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Abstract: The Kyoto Protocol incorporates three flexibility mechanisms to help Annex I countries to meet their Kyoto targets at a lower overall cost. This paper aims to estimate the size of the potential market for all three mechanisms over the first commitment period. Based on the national communications from 35 Annex 1 countries, it first estimates the potential demand in the greenhouse gas offset market. Then, it assesses the implications of the EU proposal for ceilings on the use of flexibility mechanisms. Finally, using the global model based on the marginal abatement costs of the 12 regions, the paper estimates the contributions of flexibility mechanisms to meet total emissions reductions required of Annex 1 countries under the four trading scenarios. To our knowledge, this is the first comprehensive study to estimate the size of the potential market for Kyoto mechanisms and quantify the implications of the EU proposal on the basis of the individual national communications to the UNFCCC.
Emissions trading, clean development mechanism, joint implementation, climate change, marginal abatement costs, Kyoto Protocol, United States, Japan, European Union, China, India
Abstract: The Kyoto Protocol incorporates emissions trading, joint implementation and the clean development mechanism to help Annex I countries to meet their Kyoto targets at a lower overall cost. This paper aims to estimate the size of the potential market for all three flexibility mechanisms under the Kyoto Protocol over the first commitment period 2008-2012, both on the demand side and on the supply side. Based on the national communications from 35 Annex I countries, the paper first estimates the potential demand in the greenhouse gas offset market. Then, the paper provides a quantitative assessment of the implications of the EU proposal for concrete ceilings on the use of flexibility mechanisms for the division of abatement actions at home and abroad. Finally, using the 12-region's marginal abatement cost-based model, the paper estimates the contributions of three flexibility mechanisms to meet the total emissions reductions required of Annex I countries under the four trading scenarios respectively. Our results clearly demonstrate that the fewer the restrictions on trading the gains from trading are greater. The gains are unevenly distributed, however, with Annex I countries that have the highest autarkic marginal abatement costs tending to benefit the most. With respect to developing countries, their net gains are highest when trading in hot air is not allowed, and China and India account for about three-quarters of the total developing countries' exported permits to the Annex I regions. To our knowledge, this is the first comprehensive study to estimate the size of the potential market for Kyoto mechanisms and quantify the implications of the EU proposal on the basis of the individual national communications to the UNFCCC.
Abstract: The Kyoto Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their emissions commitments. Possible climate policies include carbon/energy taxes, subsidies, energy efficiency standards, eco-labels, and government procurement policies. In order to meet their targets with minimum adverse effects on their economies, Annex 1 governments with differentiated legal and political systems are highly likely to pursue these policies that may have the potential to bring them into conflict with their WTO obligations. This paper explores the potential interaction between these domestic climate policies and WTO rules. It argues that their potential conflicts can be avoided or at least minimised if WTO rules are carefully scrutinised, and efforts are made early on to ensure that the proposed climate policies comply with them. It suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.
Abstract: Experience with existing multilateral environmental agreements (MEAs) shows that trade measures agreed to within the MEAs themselves may not necessarily lead to a dispute between parties. On the contrary, there is a great chance that disputes may arise from national measures undertaken to fulfil those obligations under the MEAs. This possibility of conflict with their WTO obligations may well arise in implementing the Kyoto Protocol, given that Article 2 of the Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their greenhouse gas emissions commitments. It is highly likely that Annex 1 governments with differentiated legal and political systems might pursue their domestic policies in such a way as to unfairly favour domestic producers over foreign ones. Such differential treatments could occur in governing eligibility for, and the amount of, the subsidy, in establishing energy efficiency standards, in the determinations of the category of eco-labelled products and the procedures of establishing eco-labels, in the specifications in tenders, and in specifying condition for participating in government procurement bids. In case where a country unilaterally imposes a carbon tax, it may adjust taxes at the border to mitigate competitiveness effects of cheaper imports not subject to a similar level of the carbon tax in the country of origin. Measure of this sort may well raise complex questions with respect to the WTO consistency and the conditions under which border taxes can be adjusted to accommodate a loss of international competitiveness. All this clearly indicates the necessity of addressing policy coordination between the trade and climate regimes. Against this background, this paper discusses carbon/energy taxes, subsidies, energy efficiency standards, eco-labels and government procurement policies, and explores the potential interaction between these domestic climate polices and WTO rules. It highlights their potential conflicts, and argues that such conflicts can be avoided or at least minimized if WTO rules are carefully scrutinised at the time Annex 1 governments undertake measures to achieve the required reductions in emissions. The paper suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.
carbon taxes, energy taxes, subsidies, energy efficiency standards, eco-labels, government, procurement, WTO, climate change
Carbon taxes, energy taxes, subsidies, energy efficiency standards, eco-labels, government procurement, WTO, climate change
Abstract: As the first global carbon fund, the World Bank's Prototype Carbon Fund (PCF) aims to catalyze the market for project-based greenhouse gas emission reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders. Since the inception in 2000, the PCF has engaged in a dialogue with China to get it to sign up as a host country, because the World Bank and other international and bilateral donors expect great potential of the clean development mechanism (CDM) in China and feel the significant need for building CDM capacity in China to enable it to gain more insight into the CDM and increase its capacity to initiate and undertake CDM projects. This paper first discusses why China had hesitated to sign up as a host country of PCF projects until September 2003. Then the paper explains what has led China to endorse the PCF projects. The paper ends with discussions on the implications of the PCF's offering prices for the emerging global carbon market.
Carbon prices, Carbon market, China, Prototype Carbon Fund, The World Bank
Abstract: As the first global carbon fund, the World Bank's Prototype Carbon Fund (PCF) aims to catalyze the market for project-based greenhouse gas emission reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders. Since the inception in 1999, the PCF has engaged in a dialogue with China to get it to sign up as a host country, because the World Bank and other international and bilateral donors expect great potential of the clean development mechanism (CDM) in China and feel the significant need for building CDM capacity in China to enable it to gain more insight into the CDM and increase its capacity to initiate and undertake CDM projects. This paper first discusses why China had hesitated to sign up as a host country of PCF projects until September 2003. Then the paper explains what has led China to endorse the PCF projects. The paper ends with discussions on the implications of the PCF's offering prices for the emerging global carbon market.
Abstract: Taking account of sinks credits as agreed in Bonn and Marrakech, this paper illustrates how market power could be exerted in the absence of the US ratification under Annex 1 emissions trading and explores the potential implications of the non-competitive supply behavior for the international market of tradable permits, compliance costs for the remaining Annex 1 countries to meet their revised Kyoto targets, and the environmental effectiveness. Our results show that the US withdrawal from the Kyoto Protocol has had by far the greatest impact on the environmental effectiveness of the Protocol. This would lead to no real emission reduction in all remaining Annex 1 regions. As the biggest single buyer on the permit market, the absence of US ratification would significantly reduce the demand for permits. Consequently, the price of permits under Annex 1 trading would drop to zero. While all remaining Kyoto-constrained Annex 1 countries would enjoy meeting their revised Kyoto targets at zero costs, seller countries with excess supply of hot air would lose all their revenues under perfect Annex 1 trading. Given the former Soviet Union (FSU) and the Eastern European countries (EEC) as the dominant suppliers of emissions permits on the international market, it seems likely that they would exert market power to maximize their revenues from permit sales. Depending on how market power is exerted, our results show that the overall compliance costs of all remaining Annex 1 regions in the case of FSU cooperating with EEC could reach as much as two times that in the case of only FSU acting as a monopoly. But no matter how market power is exerted, all Kyoto-constrained Annex 1 regions are better off with emissions trading in terms of their compliance costs than with no trading at all. Moreover, curtailing permit supply by market power will cut the amount of hot air being emitted into the atmosphere by more than half and at the same time, increases Annex 1 domestic abatement efforts. Thus, the overall environmental effectiveness is increased, although it is much less under the market power scenarios examined than in the case of the ratification of all Annex 1 regions including the US. A Monte Carlo simulation supports the robustness of our quantitative findings.
