Emission trading, linking, offsetting

Transcription

1 Berlin Seminar on Energy and Climate (BSEC) Emission trading, linking, offsetting how do they interact with complementary policies and support mechanisms? Dr. Kai Lessmann Thursday, March 18 th 2010, Berlin Hertie School of Governance 1

2 Climate Change and Fossil Resources Large contribution of fossil fuels combustion to global warming Climate policy will reduce use of fossil resources Carbon resources in the ground are large (IPCC 2007) 2

3 Carbon in Soil and Atmosphere 2000 Gas Oil Coal Biomass + CCS Carbon stocks (GtC) I n t h e g r o u n d I n t h e a t m o s p h e r e Conventional reserves Unconventional reserves Conventional resources Unconventional resources Cumulative historic use Projected use (400ppm) Coal+CCS (400ppm) Biomass+CCS (400ppm) Additional projected use (BAU) Source: Kalkuhl and

4 Cap and trade guarantees meeting a climate target Extraction of fossil Resources: > Gt carbon Rent = economic scarcity Scarce carbon budget implies a scarcity rent But fossile resources are devalued Need to (re)distribute rents Remaining storage capacity in the atmosphere: ca. 200 GtC Need for global and national Institutions 4

5 The Challenge of Redistribution A 2 C climate target only permits very few addition al CO 2 emissions. Cap & Trade signals this scarcity on markets emergence of a new rent climate rent USA EUR JAP 770 GtCO $ 6 trillion $ (present value)? RUS MEA LAM OAS CHN IND AFR ROW How to distribute this rent amount nations? 5

6 The Challenge of Redistribution Limited availability of CCS: USA EUR JAP 639 GtCO $ 13 trillion $ (present value)? RUS MEA LAM OAS CHN IND AFR ROW Climate rent is dependant on all kinds of assumptions! 6

7 International Environmental Agreements Global climate policy implicitly assumes full international cooperation In reality: lack of a global authority instead: international environmental agreements (IEA) Participation is low whenever IEA (Barrett 1994) actually achieve something Can a clever design of environmental agreements achieve higher participation? Possibilities: Research Cooperation Trade restrictions Permit trade with nonmembers of the agreement Bali

8 Research cooperation Research (R&D) exhibits spillover Policy may foster spillovers by encouraging research partnerships 2 Coalition When spillovers are exclusive to coalition members, participation may increase spill over 6 R&D regarding Mitigation technology General productivity improvements Non-member 8

9 Research cooperation Participation R&D Protocol Mitigation technology spill over Coalition Spillover Intensity CO 2 Emissions GDP 9

10 Trade restrictions Coalition members raise tariffs on import from non-members Stiglitz: unfair advantage for countries that do not participate in climate policy energy tax to restore a level playing field 4 1 Non-members Coalition 2 Trade 3 Tariff

11 Trade restrictions Participation Coalition 2 1 Trade Gains for coalition members free-riders Tariff Non-members Tariff [%] 11

12 Permit trade with non-members Kyoto s flexible mechanisms - Permit trade (ETS) - Joint Implementation (JI) - Clean Development Mechanism (CDM) Aim: cost-effective emission reductions Facilitate complying with abatement targets for Annex 1 countries (Clean) Development aid through technology transfers Coalition CDM trade Post-Kyoto Improved CDM Non-member 5 C Our aim: Permit trade with non-members to strengthen participation 12

13 Permit trade with non-members Welfare gain Coalition 2 Member Non-member CDM trade Non-member CDM-trader 5 C Selling Target = reductions before selling credits Exemplary results for a coalition of 5 Selling targets determine the distribution of the gains from CDM trade 13

14 Permit trade with non-members CDM ex ante symmetric players Welfare gain CDM ex post heterogeneous players Welfare gain CDM-trader Member Non-member Shifting gains improves member payoff...but not enough to outweigh the increased free-riding incentive Selling Target Selling Target CDM ex post prevents increased free-riding Heterogeneity increases scope for CDM credit sales 14

15 Scope for cooperation? Model: Reality: Improved cooperation via: Open questions: Research cooperation How to induce spillovers? Permit trade with non-members Strong effekt on participation? Modelling approach suggests potential to improve incentive structure But: Cooperative Climate Policy remains difficult to achieve: High stakes (rents, redistribution) Strong free-riding incentive (similar to Prisoners Dilemma) 15

16 Emission trading, linking, offsetting... Summary 1. Emission permits create a climate rent Size varies with assumptions on technologies, climate target, Distributional issues high stakes in international negotiation 2. Free-riding incentives complicate negotiations Linking climate negotiation with other issues (research, trade) Design flexible mechanisms to be incentive compatible 16