La négociation internationale des politiques denvironnement: entre économie pure et économie politique Cours EDDEE Séance n° 7 Jean-Charles HOURCADE

Un principe de base (B-L-S) pour les biens publics non divisibles Max sous contrainte de –Condition de Bowen – Lindhall – Samuelson –disparition des alphai : séparabilité équité-efficacité Quid si les alphai sont des poids de Neigishi? distribution actuelle des revenus comme optimale ou irréformable

Optimal abatement expenditures at 1 st period

The separability question in one vs. multi- period models A multi-period model imposes to make two sets of additional judgments The second period weights: Neigishi like? reflecting current negotiating powers? The arguments of the utility functions: do Parties account for damages falling on their own descendants, or on all future individuals? The latter judgment is not a matter benevolence vs selfish interest but a matter of attitude in the face of deep uncertainty

De la théorie à lexpérience de la négociation climat … st world conference on CC first experiments with 3D GCM 1988: the G7 decides …. 1992: Rio de Janeiro UNFCCC 1995: Berlin Mandate 1997: Kyoto Protocol 2000: COP6 Den Hagen semi-failure 2001: COP7 Marrakech accord/US out 2004: Kyoto into force 2005: G8 declaration: a new area?

In illo tempore… Whats bitten Bush(sr) and Thatcher at the 1988 G7? - Back to Independence 1980 (Nixon) - In a context of unstable Middle-East, P erestroïka and Emerging China and India …. - A question of Energy Security (Schlessinger WEC 1989) Why the EU promptly picked the window of opportunity? The reasons for the failure of the EU proposal The Rio compromise … back to Stockholm 1972?

A negotiation before the negotiation: what, where and why to negociate? –Type of commitments prices – quantities - PAMS: neutral in terms of pay-off not in terms of the « object » of the negociation and of implications for various stakeholders –Compliance rules and national sovereignty content of the notion of « legally binding commitment» What Umbrella: committed with whom? –Status of the Issue Linkages: Implicit or explicits? Institutional implications for the World Goverance

Why an agreement on prices may be easier? P Pangloss P Industriels Abatement Marginal cost C pess C opt D pess D opt P Doom P Ecolo

Why the EU carbon energy tax failed? The nuclear divide The EU governance failure: the subsidiarity principle => the EU proposal = a leonine contract for industry The French responsibility … good example of the gap between decisions and real economic interests hidden agenda, lobbyists and distraction of key stakeholders … computational constraints?

Why a $120t/C tax undermines competitiveness of industries (french case)

Why a generalized carbon tax may be a good bargain for industry (french case)

Rio 1992 : a move in the US strategy « Ce que le peuple américain a retenu de la guerre du Golf, cest quil est extrêmement plus facile et plus drôle daller botter les fesses des gens au Moyen-Orient que de faire des sacrifices pour limiter lindépendance de lAmérique vis-à-vis du pétrole importé… Ceux qui me connaissent savent que je naurais jamais utilisé une phrase comme celle que je viens demployer si elle nétait pas utilisée aux niveaux les plus élevés du gouvernement. » (James Schlesinger, 15 e Congrès du Conseil Mondial de lEnergie, sept. 1992, Madrid) Le mode de vie américain nest pas négociable (G. Bush Sr.)

Berlin: a decision under hypnosis? Rios statement: the unexpected effects of a non binding declaration A price approach squeezed by the a-synchrony of political life cycles (Clintons BTU tax) When a national compromise between opposite views (Germany) dictates the option to the absent minded, the hypnotized and the oversophisticated

Overlooked political consequences of the Cap & Trade (only) option The Byrd – Hagel Resolution (1997) about the meaningful participation of DC; economic interest or political philosophy? There will be no emissions trading until the question of the entitlement of primary emissions rights is resolved; India on behalf of G77+ China (Kyoto 1997) Development as an ancillary benefit of climate policies (Ipcc TAR)

Kyoto when the G77 breaks the hypnosis The Pams vs cap&trade misunderstanding The compromise on carbon trading Targets, multigases, sequestration … how new traps are invented The supplementarity condition The veto of the G77 to the carbon trading The symptomatic Kyoto surprise: the CDM)