Climate policy, emission trading, market power, marginal abatement costs, Kyoto Protocol, Monte Carlo simulation
Abstract: Taking account of sinks credits as agreed in Bonn and Marrakech, this paper illustrates how market power could be exerted in the absence of the US ratification under Annex 1 trading and explores the potential implications of the non-competitive supply behavior for the international market of tradable permits, compliance costs for the remaining Annex 1 countries to meet their revised Kyoto targets, and the environmental effectiveness. Our results show that the US withdrawal from the Kyoto Protocol has had by far the greatest impact on the environmental effectiveness of the Protocol. This would lead to no real emission reduction in all remaining Annex 1 regions. As the biggest single buyer on the permit market, the absence of US ratification would significantly reduce the demand for permits. Consequently, the price of permits under Annex 1 trading would drop to zero. While all remaining Kyoto-constrained Annex 1 countries would enjoy meeting their revised Kyoto targets at zero costs, seller countries with excess supply of hot air would lose all their revenues under perfect Annex 1 trading. Given the former Soviet Union (FSU) and the Eastern European countries (EEC) as the dominant suppliers of emissions permits on the international market, it seems likely that they would exert market power to maximize their revenues from permit sales. Depending on how market power is exerted, our results show that the overall compliance costs of all remaining Annex 1 regions in the case of FSU cooperating with EEC could reach as much as two times that in the case of only FSU acting as a monopoly. But no matter how market power is exerted, all Kyoto-constrained Annex 1 regions are better off with emissions trading in terms of their compliance costs than with no trading at all. Moreover, curtailing permit supply by market power will cut the amount of hot air being emitted into the atmosphere by more than half and at the same time, increases Annex 1 domestic abatement efforts. Thus, the overall environmental effectiveness is increased, although it is much less under the market power scenarios examined than in the case of the ratification of all Annex 1 regions including the US.
Climate policy, emission trading, market power, marginal abatement costs, Kyoto Protocol
Abstract: There have been a variety of studies investigating the relative importance of structural change and real intensity change to the change in China's energy consumption in the 1980s. However, no detailed analysis to date has been done to examine whether or not the increased energy efficiency trend in the 1980s still prevailed in the 1990s. This article has filled this gap by investigating the change in energy consumption in China's industrial sector in the 1990s, based on the data sets of value added and end-use energy consumption for the 29 industrial subsectors and using the newly proposed decomposition method of giving no residual. Our results clearly show that the overwhelming contributor to the decline in industrial energy use in the 1990s was the decline in real energy intensity, indicating that the trend of real energy intensity declines in the 1980s at the 2-digit level was still maintained in the 1990s. This conclusion still holds even if we lower the growth rate dramatically in line with the belief that the growth rate of China's GDP may be overestimated.
China, energy, structural change, energy intensity change
Abstract: There have been a variety of studies investigating the relative importance of structural change and real intensity change to the change in China's energy consumption in the 1980s. However, no detailed analysis to date has been done to examine whether or not the increased energy efficiency trend in the 1980s still prevails in the 1990s. This article has filled this gap by investigating the change in energy consumption in China's industrial sector in the 1990s, based on the data sets of value added and end-use energy consumption for the 29 industrial subsectors and using the newly proposed decomposition method of giving no residual. Our results clearly show that the overwhelming contributor to the decline in industrial energy use in the 1990s was the decline in real energy intensity, indicating that the trend of real energy intensity declines in the 1980s at the 2-digit level was still maintained in the 1990s. This conclusion still holds even if we lower the growth rate dramatically in line with the belief that the growth rate of China's GDP is overestimated.
Abstract: China is concerned about the security of its sea-lanes for imports and desires to diversify its oil supplies from the Middle East in order to sustain economic growth. These concerns have sparked China's interest in trying to ensure oil supplies from as many sources as possible and in reducing its overwhelming reliance on seaborne imports of oil, which, in China's view, is considered less vulnerable to disruption than oil arriving by tankers. In this context, China has turned the eyes on the emerging oil and gas fields in Africa. Through its high-profile oil diplomacy, China has been successful in developing its access to African oil and gas resources. However, China's oil diplomacy in Africa has been roundly criticized in Western capitals. Washington increasingly perceives that Beijing's ties to the so-called rogue states undermine the U.S. goals of isolating or punishing these states that fail to prompt democracy, limit nuclear proliferation or respect human rights. This paper argues that China's hunt for oil in Africa has been exaggerated by partly-informed commentators, sometimes based on erroneous information, not to mention those that deliberately paint the distorted picture. That said, the paper suggests that, in pursuing its oil diplomacy, Beijing should take into account many factors including Washington concerns, in particular when U.S. concerns also reflect those of a large section of the international community. The paper points out that devoting more resources to build a better future for all and help to eliminate the fear of another Rwanda or Darfur is a positive form that Beijing should take in its engagement with Africa. This way of engagement would be considered more positive by the broad community of states, and helps to enhance China's security of energy supply and at the same time would significantly reduce one source of tension with Washington. Overall, it will greatly benefit Africa as well as China.
China, Oil hunt in Africa, Energy polcy
Abstract: With the already huge and growing amount of greenhouse gas emissions and a great deal of low-cost abatement options available, China is widely expected as the world's number one host country of clean development mechanism (CDM) projects. But, making this potential a reality represents a significant challenge for China, because there has been a general lack of awareness by both the Chinese government and business communities, clear institutional structure, and implementation strategy. This has raised great concern about China's ability to compete internationally for CDM projects and exploit fully its CDM potential. This paper aims to address how CDM projects will be effectively implemented in China by examining the major CDM capacity building projects in China with bilateral and multilateral donors, the treatment of low-cost, non-priority CDM projects, and how a system for application, approval and implementation of CDM projects is set up in China and what roles the main institutional actors are going to play in the system. We conclude that these capacity building assistances, the establishment of streamlined and transparent CDM procedures and sound governance, and the lessons learned and experience gained from the implementation of the CDM project in Inner Mongolia and the two Prototype Carbon Fund (PCF)' projects will help China to take advantage of CDM opportunities. Moreover, in order to further capitalize on its CDM potential, there is a pressing need for the Chinese government to amend its current interim CDM regulations, in particular those controversial provisions on the eligibility to participate in CDM projects in China and the distribution of the revenues derived from CDM project between the project developer and the Chinese government. We believe that taking these ongoing capacity building projects and the recommended actions to clearly define the sustainable development objective of the CDM and disseminate CDM knowledge to local authorities and project developers as sectorally and geographically wide as possible, addressing those controversial CDM provisions with clearer guidance, and gaining experience from real practice will reduce the perceived project risks and lower the barriers to CDM project development in China. This is, in turn, likely to lead a much greater percentage of carbon credits to come from CDM projects in China over the next several years.
Clean development mechanism, Capacity building, Charge/tax scheme, China, Price of CERs, Sustainable development
Abstract: Many studies have emphasized the importance of China's participation in combating global climate change, but they looked at the role of China mainly from the point of view that future, uncontrolled increases in CO2 emissions in China will offset all emissions reductions in industrialized countries. This is only one side of the story. Although politicians and policy analysts claim the importance of China's participation in lowering compliance costs of industrialized countries, no studies have quantified such an importance to support their claims. This study is the first one to disentangle the impacts of China on industrialized countries' compliance costs from those resulting from the rest of the world by examining the markets with and without the inclusion of China, thus giving other side of the story. In so doing, we start with the no emissions trading case where each industrialized country must individually meet its Kyoto targets. Next, we consider a case where trading of emissions permits is limited to industrialized countries only. We then expand the scope of the market to include all the developing countries but China. Finally, to investigate the role China plays in bringing down industrialized countries' compliance costs, we further broaden the market to include China into full global trading. Our results clearly demonstrate that the gain of the OECD as a whole increases as the market expands. Depending the scenarios examined, the U.S. would gain 12-19% with the inclusion of China than without China. Our results also show that developing countries themselves benefit from such an expansion too because it not only provides them for additional financial resources, but also helps to cut their baseline carbon emissions by a big margin. By contrast, the former Soviet Union tends to become worse off as the market expands. The potential conflict of interest between the former Soviet Union and developing countries underlines the importance of establishing clear rules of procedure about admitting new entrants before emissions trading begins. Furthermore, our results show that China is expected to emerge as the world's number one host country for clean development mechanism projects, but to materialize such benefits, China faces great challenges in institutional setting and implementation strategy.
