Frank Jotzo

Estimating the CDM market under the Marrakech Accords

The agreement on implementation of the Kyoto Protocol achieved at COP7 in Marrakech has important implications for investment in greenhouse gas emission reduction projects in developing countries through the Clean Development Mechanism (CDM). The required actual emission reductions for participating Annex B countries overall will be relatively small, as the United States do not intend to ratify the protocol and significant amounts of carbon sequestered in domestic sinks can be credited. In addition, the potential supply of surplus emission permits (hot air) from Russia and other economies in transition may be as high as total demand in the first commitment period. Thus, even under restraint of hot air sellers, CDM demand will be limited, and a low demand, low price carbon market scenario appears likely. The magnitude of the CDM will be influenced by a host of factors both on the demand and the supply-side. We analyse these using a quantitative model of the global carbon market, based on marginal abatement cost curves. Implementation and transaction costs, as well as baseline and additionality rules affect the CDMs share in the carbon market. Demand for the CDM is sensitive to changes in business-as-usual emissions growth in participating Annex B countries, and also to crediting for additional sinks. Permit supply from Russia and other economies in transition is possibly the most crucial factor in the carbon market.

Australia's emissions trading scheme: opportunities and obstacles for linking

Australia is establishing an economy-wide emissions trading scheme, with a detailed proposal tabled by government in December 2008 and a scheme start planned for 2011. The proposal is for unilateral linking through the Clean Development Mechanism and Joint Implementation, but no initial bilateral linkages. Concerns about permit prices rising too high are prominent, and are reflected in a ban on permit sales and a price cap provision. This article evaluates the proposed Australian scheme with regard to international emissions trading and linkages. Different scenarios for the Australian permit price under unilateral linking are considered. Options for bilateral linking with the European Union and New Zealand schemes are evaluated. We argue that Australia should dismantle the obstacles to linking, including the proposed price cap, and move towards bilateral linking with suitable schemes.

Keeping the forest for the climate's sake: avoiding deforestation in developing countries under the UNFCCC

Abstract A process for reducing emissions from deforestation in developing countries has been initiated under the UNFCCC. Efforts to agree on a legally binding instrument to halt deforestation have previously failed in other international fora. The magnitude of the social, economic, technical and political complexities underlying deforestation have led to negotiations being challenging. What policy instruments could provide incentives to reduce deforestation, and how could these instruments be framed, under the UNFCCC? This article analyses the advantages and disadvantages of the available alternatives within and outside of the Kyoto Protocol. Staying within the Kyoto framework means low institutional development costs, established but limited incentives for action, and low flexibility. Alternatives outside the Protocol provide higher institutional development costs, uncertainties with regard to the incentives, but greater flexibility. We argue that a separate protocol may be the most viable option, as it could offer the necessary flexibility and avoid some technical and political pitfalls that would be likely to beset new efforts under the Kyoto Protocol. The article also presents the concept of ‘committed forests’ as a means of defining geographically where the reduction of emissions from deforestation can take place.

The need for national deep decarbonization pathways for effective climate policy

Constraining global average temperatures to 2 °C above pre-industrial levels will probably require global energy system emissions to be halved by 2050 and complete decarbonization by 2100. In the nationally orientated climate policy framework codified under the Paris Agreement, each nation must decide the scale and method of their emissions reduction contribution while remaining consistent with the global carbon budget. This policy process will require engagement amongst a wide range of stakeholders who have very different visions for the physical implementation of deep decarbonization. The Deep Decarbonization Pathways Project (DDPP) has developed a methodology, building on the energy, climate and economics literature, to structure these debates based on the following principles: country-scale analysis to capture specific physical, economic and political circumstances to maximize policy relevance, a long-term perspective to harmonize short-term decisions with the long-term objective and detailed sectoral analysis with transparent representation of emissions drivers through a common accounting framework or ‘dashboard’. These principles are operationalized in the creation of deep decarbonization pathways (DDPs), which involve technically detailed, sector-by-sector maps of each country’s decarbonization transition, backcasting feasible pathways from 2050 end points. This article shows how the sixteen DDPP country teams, covering 74% of global energy system emissions, used this method to collectively restrain emissions to a level consistent with the 2 °C target while maintaining development aspirations and reflecting national circumstances, mainly through efficiency, decarbonization of energy carriers (e.g. electricity, hydrogen, biofuels and synthetic gas) and switching to these carriers. The cross-cutting analysis of country scenarios reveals important enabling conditions for the transformation, pertaining to technology research and development, investment, trade and global and national policies. Policy relevance In the nation-focused global climate policy framework codified in the Paris Agreement, the purpose of the DDPP and DDPs is to provide a common method by which global and national governments, business, civil society and researchers in each country can communicate, compare and debate differing concrete visions for deep decarbonization in order to underpin the necessary societal and political consensus to design and implement short-term policy packages that are consistent with long-term global decarbonization.

