A Quantitative and Comparative Assessment of Architectures for Agreement IEW Venice, 17 June 2009 Valentina Bosetti, FEEM

PRESENTATION TITLE 1 1.1Concentration of GHGs and temperature change

PRESENTATION TITLE 2 1.2Projected regional contribution to CO2 emissions

PRESENTATION TITLE 3 1.3Which architecture for agreement? Global action needed: negotiations on Post 2012 climate policies Differentiated effort to increase political acceptability  Several proposals on the table, but need to find quantitative way/adequate metrics to compare alternative climate policy architectures  Harvard Project on International Climate Agreements

PRESENTATION TITLE 4 1.4Objective Simulate alternative post-2012 architectures for climate change using WITCH – an energy-economy-climate model - focus on possible coalitions structure. Compare and contrast the alternative proposals, and assess them based on different dimensions:  Environmental effectiveness  Economic efficiency  Equity and distributional impacts  Feasibility and enforceability

PRESENTATION TITLE The WITCH Model

PRESENTATION TITLE 6 WITCH: World Induced Technical Change Hybrid model Hybrid I.A.M.:  Economy: Ramsey-type optimal growth (inter-temporal)  Energy: Energy sector detail (technology portfolio)  Climate: Damage feedback (global variable)  12 Regions (“where” issues)  Intertemporal (“when” issues)  Game-theoretical set-up (free-riding incentives) A dynamic integrated model of the world economy that provides normative information on the optimal response of the economic system to climate change damage and policy 2.2 The WITCH integrated assessment Model Economic Activity Energy Use emissions Atmosphere Biosphere Deep Oceans temperature

PRESENTATION TITLE 7 Hybrid top down bottom up model Focus on technological change:  Learning by Doing in W&S  Innovation (R&D):  Energy intensity  Breakthrough Carbon Free Technologies Focus on channels of interactions among regions:  R&D spillovers  Environmental externalities  Exhaustible common resources  Trade of emission permits Focus on regions’ strategic behaviour 2.3Distinguishing Features

PRESENTATION TITLE 8 3.1Policy Architectures Global coalition with CAT and transfers Global coalition with carbon tax recycled domestically Global coalition with REDD Climate Clubs (sub-coalitions) Dynamic coalitions: incremental participation based on a.Burden sharing rules b.Graduation c.Dynamic targets R&D and Technology coalition

PRESENTATION TITLE 9 3.2Global Carbon Tax Based on McKibbin Proposal No emission reduction targets Global tax leading to a stabilization at 450 ppmv CO2 only, Trade:  No trade in carbon permits is allowed Distinguishing feature: Global tax No trade - autarchic solution

PRESENTATION TITLE REDD Based on Plantinga Proposal Stabilization at 450 ppmv CO2 only Global Trade REDD from Brazilian Rainforest are included in the global carbon market market

PRESENTATION TITLE Burden Sharing based on Keeler Proposal Overall target of stabilization at 450 CO2 only level Delayed Participation of Developing Countries (2040) Global Trade (DCs allocated their BaU before they receive a target).

PRESENTATION TITLE Graduation Based on Michaelowa Proposal Bottom up targets for stabilization, rather than a burden sharing principle: Non Annex I countries face a cap on emissions when they satisfy two criteria, based on the average of GDP per capita and per capita emissions wrt world average. Depending on graduation level, countries face 2 targets: -1° target: 5% reduction wrt 2005 emissions.  2° target: 10% reduction wrt 2005 emissions. Annex I countries have to compensate in order to stay on track for the final objective (450 ppm CO2 only stab target) Distinguishing feature: Bottom-up target definition based on graduation levels

PRESENTATION TITLE Climate Policy Clubs based on Victor’s proposal World divided into three groups: Kyoto Club (US, Europe, Canada, Japan, New Zealand, Australia, South Korea, South Africa): the target is to reduce emissions by 70% wrt 1990 emissions by Fast Growing Countries (China, India, Latin America, Transition Economies and the Middle East): increasingly stringent targets (reduce industrial CO2 emissions by 5% wrt BAU by 2020; by 10% wrt BAU by 2030; 20% wrt BAU by 2040; and 30% wrt BAU by 2050). After 2050, increasing abatement effort converging towards Kyoto Club’s effort. Rest of the world: emissions equal to their business as usual level. Trade in carbon permits take place among all groups Distinguishing feature: Incentives to belong to a club International technology spillovers

PRESENTATION TITLE Dynamic Target Based on Frankel Proposal Bottom up targets based on political reality rather than cost benefit or science; Caps are computed taking into account: historic emissions, current emissions, income per capita, population, other factors. Converge in long-term to per capita targets. Trade among:  All countries can take part in the carbon permit trade from 2010 (if no caps yet, those countries are credited reductions wrt baseline emissions); Distinguishing feature: Bottom-up target definition based on different parameters designed to increase political acceptability

PRESENTATION TITLE R&D Coalitions Based on Barrett Proposal No climate policy. International R&D agreement to promote the development and adoption of climate-friendly low-carbon technologies. Institution of a Global Fund to which all countries contribute (exogenous share of GDP) and from which all countries benefit (per capita basis) Trade No trade in permits Distinguishing feature: No emission limits Designed to maximise political acceptability

PRESENTATION TITLE Policy Architectures: distinguishing features NB All refer to CO2 only

PRESENTATION TITLE Environmental effectiveness: from emission paths…

PRESENTATION TITLE … to temperature increase

PRESENTATION TITLE Economic efficiency

PRESENTATION TITLE Economic efficiency

PRESENTATION TITLE Equity and distributional impacts Cross Regions Gini Index in 2100

PRESENTATION TITLE Stability and profitability

PRESENTATION TITLE Multi Dimension Comparison

PRESENTATION TITLE 24 Conclusions 2°C temperature target requires (much) more drastic measures than those indicated in all the policy architectures considered in this paper. From a cost and enforceability standpoint, GHG stabilization at 450 ppm (CO 2 only) is hardly achievable. An extended, possibly global, carbon market, even without global commitments to reduce emissions, helps reducing costs. In addition, credits for avoided deforestation further reduces costs (up to 25%).

PRESENTATION TITLE 25 Conclusions Policies aiming at R&D cooperation that do not involve any carbon constraints or taxes, are shown to have a marginal effect on climate, though a positive one on economic activity. Thus, they are likely to be the only ones leading to a global, self-enforcing agreement. Any of these architectures would produce a more fair distribution of income in 2100 relative to the no policy case. In the more stringent scenarios (i.e., those designed to stabilize CO2 at 450 ppm), however, these gains in equality occur in the context of significant overall GDP losses. There might exist a strategy of progressive commitments, in which future binding targets are set to achieve consensus in developing countries whereas developed countries move first, that can achieve a stabilization target very close to 450 ppm.

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