Emissions trading, clean development mechanism, greenhouse gases, marginal abatement costs, price of permits
Abstract: There are no other two countries in the world that trade as much between themselves as do Canada and the U.S. It should thus come as no surprise that the U.S. deviation from international obligations makes Canadian industries' competitiveness (trade) concerns become even more rigorous. Against this background, this paper aims to address competitiveness concerns brought about by the different level playing field where Canadian industries face mandatory emissions constraints but U.S. industry's emissions are uncapped. To that end, the paper has addressed: 1) ways to deal with increased emissions in Canada as a result of increasing energy exports to the U.S.; 2) treatment of Canadian subsidiaries of U.S. multinationals in initially allocating Canada's assigned amount; 3) transferring Kyoto permits to non-Annex B Parties and transferring credits generated by non-Kyoto Parties to Kyoto Parties; 4) the question of whether the U.S. bears any economic costs even when it faces no mandatory emissions targets during the first commitment period and the issue of why Canada likes to bear additional costs, if any, relative to the U.S. and the EU; and 5) what other measures might Canada take to further mitigate its trade concerns, in addition to taking advantage of the opportunities offered by the Kyoto flexibility mechanisms? If Canada and other like-minded countries invoke trade measures (to meet their Kyoto targets) against another WTO member but non-Kyoto Party like the U.S, would these measures be upheld if challenged by the U.S. under WTO? In so doing, attention is paid to the trade effects of the proposed measures to ensure their close consistency with the WTO rules, thus maximizing the WTO's contributions to sustainable development. It should be pointed out that although this study focuses on the U.S. and Canada, the results are of highly policy relevance to Japan and the EU as well. The latter also have to address the similar issues facing with Canada, although to less extent.
clean energy exports, emissions trading, competitiveness concerns, border tax adjustments, WTO, Kyoto Protocol
Abstract: There are no other two countries in the world that trade as much between themselves as do Canada and the U.S. It should thus come as no surprise that the U.S. deviation from international obligations makes Canadian industries' competitiveness (trade) concerns become even more rigorous. Against this background, this paper aims to address competitiveness concerns brought about by the different level playing field where Canadian industries face mandatory emissions constraints but U.S. industries' emissions are uncapped. To that end, the paper has addressed: 1) ways to deal with increased emissions in Canada as a result of increasing energy exports to the U.S.; 2) treatment of Canadian subsidiaries of U.S. multinationals in initially allocating Canada's assigned amount; 3) transferring Kyoto permits to non-Annex B Parties and transferring credits generated by non-Kyoto Parties to Kyoto Parties; 4) whether the U.S. bears any economic costs even when it faces no mandatory emissions targets during the first commitment period and why does Canada like to bear additional costs, if any, relative to the U.S. and the EU.? and 5) what other measures might Canada take to further mitigate its trade concerns, in addition to taking advantage of the opportunities offered by the Kyoto flexibility mechanisms? If Canada and other like-minded countries invoke trade measures (to meet their Kyoto targets) against another WTO member but non-Kyoto Party like the U.S, would these measures be upheld if challenged by the U.S. under WTO? In so doing, attention is paid to the trade effects of the proposed measures to ensure their close consistency with the WTO rules, thus maximizing the WTO's contributions to sustainable development. It should be pointed out that although this study focuses on the U.S. and Canada, the results are of high policy relevance to Japan and the EU as well. The latter also have to address the similar issues facing Canada, although to a lesser extent.
Clean energy exports, Emissions trading, Competitiveness concerns, Border tax adjustments, WTO, Kyoto Protocol
Abstract: The Harvard Project for Asian and International Relations (HPAIR) is student-run organization of the Harvard University Faculty of Arts and Sciences. Its flagship project is its international student conference, held in Asia each summer. The conference is centered around six stimulating topics focusing on international relations, business, political economy, culture, technology, and a variety of other topics, and brings together students and a distinguished group of speakers from across the globe to discuss the most important issues relevant to the Asia-Pacific region. For this year conference in Singapore, the HPAIR undertakes "a series of interviews with world leaders, renowned scholars and leading business professionals to discuss their personal experiences in studying and helping to shape the future of Asia". This paper details my responses to its interview questions on energy issues in China, China's hunt for oil in Africa, environmental policy in China, and the Asia Pacific Partnership for Clean Development and Climate. It appears in Redefining Asia: Visions and Realities, edited by Harvard Project for Asian and International Relations, Harvard University, 2006.
China, Energy policy, Oil hunt in Africa, Environmental polcy, Asia Pacific Partnership
Abstract: China had been the world's second largest carbon emitter for years. However, recent studies show that China had overtaken the U.S. as the world's largest emitter in 2007. This has put China on the spotlight, just at a time when the world community starts negotiating a post-Kyoto climate regime under the Bali Roadmap. China seems to become such a Christmas tree on which everybody can hang his/her complaints. This paper first discusses whether such a critics is fair by examining China's own efforts towards energy saving, the widespread use of renewable energy and participation in clean development mechanism. Next, the paper puts carbon reductions of China's unilateral actions into perspective by examining whether the estimated greenhouse gas emission reduction from meeting the country's national energy saving goal is achieved from China's unilateral actions or mainly with support from the clean development mechanism projects. Then the paper discusses how far developing country commitments can go in an immediate post-2012 climate regime, thus pointing out the direction and focus of future international climate negotiations. Finally, emphasizing that China needs to act as a large and responsible developing country and take due responsibilities and to set a good example to the majority of developing countries, the paper articulates what can be expected from China to illustrate that China can be a good partner in combating global climate change.
Energy saving, Renewable energy, Post-Kyoto climate negotiations, Clean development mechanism, China, USA
Abstract: The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) has set legally binding emissions targets for a basket of six greenhouse gases and timetables for industrialised countries. It has also incorporated three international flexibility mechanisms. However, the Articles defining the flexibility mechanisms carry wording that their use must be supplemental to domestic actions. This has led to the open debates on interpretations of these supplementarity provisions. Such debates ended at the resumed sixth Conference of the Parties (COP) to the UNFCCC, held in Bonn, July 2001, and at the subsequent COP-7 in Marrakesh, November 2001. The final wording in the Bonn Agreement, reaffirmed in the Marrakesh Accords, at least indicates that domestic policies will have an important role to play in meeting Annex B countries' emissions commitments. Carbon taxes have long been advocated because of their cost-effectiveness in achieving a given emissions reduction. In this paper, the main economic impacts of carbon taxes are assessed. Based on a review of empirical studies on existing carbon/energy taxes, it is concluded that competitive losses and distributive impacts are generally not significant and definitely less than often perceived. However, given the ultimate objective of the Framework Convention, future carbon taxes could have higher rates than those already imposed and thus the resulting economic impacts could be more acute. In this context, it has been shown that how to use the generated fiscal revenues will be of fundamental importance in determining the final economic impacts of carbon taxes. Finally, we briefly discuss carbon taxes in combination with other domestic and international instruments.
Border tax adjustments, carbon taxes, distribution of income, double dividend, emissions trading, energy taxes, international competitiveness
Abstract: The Kyoto Protocol, as detailed in the Marrakech Accords, has now been rendered fit for ratification. In anticipation of the Protocol's entry into force, attention has focused on how Annex I countries can put a package of climate policies in place to meet their emissions targets. In the meantime, discussions of what comes next are expected to gain increasing legitimacy, given that the Kyoto targets are only the first step toward addressing the long-term global climate issue. Against this background, the East-West Center organized the international conference on Climate Policy After Marrakech: Towards Global Participation in Honolulu, Hawaii, on September 4-6, 2003. Sponsored by the Dutch Ministry of Housing, Spatial Planning and the Environment, the Japanese Ministry of the Environment, Industrial Technology Research Institute (Hsinchu, Taiwan), and Institute for Global Environmental Strategies (Kanagawa, Japan), this major event brought together senior technical bureaucrats, well-respected policy analysts, and experienced practitioners to 1) share their views on recent developments in climate policies and initiatives around the globe; 2) advance our understanding of the actions and policy frameworks that can contribute to compliance with Kyoto emissions targets; and 3) discuss the paths forward to a global regime of wider participation and deeper greenhouse emissions cuts. Presentations and discussions are organized under the following six session headings: Session I: Climate Change in Focus - From Science to Policy; Session II: U.S. Climate Policy and Perspectives; Session III: European Union Climate Policy and Perspectives; Session IV: Challenges for other Major Industrialized Countries; Session V: Issues Related to Developing Countries; and Session VI: Panel Discussions: Where Do We Go from Here?. This conference report provides a summary of each presentation and a comprehensive account of 7-hour discussions.