Comparing the Copenhagen Emissions Targets

Following the Copenhagen climate Accord, developed and developing countries have pledged to cut their greenhouse gas emissions, emissions intensity or emissions relative to baseline. This analysis puts the targets for the major countries on a common footing, and compares them across different metrics. Targeted changes in absolute emissions differ markedly between countries, with continued strong increases in some developing countries but significant decreases in others including Indonesia, Brazil and South Africa, provided reasonable baseline projections are used. Differences are smaller when emissions are expressed in per capita terms. Reductions in emissions intensity of economies implicit in the targets are remarkably similar across developed and developing countries, with Chinas emissions intensity target spanning almost the same range as the implicit intensity reductions in the United States, EU, Japan, Australia and Canada. Targeted deviations from business-as-usual are also remarkably similar across countries, and the majority of total global reductions relative to baselines may originate from China and other developing countries. The findings suggest that targets for most major countries are broadly compatible in important metrics, and that while the overall global ambition falls short of a two degree trajectory, the targets by key developing countries including China can be considered commensurate in the context of what developed countries have pledged.

The Economics of Global Climate Change: A Historical Literature Review

Abstract We review the literature on the economics of climate change with a focus on the evolution of the literature from some of the early classic papers to the latest contributions. We divide the paper into three main sections: trends in greenhouse gas emissions, mitigation, and adaptation.

The logic of collective action and Australia’s climate policy

We analyse the long-term efficiency of the emissions target and of the provisions to reduce carbon leakage in the Australian Government’s Carbon Pollution Reduction Scheme, as proposed in March 2009, and the nature and likely cause of changes to these features in the previous year. The target range of 5–15 per cent cuts in national emission entitlements during 2000–2020 was weak, in that on balance it is too low to minimise Australia’s long-term mitigation costs. The free allocation of output-linked, tradable emissions permits to emissions-intensive, trade-exposed (EITE) sectors was much higher than proposed earlier, or shown to be needed to deal with carbon leakage. It plausibly means that EITE emissions can rise by 13 per cent during 2010–2020, while non-EITE sectors must cut emissions by 34–51 per cent (or make equivalent permit imports) to meet the national targets proposed, far from a cost-effective outcome. The weak targets and excessive EITE assistance illustrate the efficiency-damaging power of collective action by the ‘carbon lobby’. Resisting this requires new national or international institutions to assess lobby claims impartially, and more government publicity about the true economic importance of carbon-intensive sectors.

Developing countries and the future of the Kyoto Protocol

Developing countries will need to be involved if a future international agreement is to be effective in slowing climate change. Under the Kyoto Protocol’s first commitment period (2008-12), developing countries have not got emissions targets, and the United States have opted out. Whether the Kyoto Protocol will live and have ‘teeth’ in future depends on negotiations which are due to formally begin in 2005. Current conflicting positions between developing countries, the United States, and Europe appear entrenched, but progress could be made towards cooperation if developing countries’ interests are paid heed and a balance on equity issues is achieved. This paper interprets some of the politics and economics surrounding developing country participation in international climate policy, including future emissions targets, the Clean Development Mechanism (CDM), and adaptation to climate change.

Sharing the Global Climate Finance Effort Fairly with Limited Coordination

Mobilizing climate finance for developing countries is crucial for achieving a fair and effective global climate regime. To date, developed countries retain wide discretion over their national contributions. We explore how different degrees of international coordination may influence the fairness of the global financing effort, and we present quantitative scenarios, for both the metrics used to distribute the collective effort among countries contributing funding, and the number of contributing countries. We find that an intermediate degree of coordination—combining nationally determined financing pledges with a robust international review mechanism—may reduce distortions in relative efforts as well as shortfalls in overall funding, while reflecting reasonable differences over what constitutes a fair share. A broader group of contributors may do little to improve adequacy or equity unless it can converge on credible measures of responsibility and capacity. Our analysis highlights the importance of building common understandings about effort sharing.

Reaping the Economic Benefits of Decarbonization for China

China needs to reduce its carbon emissions if global climate change mitigation is to succeed. Conventional economic analysis views cutting emissions as a cost, creating a collective action problem. However, decarbonization can improve productivity and provide co-benefits that accord with multiple national policy objectives. We track Chinas progress in reducing the emissions intensity of the economy, and construct a macro scenario with Chinas carbon emissions peaking in the 2020s. Investment in greater energy productivity and economic restructuring away from heavy industries can bring productivity gains, and decarbonization of energy supply has important co-benefits for air pollution and energy security. Combined with lower climate change risks and the likelihood that Chinas actions will influence other countries, this suggests that cutting carbon emissions is not only in Chinas self-interest but also in the global interest. To properly identify the true costs and benefits of climate change action requires new thinking in economic analysis.