Monday 26 September 2016

Climate Summit rehashes all the old arguments again

Voluntary deals to cut carbon emissions don't work - but the price mechanism could, writes Colm McCarthy

Published 13/12/2015 | 02:30

BURNING ISSUE: One of the conferences at the COP21 Conference in Paris. Photo: Christophe Ena/AP
BURNING ISSUE: One of the conferences at the COP21 Conference in Paris. Photo: Christophe Ena/AP

The UN climate summit which ended yesterday in Paris was the 21st devoted to the search for agreement on how to limit global warming. The first was in Berlin in 1995 and the annual get-together now attracts 195 participating countries and 25,000 delegates.

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Counting in lobbyists, protesters, journalists, PR wizards and hangers-on, almost 50,000 people are estimated to have visited Paris during this year's renewal of the mid-winter ritual.

The UN also sponsors serious scientific work through the Intergovernmental Panel on Climate Change. Since its foundation in 1988, this collaborative research effort, involving thousands of experts from around the world, has gathered persuasive evidence that greenhouse gas emissions create serious risks to the earth's climate.

The annual jamboree produces lofty communiques, zillions of air-miles but little decisive action. Emissions continue to rise as the conferences expand. But hey, next winter's renewal will be in the delegate-friendly surrounds of Marrakech in Morocco, which beats Paris this time of year. (It's been a mixed bag for perennial attenders - previous venues have included chilly Warsaw but also Cancun on Mexico's Caribbean coast and tropical Bali).

The Paris meeting rehearsed yet again the familiar litany of complaints from countries which would like to do as little as possible. Less-developed countries object to binding targets on the grounds that rich countries, including their former colonial masters, are responsible for the bulk of historic emissions.

China makes the more reasonable point that European countries, through downsizing steel and other heavy industries and importing from China, have deftly outsourced their emissions. Some of China's emissions should logically be debited to the European consumer, rather than to the Chinese producer.

The same argument applies to Ireland's high agricultural emissions - most of the output is exported. The attempt to limit emissions through 'binding' (but unenforceable) national quotas runs up against these and numerous other barriers to agreement.

Previous targets, tortuously negotiated, have not been met. Attention gets focused instead on the summit communique, the lowest common denominator to which all can agree.

The scientific evidence points to the need to stabilise and then reduce worldwide emissions. If the object is a credible plan to tackle emissions, the Paris summit has failed, as have all 20 of its predecessors. Reliance on the same formula next year will see another failure in Marrakech. It is naive to expect 195 sovereign governments to commit, voluntarily, to prudent but politically costly policies whose benefits are global rather than national. The record for over 20 years now is that the formula has not worked.

William Nordhaus is a professor at Yale University in the US and has written extensively over several decades on the economics of climate change. In the course of his presidential address to the American Economic Association last year, Nordhaus posed the following question: is this UN conference a promising framework for securing an agreement that might work?

His answer is a robust no.

Nordhaus stresses that avoiding climate change is what he calls a "global public good", in the sense that the earth has just one atmosphere and everyone sinks or swims together. The paragons of environmental virtue share the fate of the heavy polluters.

Everyone would like everyone else to cut emissions but would like to avoid the costs of leading the charge. Even very big countries which contribute a sizeable fraction of total greenhouse gases will see their emission-cutting efforts go largely unrewarded if nobody else joins in. For a small country like Ireland, which emits one tonne in 500 of the global total, there is no direct benefit in making any effort at all. Ireland has a climate but it does not have an atmosphere.

Nordhaus concludes that the incentives in the current system (voluntary national commitments with no enforceable penalties) are responsible for the disappointing outcome.

The current system has not worked and will never work. There is an alternative and it looks like this. Suppose a much smaller group of countries, which between them account for a large portion of emissions, and of world trade, were to club together. They could jointly cut global emissions by a substantial margin, perhaps enough to make a difference on their own.

But crucially, they could induce the non-members to join through threatening trade sanctions.

If some big countries and trade blocs voluntarily agreed to cut emissions, and there were no sanctions, it would be attractive to stay outside the club and pollute away, enjoying the benefits of a better climate without sharing in the costs of making it happen.

This is a classic problem in public finance, called the 'free rider' problem. It explains why public lighting is financed by compulsory taxes and not by voluntary subscriptions.

So if India, for example, decided not to join and to keep building coal-fired power stations, the big guns could slap a tariff on imports from India and a re-think would doubtless ensue.

Nordhaus has simulated, using a model of climate change and data about world trade patterns, how this might work out and has concluded that it is feasible.

Instead of requiring compliance through national emission targets, he prefers price signals. So club members, both volunteers and those coerced into membership through the threat of trade sanctions, could first have to dismantle subsidies to fossil fuel use and then agree to minimum taxes on carbon emissions. These taxes, reflecting the damage done by emissions, would penalise heavily the most damaging activities, like burning coal and turf in power stations. The revenue, both from dismantling subsidies and then from imposing carbon taxes, would accrue to each national government. There would be no need to subsidise renewables - if the taxes on emissions were at the right level, untaxed renewables would become competitive without subsidy.

Such a system has the added attraction that it would incentivise powerfully those engaged in research on low-carbon technologies, without governments having to 'pick winners'. It could also treat poorer countries more leniently through delaying the deadline for compliance.

European countries, including Ireland, already tax many emission sources, for example through high levies on automotive fuels, and would have less to do under a system of minimum taxes.

Ireland does have some fossil fuel subsidies, notably on turf-fired power stations, but these should long ago have been scrapped on value-for-money grounds. Wind-farm subsidies are also costly and face diminishing returns.

Negotiating minimum taxes internationally should be less troublesome than trying to fix emission quotas. It would also remove the incentive for governments to promote the costly interventions so beloved of well-intentioned climate activists and their less admirable coalition partners, corporate welfare supplicants.

Between them, the EU, China and the US account for more than half the world's emissions from the combustion of fossil fuels. These three could form the nucleus of the club required to short-circuit the endless series of non-productive annual climate jamborees.

With just three delegations, the Marrakech meeting next year would leave a smaller carbon footprint and reduced takings for the hoteliers.

If Bill Nordhaus is correct, it would also yield some overdue progress towards a workable climate policy.

Sunday Independent

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