Climate policy, clean development mechanism, emissions trading, the Kyoto Protocol
Abstract: The Kyoto Protocol is the first international environmental agreement that sets legally binding greenhouse gas emissions targets and timetables for Annex I countries. It incorporates emissions trading, joint implementation and the clean development mechanism. Because each of the Articles defining the three flexibility mechanisms carries wording that the use of the mechanism must be supplemental to domestic actions, the supplementarity provisions have been the focus of the international climate change negotiations subsequent to Kyoto. Whether the supplementarity clauses will be translated into a concrete ceiling, and if so, how should a concrete ceiling on the use of the three flexible mechanisms be defined remain to be determined. To date, the European Union (EU) has put forward a proposal for ceilings on the use of these flexibility mechanisms. Given the great policy relevance to the ongoing negotiations on the overall issues of flexibility mechanisms, this paper has provided a quantitative assessment of the implications of the EU ceilings with and without considering the however clause. Our results suggest that such ceilings are less restrictive to the EU than to the US and Japan in terms of levels of restriction on permits imports, and can prevent one third of the amount of hot air from entering the market. Our results also demonstrate that although the US and Japan are firmly opposed to such a restriction, they tend to benefit more from it than the EU which strongly advocates such ceilings, in terms of the reductions in the total abatement costs relative to the no trading case. Moreover, their gains can increase even further, provided that the however clause would operate as intended.
Emissions trading, Clean development mechanism, Joint implementation, Greenhouse gases, European Union, Supplementarity restrictions
Abstract: The Kyoto Protocol is the first international environmental agreement that sets legally binding greenhouse gas emissions targets and timetables for Annex I countries. It incorporates emissions trading, joint implementation and the clean development mechanism. Because each of the Articles defining the three flexibility mechanisms carries wording that the use of the mechanism must be supplemental to domestic actions, the supplementarity provisions have been the focus of the international climate change negotiations subsequent to Kyoto. Whether the supplementarity clauses will be translated into a concrete ceiling, and if so, how should a concrete ceiling on the use of the three flexible mechanisms be defined remain to be determined. To date, the European Union (EU) has tabled a proposal for ceilings on the use of these flexibility mechanisms. Given the great policy relevance to the ongoing negotiations on the overall issues of flexibility mechanisms, this paper has provided a quantitative assessment of the implications of the EU ceilings with and without considering the however clause. Our results suggest that such ceilings are less restrictive to the EU than to the US and Japan in terms of levels of restriction on permits imports, and can prevent one third of the amount of hot air from entering the market. Our results also demonstrate that although the US and Japan are firmly opposed to such a restriction, they tend to benefit more from it than the EU which strongly advocates such ceilings, in terms of the reductions in the total abatement costs relative to the no trading case. Moreover, their gains can increase even further, provided that the however clause would operate as intended.
emissions trading, clean development mechanism, joint implementation, greenhouse gases, european union, supplementarity restrictions
Abstract: Article 17 of the Kyoto Protocol authorises emissions trading, but the rules governing emissions trading have been deferred to subsequent conferences. In designing and implementing an international greenhouse gas (GHG) emissions trading scheme, assigning liability rules has been considered to be one of the most challenging issues. In general, a seller beware liability works well in a strong enforcement environment. In the Kyoto Protocol, however, it may not always work. By contrast, a buyer beware liability could be an effective deterrent to non-compliance, but the costs of imposing it are expected to be very high. To strike a middle ground, we suggest a combination of preventative measures with strong but feasible end-of-period punishments to ensure compliance with the Kyoto emissions commitments. Such measures aim to maximize efficiency gains from emissions trading and at the same time, to minimize over-selling risks.
Emissions trading, Greenhouse gases, Seller beware liability, Buyer beware liability, Kyoto Protocol
emissions trading, greenhouse gases, seller beware liability, buyer beware liability, Kyoto protocol
Abstract: To point out the direction and focus of future international climate negotiations, this paper discusses how far developing country commitments can go in an immediate post-2012 climate regime. The paper argues that developing country commitments are most unlikely to go beyond the defined polices and measures in this timeframe. On this basis, the paper suggests that, rather than attempting the unrealistic goal, international climate negotiations may instead need to initially frame the post-2012 developing country participation in terms of certain policies and policies that I envisioned a decade ago. This conclusion does not change, as Barack Obama becomes the U.S. President and the Democrats have regained control over both U.S. House of Representatives and Senate. However, it should be emphasized that his stance on climate issues and how ambitious U.S. commitments would be under his administration are going to be critical for developing countries to take bold steps themselves and to even agree to reflect those national commitments in a global deal.
Post-Kyoto climate negotiations, Policies and measures, Developing countries
Abstract: Asia has truly experienced spectacular economic growth over the past 15 years. However, this economic progress has come at a high cost. It has led to unprecedented environmental consequences. Ecological footprint shows that, despite the fact that one-fifth of the population in Asia still lives on less than US$ 1 per day (PPP-adjusted), the region is already living beyond its ecological carrying capacity. The region is facing a dilemma. On the one hand, continued economic growth is needed to alleviate the poverty of the two-thirds of the world's poor living in this region. On the other hand, that economic growth will further place tremendous strains on the natural environment. In order to extricate itself from this difficult position, the region needs to shift the conventional pattern of "develop first and then treat the pollution" to a different trajectory of sustainable development. To that end, this paper examines a variety of policy responses, at national, regional and international levels, to deal with growing concerns about the environmental challenges in Asia in order to help to put the region on a more sustainable development path. In the context of national responses, special attention is paid to the following issues: coordination between the central and local governments, market-based environmental instruments and industrial policies, tougher emissions standards for mobile and stationary sources and fuel quality, policies to promote energy efficiency and the use of clean energy and biofuels, the integration of environmental policies with economic and sectoral policies, and engagement of the private sector through e.g., ecolabelling, green government procurement, corporate ratings and disclosure programs, and drawing the support of financial institutions to promote improved corporate environmental performance. It is concluded that having the right policy mix, coupled with strengthened cooperation at national, local and regional levels, will ensure continuing economic growth in the region without compromising its limited ecological carrying capacity and environmental quality.
Energy policy, Market-based environmental instruments, Asia
Abstract: Although many economic studies suggest that China would reap significant benefits from participating in a global cap-and-trade regime, China has consistently refused to participate in international negotiations on this issue. Understanding China's underlying concerns is a key to explaining why China has not embraced an international greenhouse gas emissions trading scheme. This is explored as a potential basis for including China in future negotiations and schemes. This issue is considered from the following perspectives that impact upon China: (a) fairness: how do developing countries perceive emissions caps? (b) why have China and India been sceptical about international emissions trading? (c) what would China's political perceptions be of an inflow of CDM investment in comparison with the exports of emissions permits to the USA? (d) what are the implications of 'lock in' to an emissions cap, particularly when no rules and principles exist for setting emissions targets for post-2012? (e) the complex question of establishing future emissions caps for developing countries. To our knowledge, this is the first paper to analyse why China has not embraced an international greenhouse gas emissions trading scheme, thus pointing out efforts/directions towards getting the country into such a scheme. Thus, the paper is of significant policy relevance.
cap-and-trade regime, clean development mechanism, international climate negotiations, Kyoto Protocol, China, India
Abstract: Many economic studies suggest that China would reap significant benefits from participating in a global cap-and-trade regime. The question then is that even if such a regime is so beneficial to China, why China has consistently refused in international negotiations even to discuss its participation in it. In this paper, we look at this issue from the following perspectives: a) from the point of view of fairness, how do developing countries including China and India perceive emissions caps in the first place?; b) why have China and India been sceptical to international emissions trading?; c) how is an inflow of CDM investment in China perceived politically in comparison with the exports of emissions permits to the U.S.?; d) what are the implications of "lock in" to emissions cap, in particular no rules and principles for setting emissions targets for the commitment periods subsequent to Kyoto?; e) how to address the complex undertaking of setting emissions caps for developing countries, which must be linked to future, unobserved levels in comparison with the historically observed levels for industrialized countries?. To our knowledge, this is the first paper to analyse why China has not embraced an international greenhouse gas emissions trading scheme, thus pointing out efforts/directions towards getting the country into such a scheme. Thus, the paper is of significant policy relevance.
