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Discussion Paper

No. 2008-31 | October 15, 2008
Rethinking Global Climate Change Governance

Abstract

This paper explains why the approach taken so far to mitigate global climate change has failed. The central reason is an inability to enforce targets and timetables. Current proposals recommending even stricter emission limits will not help unless they are able to address the enforcement deficit. Trade restrictions are one means for doing so, but trade restrictions pose new problems, particularly if they are applied to enforce economy-wide emission limitation agreements. This paper sketches a different approach that unpacks the climate problem, addressing different gases and sectors using different instruments. It also explains how a failure to address the climate problem fundamentally will only create incentives for different kinds of responses, posing different challenges for climate change governance.

Paper submitted to the special issue “Global Governance – Challenges and Proposals for Reform”

JEL Classification

F18 F51 F53 Q54

Cite As

Scott Barrett (2008). Rethinking Global Climate Change Governance. Economics Discussion Papers, No 2008-31, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2008-31

Assessment



Comments and Questions


Till Requate - Comment
October 29, 2008 - 14:08

see attached file


Richard S.J. Tol - Time to get constructive
October 31, 2008 - 11:13

This paper is vintage Barrett. The analysis is insightful. The language is smooth. The message is seductive. And in the end one is left to wonder: What did I learn? And what should we do instead?

The paper by Barrett is a nice summary of previous work on international ...[more]

... policies for greenhouse gas emission reduction. Barrett overemphasizes his own contribution to that literature, but then who doesn’t? But it is only a summary. No new insight is forwarded.

I disagree with Barrett on trade sanctions. Trade sanctions play a useful role in the World Trade Organization, but international trade is club good. Greenhouse gas emission reduction is a commons good, just like reducing ozone-depleting substances. The Montreal Protocol was not driven by trade sanctions. Rather, it was driven by the prospect of a new market for specialty chemicals: HFCs replacing the old, low-margin ozone-depleting CFCs. Some companies masterfully manipulated environmental policy to create a new market with high profit margins. A single, technological solution was feasible because emission sources were limited in number and diversity. This does not apply to greenhouse gases. There is no single technological fix, and there cannot be one as greenhouse gases are emitted by such a wide variety of activities.

Trade sanctions are of course part of the Montreal Protocol. Essentially, it is possible to forbid the export of CFCs. That is, if a country does not voluntarily reduce its use of CFCs, its foreign supply will be cut off. CFCs are best made in bulk. Thus, the threat of trade sanctions of the Montreal Protocol had many small countries sign up. Essentially, their choice was between forcibly losing access to CFCs and voluntarily losing access to CFCs with green kudos on top. The trade sanctions were credible because both CFCs and their substitutes HFCs are produced by the same companies, and the latter are more profitable. Again, this does not apply to climate change. The analogue would be that Saudi Arabia stops the export of oil so as to force the world to buy its solar power instead.

I agree with Barrett that the solution to the climate problem lies in technological change. We will run out of conventional oil and gas in the course of the century. Providing the world with an alternative source of energy will require a major investment, and will imply a major shift in economic and geopolitical power. Reducing carbon dioxide emissions is a challenge of a similar scale – and it would be wise to solve both problems at once. “All” we need to do is redirect research and investment away from unconventional oil and gas and advanced coal, and towards renewables and nuclear. Barrett’s paper sketches the direction of the solution, but only scratches the surface.

How to best redirect and accelerate technological progress? What are the cost and the benefits? Might energy R&D crowd-out other useful research? Is it better to regulate or coordinate research internationally, or is competition better? One would have hoped that Barrett would try to answer these questions.


Anonymous - Referee Report
February 05, 2009 - 10:55

see attached file


Scott Barrett - Reply to referee's comments
February 19, 2009 - 03:50

I am grateful to the referee for his/her perceptive comments. She/he asks several questions. Let me respond to these.

What exactly does it mean to focus more on R&D? Even if Kyoto, or a new treaty styled after Kyoto, were to raise the cost of emitting greenhouse gases, there ...[more]

... would be too little innovation for the simple reason that patent protection does not extend to basic knowledge. There must be public support for R&D (just as, in the U.S., the National Institutes for Health finance medical research that is used as an input to pharmaceutical development). Of course, Kyoto also fails to provide the “right” price signal. In addition, Kyoto only limits emissions for five years (if we think a patent needs to be 20 years long to stimulate, say, vaccine research, why do we think five years is long enough for technologies that can mitigate climate change?). A focus on R&D would include direct funding of R&D and associated measures that raise the price of emitting greenhouse gases, now and well into the future.

What types of new technology seems most likely to succeed? I think we do not know the answer to this question, which is precisely why more basic research is needed. Let me, however, make some observations. First, it seems very clear that we need to understand the potential for and the risks associated with plant-level, carbon capture and storage. It is truly remarkable that no large-scale demonstration plant of this kind is up and running anywhere in the world. Other technologies deserving increased attention include space solar power, industrial air capture, and geoengineering. For the automobile, I think the case for electric powered cars (where the power, obviously, must be produced using carbon-free energy) is likely to be very strong, making R&D into battery technologies very important. I want to stress, however, that our R&D efforts need to be very broad.

Does cooperation over R&D raise some of the same free rider issues as Kyoto type emission limits? An article of mine published in 2006 (“Climate Treaties and ‘Breakthrough’ Technologies,” American Economic Review Papers and Proceedings), and cited in the paper reviewed by this referee, addresses this question. If the value of the R&D depends entirely on whether the knowledge derived from the R&D is embodied in technologies that are actually used to reduce emissions, then free riding in reducing emissions will cause there to be free riding in R&D financing. This, I believe, explains why there has been quite a lot of R&D into nuclear fusion (the ITER), which promises benefits unrelated to climate change mitigation, but very little so far on carbon capture and storage, which only benefits climate change mitigation. It is for this reason that I argue in this paper that R&D should be strategic. R&D funding must be linked to the prospects for diffusion leading to reductions in greenhouse gas emissions.

What are the incentives for individual countries to implement technology standards if this increases costs (e.g., CCS, which…will always be an extra cost)? This is an excellent question, and a hard one to answer. A necessary condition for us to succeed in addressing climate change is the belief that we will benefit from avoiding climate change. If each country ‘s benefit were huge relative to the cost of plant-level carbon capture and storage (CCS), then free riding would not be a problem. Obviously, however, free riding is a problem. So the question is, how can we get around the free rider problem by using something like a CCS standard? Let me speculate. Suppose that CCS represented a normative and not only a technical standard. That is, suppose a norm emerged that said that countries have a responsibility not to burn coal; or, if they do burn coal, to use CCS. We know that willingness to abide by a norm often depends on whether others obey the norm. So an agreement might be helpful to indicate that each of a certain set of countries ought to use CCS provided enough other countries in this set use CCS. This contingent promise would help countries get around the free rider problem (by increasing the benefit to each country of adopting CCS) and to reinforce the norm. For an analytical paper on this kind of behavior, see M. Hoel and K. Schnieder (1997), “Incentives to Participate in an International Environmental Agreement.” Environmental and Resource Economics, 9: 153-170.

I agree with the referee that these are difficult questions. I also agree that these questions deserve to be raised. We may not know all the answers today, but I can’t see how we will be able to address this great challenge unless we try to answer them.