


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