Abstract: The climate-trade nexus gains increasing attention as governments are taking great efforts to forge a post-2012 climate change regime to succeed the Kyoto Protocol. This raises the issues of the scope of trade-related measures and of when and how they could be used. To gain some guidance on the scope of trade provisions in a post-2012 climate regime, this paper first discusses the Montreal Protocol in which such trade provisions have been included. The paper argues that while it is unlikely for developing country parties to agree the inclusion of trade-related measures in a post-2012 climate regime, trade-related measures should, at the very least, be contemplated for a set of industrialized countries (Annex I or II countries) as part of the evolving climate regime. It should be specified how these measures will apply to non-complying parties within this group and when and how unilateral trade measures can be used against countries outside the group. To that end, the paper emphasizes that there is a clear need to define comparable efforts towards climate mitigation and adaptation to discipline the use of unilateral trade measures at the international level, as the Lieberman-Warner bill in the U.S. Senate demonstrated great possibility that some industrialized countries, if not all, are considering the term comparable as the standard by which to assess the efforts made by their trading partners in order to decide on whether to impose unilateral trade measures on them. While that bill died on the floor of the Senate, this is by no means the end of the prospect for border adjustment type of unilateral trade measures bill. The paper argues that the Lieberman-Warner type of border adjustment provision, in its current form, is likely to face WTO-consistency and methodological challenges. It also holds out more sticks than carrots to developing countries. Sticks can be incorporated, but only if they are credible and realistic and serve as a useful supplement to push developing countries to take actions or adopt policies and measures earlier than would otherwise have been the case. In order to encourage developing countries to do more to combat climate change, the paper suggests that developed countries should rather focus on carrots.
Post-2012 climate negotiations, Trade-related measures, Border adjustment measures, Lieberman-Warner bill, Montreal Protocol, WTO, Financial mechanism, Developing countries
Abstract: Duke University organized the International Conference on Reconstructing Climate Policy: Moving Beyond the Kyoto Impasse, May 2003. The organizer invited me to specifically address the following two issues at the conference: 1) Whether is the proposal for joint accession by the U.S. and China in the interest of China?, and 2) Even if participating a global cap-and-trade regime is so beneficial to China as many economic studies suggest, why has China consistently refused in international negotiations even to discuss its participation in it? In this paper, we look at the first issue from the following perspectives: a) how does China value importance of maintaining unity of the Group of 77? b) what lessons has China learned from bilateral negotiations with the U.S. to work out the terms for China to get accession to the WTO? c) what is the legitimacy of the U.S. insistence that it re-joins the Kyoto Protocol only if major developing countries join? d) what are implications of the U.S. strikingly reversed position on the commitments of developing countries in New Delhi for initiating discussions on joint accession by the U.S. and China? and e) how would joint accession by the U.S. and China be perceived? We then address the second issue from the following perspectives: a) from the point of view of fairness, how do developing countries including China and India perceive emissions caps in the first place? b) why have China and India been sceptical to international emissions trading? c) how is an inflow of CDM investment in China perceived politically in comparison with the exports of emissions permits to the U.S.? d) what are the implications of "looked in" to emissions cap, in particular no rules and principles for setting emissions targets for the commitment periods subsequent to Kyoto? e) how to address the complex undertaking of setting emissions caps for developing countries, which must be linked to future, unobserved levels in comparison with the historically observed levels for industrialized countries? Finally, the paper touches on the likely path forward.
Cap-and-trade regime, Clean development mechanism, International climate negotiations, Kyoto Protocol, China, United States
Abstract: The U.S. and China are the world's largest and second largest CO2 emitters, respectively, and to what extent the U.S. and China get involved in combating global climate change is extremely important both for lowering compliance costs of climate mitigation and adaptation and for moving international climate negotiations forward. While it is unavoidable that China will take on commitments at some specific point of time in the future, this paper has argued that the proposal for joint accession by the U.S. and China is not a way forward. For various reasons, such a proposal is in the U.S. interest, but is not in the interest of China. Given the U.S. political reality and institutional settings on the one hand and China's over-riding concern about economic growth and poverty reduction on the other, the two countries are unlikely to take on emissions caps under an international regime, at least for the time being. Therefore, we need to explore the area where cooperation between the two countries to address climate change seems best. The research, development and deployment of clean technology is the area that is in the best interests of the two countries. The U.S. has adopted a technology-oriented approach to climate issues, and has launched the four multilateral initiatives on technology cooperation and the Asia Pacific Partnership for Clean Development and Climate (APP). China has participated all these U.S.-led initiatives, and is a partner to the APP. Strengthened technology cooperation between the two countries through these initiatives and the APP has led some tangible benefits. However, it should be pointed out that while technology is a critical ingredient in a climate policy package, efforts such as the APP can only be part of the solution. They alone cannot ensure that best available technologies are always deployed in the marketplace, and that new technologies will roll out at the pace and on the scale that we need. In order to have such technology-oriented approach to play a full role, we do need a coordinated policy framework agreed via the Kyoto Protocol or a follow-up regime or the parent United Nations Framework Convention.
Clean technology, Technology cooperation, Asia Pacific Partnership for Clean Development and Climate, Kyoto Protocol, China, United States
Abstract: Despite its regional closeness, energy cooperation in Northeast Asia has remained unexplored. However, this situation appears to be changing. The government of South Korea seems to be very enthusiastic for power grid interconnection between the Russian Far East and South Korea to overcome difficulties in finding new sites for building power facilities to meet its need for increased electricity supplies. This paper analyzes the feasibility of this electric power grid interconnection route. The issues addressed include electricity market structures; the prospects for electric power industry restructuring in the Russian Federation and South Korea; the political issues related to North Korea; the challenges for the governments involved and the obstacles anticipated in moving this project forward; project financing and the roles and concerns from multilateral and regional banks; and institutional framework for energy cooperation. While there are many technical issues that need to resolve, we think that the great challenge lies in the financing of this commercial project. Thus, the governments of the Russian Federation and South Korea involved in the project need to foster the development of their internal capital markets and to create confidence with international investors. To this end, on energy side, this involves defining a clear energy policy implemented by independent regulators, speeding up the already started but delayed reform process of restructuring electric power industry and markets, and establishing a fair and transparent dispute resolution mechanism in order to reduce non-commercial risks to a minimum. The paper argues that establishing a framework for energy cooperation in this region will contribute positively towards that end, although views differ regarding its specific form. Finally, given that North Korea has a crucial transit role to play and faces a very unstable political situation, it is concluded that moving the project forward needs to be contingent on a resolution of the North Korea's nuclear crisis.
Electric power grid interconnection, Northeast Asia, Energy Charter Treaty
Abstract: The climate-trade nexus has become the focus of an academic debate, and has gained increasing attention as governments are taking great efforts to forge a post-2012 climate change regime to succeed the Kyoto Protocol. With concerns about their own competitiveness and growing greenhouse gas emissions in developing countries, some industrialized countries, if not all, are considering whether to impose unilateral trade measures against developing country trading partners. While it is clear that greenhouse gas emissions targets of developed countries need to be tightened further in a post-2012 climate change regime, developing country involvement is also crucial for climate change mitigation and adaptation, given that climate change is a global problem requiring a global response. This raises the issue of which approach would be most likely to stimulate developing countries to take appropriate actions in the post-2012 climate regime. Would positive or negative incentives work best, in other words, do we need carrots, sticks or both? This paper seeks to answer this question. By revisiting the six options for China's climate change engagement that I envisioned a decade ago and examining a variety of factors, the paper first discusses how far developing country commitments can go in an immediate post-2012 climate regime. It argues that developing country commitments are most unlikely to go beyond defined policies and measures in this timeframe. It notes that the type of border adjustment provisions currently being discussed by most developed countries include more sticks than carrots for developing countries. Sticks can be incorporated, but only if they are credible and realistic and serve as a useful supplement to push developing countries to take actions or adopt policies and measures earlier than would otherwise have been the case. In order to encourage developing countries to do more to combat climate change, the paper suggests that developed countries should rather focus on carrots.
A post-2012 climate change regime, Developing country commitments, Climate-trade nexus, Climate change mitigation and adaptation, Border adjustment measures, WTO scrutiny, The Lieberman-Warner bill
Abstract: Emissions trading is an attractive candidate for implementing greenhouse gas mitigation, because it can promote both efficiency and equity. This paper analyzes the interregional impacts of alternative allocations of carbon dioxide emission permits within the U.S. The analysis is performed with the aid of a nonlinear programming model for ten EPA Regions and for six alternative permit distribution formulas. The reason that various alternatives need to be considered is that there is no universal consensus on the best definition of equity. Advance knowledge of absolute and relative regional economic impacts provides policy-makers with a stronger basis for making the choice. The analysis yields several useful results. First, the simulations indicate that no matter how permits are allocated, this policy instrument can substantially reduce the cost of greenhouse gas mitigation for the U.S. in comparison to a system of fixed quotas for each of its regions. Interestingly, the welfare impacts of several of the allocation formulas differ only slightly despite the large differences in their philosophical underpinnings. Also, the results for some equity criteria differ greatly from their application in the international domain. For example, the Egalitarian (per capita) criterion results in the relatively greatest cost burden being incurred by one of the regions of the U.S. with the lowest per capita income.
