Alex Bowen

Raising climate finance to support developing country action: some economic considerations

This article explores the principles that should guide efforts to raise finance for climate action in developing countries. The main conclusions are that, first, there is an important role for private finance, which would be facilitated by having pervasive and broadly uniform emissions pricing around the world. Second, public finance is warranted by a range of market – and policy – failures associated with climate change and its mitigation. Third, raising tax revenues may be preferable to borrowing as a means of raising public finance, although the economics is not clear-cut. Public finance theory advocates taxing ‘bads’, a number of which have escaped the tax base so far. However, it discourages hypothecation of specific revenue streams to particular uses. Fourth, how much could or should be raised by the many specific proposals for finance for climate action in developing countries is often uncertain. So is how multiple schemes would interact. Several schemes could depress carbon prices. Earmarking is often assumed to be justified despite arguments to the contrary. Fifth, two sets of proposals do particularly well when judged against this analysis: (i) expanding the scale and scope of the Clean Development Mechanism (CDM) and (ii) expanding the use of international financial institutions’ balance sheets.

Prosperity with Growth: Economic Growth, Climate Change and Environmental Limits

Debate about the relationship between environmental limits and economic growth has been taking place for several decades. These arguments have re-emerged with greater intensity following advances in the understanding of the economics of climate change, increases in resource and oil prices and the re-emergence of the discussion about “peak oil�?. The economic pessimism created by the great recession of 2008-2012 has also put the spotlight back on the prospects for economic growth. This chapter provides a conceptual and synthetic analysis of the relationship between economic growth and environmental limits, including those imposed by climate change. It explores two related questions. Will environmental limits, including limits on the climate system, slow or even halt economic growth? If not, how will the nature of economic growth have to alter? It is concluded that continued economic growth is feasible and desirable, although not without significant changes in its characteristics. These changes need to involve ultimately the reduction of the rate of material output, with continued growth in value being generated by expansion in the “intellectual economy�?.

The global development of policy regimes to combat climate change

The year 2015 will be a landmark year for international climate change negotiations. Governments have agreed to adopt a universal legal agreement on climate change at the 21st Conference of Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC) in Paris in 2015. The agreement will come into force no later than 2020. This book focuses on the prospects for global agreement, how to encourage compliance with any such agreement and perspectives of key players in the negotiations — the United States, India, China, and the EU. It finds that there is strong commitment to the established UN institutions and processes within which the search for further agreed actions will occur. There are already a myriad of local and regional policies that are helping to reduce greenhouse gas emissions and build mutual confidence. However, the chapters in the book also highlight potential areas of discord. For instance, varying interpretations of the “common but differentiated responsibilities” of developing countries, agreed as part of the UNFCCC, could be a major sticking point for negotiators. When combined with other issues, such as the choice of consumption or production as the basis for mitigation commitments, the appropriate time frame and base date for their measurement and whether level or intensity commitments are to be negotiated, the challenges that need to be overcome are considerable. The authors bring to bear insights from economics, public finance and game theory. Contents: Introduction (Alex Bowen, Nicholas Stern and John Whalley) Global Cooperation and Understanding to Accelerate Climate Action (James Rydge and Samuela Bassi) The US and Action on Climate Change (Samuela Bassi and Alex Bowen) Challenges and Reality: Chinas Dilemma on Durban Platform Negotiation (Mou Wang, Huishan Lian and Yamin Zhou) Sustainable Growth and Climate Change: Evolution of Indias Strategies (Ruth Kattumuri and Darshini Ravindranath) After Copenhagen and the Economic Crisis: Does the EU Need to Go Back to the Drawing Board? (Christian Egenhofer and Monica Alessi) The Scope for “Green Growth” and a New Technological Revolution (Alex Bowen) Negotiating to Avoid “Dangerous” Climate Change (Scott Barrett) Unilateral Measures and Emissions Mitigation (Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John Whalley) Compliance Mechanisms in Global Climate Regimes: Kyoto and Post-Kyoto (Sean Walsh and John Whalley) Readership: students and researchers in developmental economics and climate change; policy makers and decision makers; general public interested in climate change issues.

Raising finance to support developing country action: some economic considerations

This article explores the principles that should guide efforts to raise finance for climate action in developing countries. The main conclusions are that, first, there is an important role for private finance, which would be facilitated by having pervasive and broadly uniform emissions pricing around the world. Second, public finance is warranted by a range of market – and policy – failures associated with climate change and its mitigation. Third, raising tax revenues may be preferable to borrowing as a means of raising public finance, although the economics is not clear-cut. Public finance theory advocates taxing ‘bads’, a number of which have escaped the tax base so far. However, it discourages hypothecation of specific revenue streams to particular uses. Fourth, how much could or should be raised by the many specific proposals for finance for climate action in developing countries is often uncertain. So is how multiple schemes would interact. Several schemes could depress carbon prices. Earmarking is often assumed to be justified despite arguments to the contrary. Fifth, two sets of proposals do particularly well when judged against this analysis: (i) expanding the scale and scope of the Clean Development Mechanism (CDM) and (ii) expanding the use of international financial institutions’ balance sheets.

Good practice in low-carbon policy

Chapter 7 reviews the policy measures required to reduce greenhouse gas emissions. They constitute the core content of climate change legislation. The starting point of the chapter is an understanding of the market, policy and behavioural failures that prevent private decision makers from adopting low-carbon solutions on their own accord. The chapter advocates carbon pricing as an effective way of incentivizing emission reductions, although command-and-control interventions are equally possible and have often been successful. Additional problems that need to be addressed include failures in capital markets, externalities related to low-carbon innovation, network issues and barriers preventing the uptake of energy efficiency measures. There are also policy distortions, not least the subsidization of fossil fuels and the underpricing of energy. The chapter further recommends interventions to mitigate the wider socioeconomic impacts of carbon policies, in particular their effect on competitiveness and fuel poverty. These measures do not directly reduce emissions, but they make climate change policy fairer, less disruptive and more acceptable to the public.