Tradeable emission permits, climate policy, interregional equity
Abstract: The inclusion of joint implementation (JI) in the United Nations Framework Convention on Climate Change as a climate policy instrument is deemed a breakthrough for international cooperation on climate actions. It may provide a good opportunity for cooperation between industrialized and developing countries. Through an analysis of the economic effects of carbon emission limits for China, this paper provides the economic rationale for the industrialized countries to invest in JI projects in developing countries like China, where the costs of abating greenhouse gas emissions are lower than trying to achieve an equivalent abatement within their own territories. Moreover, the paper addresses some operational issues of JI, consensus regarding which is a precondition for the wide implementation of JI. Furthermore, the paper discusses the potential areas for JI projects that may be in China's interest. This discussion underlines that taking due consideration of local objectives and local conditions in designing JI projects will enhance their possibility of success.
Joint implementation, Carbon tax, China
Abstract: Given that China is already the world’s largest carbon emitter and its emissions continue to rise rapidly in line with its industrialization and urbanization, there is no disagreement that China eventually needs to take on binding greenhouse gas emissions caps. However, the key challenges are when that would occur and what credible interim targets China would need to take on during this transition period. This paper takes these challenges by mapping out the roadmap for China’s specific commitments towards 2050. Specifically, I suggest that China make credible quantified domestic commitments during the second commitment period, commit to voluntary no lose targets during the third commitment period, adopt binding carbon intensity targets during the fourth commitment period, and take on binding emissions caps starting the fifth commitment period and aimed for the global convergence of per capita emissions by 2050. These proposed commitments should be viewed as China’s political commitments, not necessarily China’s actual takings in the ongoing international climate change negotiations, in order to break the current political impasse between developed and developing countries. It is worthwhile China considering these political commitments either on its own or through a joint statement with U.S. and other major countries, provided that a number of conditions can be worked out. These commitments are principles, and still leave flexibility for China to work out details as international climate change negotiations move on. But in the meantime, they signal well ahead that China is seriously committed to addressing climate change issues, alleviate, if not completely remove, U.S. and other industrialized country’s concerns about when China would get in, an indication that the whole world has long awaited from China, help U.S. to take on long-expected emissions commitments, and thus pave the way for reaching an international climate agreement at Copenhagen and beyond.
Carbon intensity target, Binding emissions caps, Post-Kyoto climate negotiations, Energy saving, Renewable energy, Clean development mechanism, China, USA, India
Abstract: A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China’s economy, emphasizing on the price transmission mechanisms. To that end, we develop a structural vector auto-regressive model. Our results show that an oil-price increase negatively affects output and investment, but positively affects inflation rate and interest rate. However, with the differentiated price control policies for materials and intermediates on the one hand and final products on the other hand in China, the impact on real economy, represented by real output and real investment, lasts much longer than that to price/monetary variables. Our decomposition results also show that the short-term impact, namely output decrease induced by the cut of capacity-utilization rate, is greater in the first one to two years, but the portion of the long-term impact, defined as the impact realized through an investment change, increases steadily and exceeds that of short-term impact at the end of the second year. Afterwards, the long-term impact dominates, and maintains for quite some time.
Structural vector auto-regressive model, Unit root test, Error-correction model, Oil-price shocks, Price transmission mechanisms, Investment, Output, Producer/consumer price index, Census X-12 approach, China
Abstract: The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change issues through flexible market mechanisms. This Article addresses a number of policy issues that must be considered in designing and implementing an international greenhouse gases (GHG) emissions trading scheme. These include emissions trading models, the initial allocation of emissions permits and its competitiveness concerns, banking and borrowing, the liability rules for non-compliance, and bubbles. The following conclusions emerge from the discussion. First, although emissions trading could take place either on an inter-governmental basis or on an inter-source basis, sub-national legal entities are the best entities to trade emissions permits. Allocating permits to individual emissions sources will facilitate private participation in emissions trading. Moreover, it has been argued that individual governments should be left free to devise their own ways of allocating assigned amounts. Second, it has been pointed out that although national emissions trading systems could be modelled as either upstream or downstream or hybrid systems, the distinguishing features of broad coverage and administrative simplicity would make an upstream system the more attractive approach. Moreover, national emissions trading systems should incorporate the maximum degree of flexibility in banking. Third, the liability rules are essential to the success of an international GHG emissions trading scheme. In general, a seller beware liability works well in a strong enforcement environment. In the Kyoto Protocol, however, it may not always work. By contrast, a buyer beware liability could be an effective deterrent to non-compliance, but the costs of imposing it are expected to be very high. To strike a middle ground, it has been suggested a combination of preventive measures with strong but feasible end-of-period punishments to ensure compliance with the Kyoto emissions commitments. Such measures aim to maximize efficiency gains from emissions trading and at the same time, to minimize over-selling risks.
Annual retirement, auction, bubbles, buyer beware liability, carbon taxes, clean development mechanism, compliance reserve, compulsory insurance, emissions trading, grandfathering, greenhouse gases, international competitiveness, joint implementation, Kyoto Protocol, seller beware liability, WTO
Abstract: The East-West Center convened the international conference on climate policy in Honolulu, Hawaii, on September 4-6, 2003. Sponsored by the Dutch Ministry of Housing, Spatial Planning and the Environment, the Japanese Ministry of the Environment, Industrial Technology Research Institute (Taiwan), and Institute for Global Environmental Strategies (Japan), this major event covered almost every important issue and featured perspectives from the most important parties and stakeholders in formulating and implementing climate policies and taking international climate negotiations further. It brought together a remarkable cross-section of world opinion on climate policy after Kyoto. This report provides a summary of each presentation and highlights discussions organized under the following six session headings: Session 1: Climate Change in Focus - From Science to Policy; Session 2: U.S. Climate Policy and Perspectives; Session 3: European Union Climate Policy and Perspectives; Session 4: Challenges for other Major Industrialized Countries; Session 5: Issues Related to Developing Countries; and Session 6: Panel Discussions: Where Do We Go from Here?.
Climate policy, Kyoto Protocol, Post-Kyoto framework, Developing country participation, Technology development, United States, European Union, Japan, The Russian Federation, China
Abstract: The Doha Round Agenda (paragraph 31(3)) mandates to liberalize environmental goods and services. This mandate offers a good opportunity to put climate-friendly goods and services on a fast track to liberalization. Agreement on this paragraph should represent one immediate contribution that the WTO can make to fight against climate change. This paper presents the key issues surrounding liberalized trade in climate-friendly goods and technologies in WTO environmental goods negotiations. It begins with what products to liberalize and how. Clearly, WTO environmental goods negotiations to date show that WTO member countries are divided by this key issue. Focusing on the issue, the paper explores options available to liberalize trade in climate-friendly goods and technologies, both within and outside the WTO, and along with these discussion, discusses how to serve the best interests of developing countries.
Environmental goods and services, Low-carbon goods and technologies, Doha Round, WTO
Abstract: The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change issues through flexible market mechanisms. In this paper, we address a number of policy issues that must be considered in designing and implementing an international greenhouse gas (GHG) emissions trading scheme. These include how much of a Party's assigned amount of GHG emissions can be traded internationally; emissions trading models; competitiveness concerns in the allocation of emissions permits; banking and borrowing; the issue of liability for non-compliance; enlarging emissions trading system; and bubbles. Although our focus is exclusively on emissions trading, we discuss its relationship with the clean development mechanism, joint implementation and bubbles wherever necessary. By providing some new insights, the paper aims to contribute to the design and operationlization of an international emissions trading scheme.
Bubbles, carbon tax, clean development mechanism, emissions trading, enforcement and compliance, greenhouse gases, international competitiveness, joint implementation, Kyoto Protocol
Abstract: The concept of international tradable carbon permits has been discussed in scientific circles for over ten years. Since mid 1996, however, it has become a subject of more than just academic interest. The main reason for this change is to be found in the U.S. Draft Protocol to the Framework Convention on Climate Change (FCCC), submitted by the U.S. government on January 17, 1997. The U.S. contribution to preparations for the third Conference of the Parties to the FCCC, held in Kyoto in December 1997, represents the first concrete official proposal for an international emissions trading scheme. The European Union proposal for internal community burden sharing is also in line with the broad definition of emissions trading, although the individual country quotas are currently not transferable. These proposals clearly indicate that international trade in carbon dioxide emissions has turned into a politically relevant subject. In this article, we use the term 'strong form' deliberately to distinguish a tradable carbon permit (TCP) scheme from a weak form of project level joint implementation. We focus on discussing the following three aspects: (1) basic requirements for a TCP scheme; (2) a blueprint for designing national TCP schemes; and (3) constituting elements of an international TCP scheme. By discussing these aspects, the chapter indicates what a TCP scheme could look like and how it relates to joint implementation.
International tradable carbon permits, Issue of permits, Distribution of permits, The permit market, Monitoring and enforcement
Abstract: An overview is given of the growing number of regional associations in which states have entered into voluntary arrangements to limit greenhouse gas (GHG) emissions. In particular, in the Regional Greenhouse Gas Initiative (RGGI), a number of northeastern states have joined to create a regional GHG cap and trade program, beginning with the utility industry. Analysis is made of the five key issues relating to these current and potential climate action associations: the extent of the total and individual state mitigation cost-savings across all sectors from potential emission permit trading coalitions; the size of permit markets associated with the various coalitions; the relative advantages of joining various coalitions for swing states such as Pennsylvania; the implications of the exercise of market power in the permit market; and the total and individual state/country cost-savings from extending the coalition beyond US borders. It is shown that overall efficiency gains from trading with a system of flexible state caps, with greater overall cost savings increasing with increasing geographic scope.
Regional Greenhouse Gas Initiative, Cap and trade program, Market power in the permit market, Mitigation costs, The size of permit market, Coalition choices for Pennsylvania
Abstract: China had been the world’s second largest carbon emitter for years. However, recent studies show that China had overtaken the U.S. as the world’s largest emitter in 2007. This has put China on the spotlight, just at a time when the world community starts negotiating a post-Kyoto climate regime under the Bali roadmap. China seems to become such a Christmas tree on which everybody can hang his/her complaints. This paper first discusses whether such a critics is fair by examining China’s own efforts towards energy saving, the widespread use of renewable energy and participation in clean development mechanism. Next, the paper puts carbon reductions of China’s unilateral actions into perspective by examining whether the estimated greenhouse gas emission reduction from meeting the country’s national energy saving goal is achieved from China’s unilateral actions or mainly with support from the clean development mechanism projects. Then the paper discusses how far developing country commitments can go in an immediate post-2012 climate regime, thus pointing out the direction and focus of future international climate negotiations. Finally, emphasizing that China needs to act as a large and responsible developing country and take due responsibilities and to set a good example to the majority of developing countries, the paper articulates what can be expected from China to illustrate that China can be a good partner in combating global climate change.
Energy Saving, Renewable Energy, Post-Kyoto Climate Negotiations, Clean Development Mechanism, China, USA
Abstract: The climate-trade nexus gains increasing attention as governments are taking great efforts to forge a post-2012 climate change regime to succeed the Kyoto Protocol. This raises the issues of the scope of trade-related measures and of when and how they could be used. This paper discusses how far trade-related measures should be incorporated in that context. Drawing on an analogy to the Montreal Protocol and comparing developing country’s climate mitigation and adaptation needs with the funding available, the paper argues that such measures should initially be applied only among Annex I or II countries. To discipline the use of unilateral trade measures at the international level, the paper emphasizes a need to define comparable climate efforts. Moreover, the Lieberman-Warner bill in the U.S. Senate - taken as a proxy for future U.S. climate legislation - is assessed, and found to be neither effective nor likely to be WTO-consistent. The paper is concluded by arguing that, in order to encourage developing countries to do more to combat climate change, developed countries should focus on carrots. Sticks can be incorporated, but only if they are credible and realistic and serve as a useful supplement to push developing countries to take actions or adopt policies and measures earlier than would otherwise have been the case.
Post-2012 climate negotiations, Trade-related measures, Lieberman-Warner bill, WTO, Montreal Protocol, Developing countries, United States
Abstract: Environmental assessments of trade agreements remain in its infancy, and demonstrate that trade in itself will not green our economies. This special issue has undertaken in-depth analysis of the following key trade and environmental issues/questions under the North American Free Trade Agreement (NAFTA): 1) Has agricultural trade liberalization led to positive or negative environmental effects? 2) Have foreign investors led to improved environmental performance, focusing on the rapidly developing electronics assembly industry? 3) Have investors used investment provision to thwart the fair application of effective and appropriate environmental protection measures? 4) Are the arbitration awards to date discouraging governments from taking environmental protection measures they would otherwise want to take? By examining the environmental effects of trade in North America, this special issue not only contributes to deepening our understanding of the key issues in the trade and environment debate, but also helps to formulate mutually supportive trade and environmental policies to protect business interests while encouraging the governments to take effective and appropriate environmental protection measures.
NAFTA, trade and environment linkages, environmental standards, electronic industry, agriculture, scale- technique-and-composition effects, investment, foreign investor, arbitration
Abstract: China's President Hu Jintao and Prime Minister Wen Jiabao have recognized the seriousness of environmental degradation in China, and accordingly insist that the conventional Chinese path of encouraging economic growth at the expense of the environment has to be changed. As a first but most important step to clean up the country's development act, Hu and Wen incorporated for the first time energy-saving and environmental goals into the national five-year economic blueprint in China to clearly distinguish their vision of China's development from that of their predecessors. Clearly, this is a test of their leadership. In the meantime, it presents a unique opportunity for the two top Chinese leaders to put the country on a more sustainable development path. In my view, if Hu and Wen can make China green, history will record their contribution as equal to Mao Zedong's achieving China's independence, and Deng Xiaoping's creation of a more prosperous country.
Energy policy, environmental policy, regional permit restrictions, greening China
Abstract: At first glance, climate change is an environmental issue. However, combating global climate change requires fundamental changes in the ways energy is used and produced. Given that energy is a prerequisite input to fuel economic growth and the necessity of all human beings, therefore, climate change is in reality an economic and social issue as well as an environmental issue. Dealing with such a challenging issue not only needs warm hearts, but even more importantly cool heads. It is in this spirit that, in this special issue of Energy Policy, twenty three eminent analysts at MIT, Stanford, Brookings Institution, Resources for the Future, the President's Council of Economic Advisers, and others from Asia and the Pacific, Europe and the US tackle the economic and social aspects of climate change and offer their views on some of the most difficult issues - economic and environmental implications of the US withdrawal from the Kyoto Protocol, linkage of climate policy with technological innovations and trade policy, carbon taxes and their implications for environmental effectiveness, competitiveness and distribution of income, emissions trading, the discount rate, compliance, baseline setting for clean development mechanism projects, and ancillary benefits of carbon abatement - as well as the framework of encouraging wider participation and earlier reductions in greenhouse gas emissions. This guest editorial provides a summary of each contribution to the special issue (ZhongXiang Zhang (guest editor), Special Issue on An Economic Analysis of Climate Policy: Essays in Honour of Andries Nentjes, Energy Policy, Vol. 32, No. 4, pp. 467-479). The special issue is appealing not only for academic people but also policy makers, not only for people from the North but also for those from the South. We dedicate the issue to Prof. Andries Nentjes on the occasion of his retirement.
Climate policy, clean development mechanism, emissions trading, carbon taxes, compliance, discounting, ancillary benefits
Abstract: This article attempts to shed light on technological aspects of carbon abatement in China's power industry and is thus devoted to satisfying electricity planning requirements in the CO2 context. To that end, a technology-oriented dynamic optimization model for power system expansion planning has been developed. Fifteen types of power plants are represented explicitly in the model in terms of their technical, economic, and environmental characteristics. These plants have first been compared in terms of both the levelized cost of generation and the marginal cost of CO2 reduction. Driven by the baseline electricity demands that are estimated by a time-recursive dynamic computable general equilibrium model of the Chinese economy, the power planning model has then been used to develop the baseline scenario for China's electricity supply and to analyze the impacts of compliance with CO2 limits in 2010 in the power industry.
Carbon dioxide emissions, China, coal-fired power, gas-fired power, hydroelectric power, joint implementation, nuclear power, power planning model, solar power, wind power
Abstract: This article gives an assessment of the relative strengths and weaknesses of a variety of economic modelling approaches commonly used for cost estimates of limiting carbon emissions. The approaches discussed include the ad hoc approach, dynamic optimization approach, input-output approach, macroeconomic approach, computable general equilibrium (CGE) approach, and the hybrid approach. It illustrates how these economic approaches are able to shed light on different aspects of the control of carbon emissions. Main conclusions can be drawn as follows. First, if focus is placed primarily on technological solutions to carbon emission problems, dynamic optimization models are very useful. Moreover, in order to prioritize investments in carbon abatement technologies, specific cost-effective analysis of these technologies is helpful. Second, of a variety of economic models discussed in the article, none contains more sectoral detail than input-output models. Therefore, if interest centers mainly on the consequences of a carbon tax for the economic structure, input-out models are generally considered an appropriate tool for such a purpose. Third, the transitional impacts of a carbon tax on inflation and unemployment can best be captured in macroeconomic models. Thus, if focus is placed on an estimation of transitional adjustment costs in the short-run, we can rely on macroeconomic models. Fourth, CGE models are an appropriate tool for analyzing the economic effects of great changes in the demand and/or supply structure of an economy and those questions of long-run nature. If we want to shed light on long-run aspects of a high tax imposed for achieving a substantial cut in carbon emissions, CGE models are called for. Finally, given the relative strengths and weaknesses of bottom-up models and top-down models, it is worthwhile linking them together, thus shedding light on both economic and technological aspects of the control of carbon emissions.
Carbon dioxide emissions, dynamic optimization model, input-output model, macroeconomic model, computable general equilibrium model, climate policy, carbon tax
Abstract: This paper expands our earlier analysis to examine the implications of the median value for the 2010 European Union (EU) baseline emissions derived from the four economic modelling studies for both Annex 1 countries and non-Annex 1 countries as well as for the market price of permits. Our results suggest that, in terms of the reductions in the total abatement costs relative to the no trading case, the EU under the two trading scenarios examined gains as much as Japan and the US in the case of the high EU emissions baseline in contrast with our earlier examined, low official EU emissions baseline case where the US and Japan benefit much more from trading than the EU does. Moreover, the sharp increase in emissions reductions required of the EU drives up the total Annex 1 countries' demand for permits and hence the market price of permits, thus the gains of the Former Soviet Union as exporters of permits and of developing countries as suppliers of the clean development mechanism (CDM) credits increase substantially in the case of the high EU emissions baseline in comparison with the case of the low official EU emissions baseline case.
Abstract: Funding for greenhouse gas mitigation projects in developing countries is crucial for addressing the global climate change problem. By examining current climate change-related financial mechanisms and their limitations, this paper indicates that their roles are limited in affecting developing countries' future emissions, and argues for the necessity of stronger private sector engagement in financing mitigation projects. In this regard, the clean development mechanism (CDM), one of the flexibility mechanisms incorporated into the Kyoto Protocol, could offer great potential in helping mobilize foreign direct investment towards climate mitigation, by providing commercial incentives for the private sector to invest in mitigation projects and internalizing externalities associated with mitigation projects. However, due to additional risks and barriers involved in CDM projects, we believe that appropriate public-private linkage would be necessary in order to bring the CDM into full play. To this end, we suggest that public funds could be used to complement private investment via the CDM, thus enhancing market functions of such an investment. Moreover, in so doing, we think that it would be necessary to examine a host of factors, such as risk sharing, private sector investment behaviour, types of technologies to be transferred, and coordination with the commonly practiced trade and investment rules.
Clean development mechanism, Climate policy, Foreign direct investment, Kyoto Protocol, Official development assistance
Abstract: This study analyzes the macroeconomic effects of abating China's CO2 emissions by using a dynamic computable general equilibrium model of the Chinese economy. The baseline scenario for the Chinese economy is first developed. Next, we analyze the economic implications of two less restrictive scenarios under which China's CO2 emissions in 2010 are cut by 20% and 30% relative to the baseline. Then, we calculate the efficiency gains of four indirect tax offset scenarios relative to the two tax retention scenarios. Furthermore, we compare our results with those from GLOBAL 2100 and GREEN. Such a comparison shows that the carbon taxes required in China are much lower than those for both industrialized countries and the world average in order to achieve the same percentage of emission reductions relative to the baseline. This points to opportunities for clean development projects jointly implemented between industrialized countries and China.
Carbon dioxide emissions, carbon tax, energy consumption, computable general equilibrium model, China, macroeconomic effects
Abstract: Emissions trading is widely regarded as a cost-effective means of helping industrialized countries comply with their Kyoto emissions targets by ensuring that reductions in greenhouse gas emissions are made where they are least costly. If emissions trading among sub-national entities is authorized, the nest question is how industrialized countries' governments allocate their assigned amounts to sub-national entities within their countries. This paper first discuses grandfathering and auctioning allocation methods. The paper then argues that although certain elements of domestic trading schemes operating within an international trading framework need to be comparable across countries, in particular with respect to monitoring and enforcement, the allocation of permits does not fall into the category of harmonization. Instead, the paper argues that individual governments should be left free to devise their own ways of allocating emissions permits.
Carbon tax, Emissions trading, Greenhouse gases, International competitiveness, Granderfathering, Auctioning, Allocation of permits
Abstract: As the world's second largest carbon emitter, China has long been criticized as a "free-rider" benefiting from other countries' efforts to reduce greenhouse gas emissions but not taking responsibility for its own emissions. China has been singled out as one of the major targets at the subsequent negotiations after the Kyoto meeting. By analyzing the historical contributions of interfuel switching, energy conservation, economic growth and population expansion to China's CO2 emissions during 1980--97, this article clearly demonstrates that the above criticism is unjustified. Moreover, given the fact that the role of China is an issue of perennial concern at the international climate change negotiations, the article envisions some efforts and commitments that could be expected from China until its per capita income catches up with the level of middle-developed countries. By emphasizing the win-win strategies, these efforts and commitments are unlikely to jeopardize China's economic development and, at the same time, would give the country more leverage at the international climate change negotiations subsequent to the Buenos Aires meeting.
China, energy, carbon dioxide emissions, CGE model, environmental policy, climate change
Abstract: The inclusion of emissions trading in the Kyoto Protocol reflects an important decision to address climate change issues through flexible market mechanisms. In this paper, we address a number of policy issues that must be considered in designing and implementing an international greenhouse gas (GHG) emissions trading scheme. These include how much of a Party's assigned amount of GHG emissions can be traded internationally; emissions trading models; competitiveness concerns in the allocation of emissions permits; banking and borrowing; the issue of liability for non-compliance; enlarging emissions trading system; and bubbles. Although our focus is exclusively on emissions trading, we discuss its relationship with the clean development mechanism, joint implementation and bubbles wherever necessary. By providing some new insights, the paper aims to contribute to the design and operationalization of an international emissions trading scheme.
emissions trading, greenhouse gases, climate change, clean development mechanism, joint implementation, Kyoto Protocol, bubbles, banking, borrowing, liability, WTO
Abstract: This article examines whether a greenhouse gas emissions trading scheme has the potential to bring parties into conflict with the WTO provisions in dealing with the initial allocation of permits, non-compliance with emissions targets, emissions trading system enlargement, and trade measures against non-members of an emissions trading club, and relates the discussion to joint implementation with developing countries. To our knowledge, this is the first article in a law and economics journal to analyze potential conflicts between an international emissions trading scheme and the world trade system.
emissions trading, climate change, WTO, trade measures, compliance
Abstract: What has been done and what could be expected from China in combating global climate change is an issue of perennial concern at the international climate change negotiations. This article aims to address this very challenging issue from both economic and political perspectives. By analyzing the historical contributions of inter-fuel switching, energy conservation, economic growth and population expansion to China's CO2 emissions during the period 1980-1997, the article first demonstrates that the criticism on China being a "free-rider" enjoying benefits from other countries' efforts to abate greenhouse gas emissions but not taking due responsibilities of its own cannot hold its ground. Next, we analyze what the economic effects would be if China's carbon emissions in 2010 were cut by 20% and 30%, respectively, relative to the baseline. We found that China's GNP losses under the two less restrictive carbon limits are in the same range as the often reported estimates for industrialized countries under very restrictive carbon limits. Then the article envisions some efforts and commitments that could be expected from China until its per capita income catches up with the level of middle-developed countries. They range from demonstrating efforts towards slowing its greenhouse gas emissions growth at some point between the first commitment period and 2020 to committing to a combination of a targeted carbon intensity level with an emissions cap on a particular sector around or beyond 2020. By emphasizing the win-win strategies, these efforts and commitments could be unlikely to severely jeopardize China's economic development and, at the same time, would give the country more leverage at the post-Kyoto climate change negotiations. Finally, the article is concluded with the argument that combating global climate change is in China's interest. It will be beneficial to a more sustainable development of the Chinese economy as well as to the global climate.
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