Kyoto to Marrakech: the structure of the game RUSSIA UMBRELLA USA AUST CN, NZ, J EUROPEAN UNION G77 Brésil, Inde, Chine PMA OPEP AOSIS ARGENTINE SUPPLEMENTARITE TRANSFERTS (MDP, GEF)

Kyoto to Marrakech The roots of the supplementarity quarrel: –Symbolic investments cannot be changed overnight –They resists to economic analysis when transformed into a political operator –The German domestic compromise and the diplomatic traditions A paradoxical timing of negotiations Reasons for the failure of a possible way out: a price-cap –the rejection of transactions –the attraction for a legally binding international system –some media vagaries: when symbolic capital should be accounted as a component of the pay-offs The last day performance: the hidden agenda on the table : nuclear issue

Uncertainty of MACCs, when the pessimists and optimists can select their prefered model

The economics of a price-cap; effect on environmental integrity BAU WP $50...+RP WP $75...+RP WP $ RP 2010 Carbon emissions: MtC beyond Kyoto targets Kyoto 1990 level

What lessons for the Future : questioning the Economic Vulgate Equate marginal costs across countries and sectors Minimize total costs of given abatement targets Prevent distorsion in international competition CARBON TAXES or CAP and TRADE: reconciling environmentalist political will, economic rationality and national sovereignty … A « tabulae rasae » utopia ?

A table cluttered with embarrassing details Price increases after a $150/tc tax in France: gasoline: 8.6% gas for industry: 34% coal (coke): 260% Pre-existing carbon taxes on gasoline: $ 1.43/l in France $ 0.18/l in the USA Welfare impact of 1$/tc: 26 in India for 1 in the US US importing 10G$ of carbon from Russia?

Private vs social costs: questions of tangibility Carbon price in 2010 (1990$s ) GDP losses in 2010 (%) Model USA EU Japan USA EU Japan ABARE-GTEM ,96 3 0,94 (4) 0,72 AIM ,45 3 0,31 4 0,25 G-Cubed ,42 2 1,50 3 0,57 MERGE ,06 3 0,99 (4) 0,80 MS-MRT ,88 4 0,63 3 1,20 RICE ,94 4 0,55 3 0,78 Average ,30 3 0,98 4 0,80 IDDRI – 16 janvier 2007

A significant paradox about the benefits from carbon trading $/T C (%) T (G$) UE 43 ( 56) USA43 ( 43) Japon43 ( 52) Chine43 (189) Inde43 (391) Brésil43 (163) $/T: prix de la tonne de carbone C (%): baisse de la richesse des ménages T (G$): transferts monétaires associés

Cap&Trade, for lack of anything better Internationally coordinated carbon tax (Nordhaus, Cooper) –Distributional effects : the BSL theorem requires differentiated C-taxes or compensations –No net transfers to developing countries Coordination of P&Ms : the essence of a nightmare R&D investment on carbon-free techniques: –Some misunderstandings about the nature of innovation –OK but where are the incentives? –OK but are you sure to put the money on technologies appropriate to our specific contexts?

Amending Kyoto: avoiding two traps of the negotiating targets The fairness debate (thanks for the fairness but without the burden) Cost uncertainty

Example 1: Normalized net efforts 2030, convergence rule 1=level Parties would pay if costs were shared pro-rata per capita GDP, >1 if Party pays more, <1 if Party pays less, <0 if Party gains from trading Region Normalized net costs of climate mitigation

Cutting the environment-development Gordian Knot Where are the obstacles in front of current development patterns? Which of them can be removed synergistically with the search for low carbon development pathways? Which aspects of climate policies intrinsically cannot but result in an obstacle to development? An intellectual pre-condition: from what baseline are we talking about?

Obstacles to sustainable development Financial Constraints, Capital Scarcity and funding of infrastructures Macro-economic Constraints: oil prices, technology imports, public indebtedness, Distorted technology choices Unfulfilled basic needs and Social Dualism: (energy, electricity, transport, sane water) Local environment disruption

Amending Kyoto: a workable architecture if no crispation on the entitlement issue no global binding cap until the Portuguese per capita income level is reached (principles to be discussed) a menu of –non binding national emissions caps –sectoral binding quotas allowing to a direct access to ICT and allowing to help domestic P&M and sector heterogeneity –CDM redesigned as a support to domestic policies price-caps and price-floors –Safety valve Hedging against uncertainty –A compliance tool and a levy for development

… and if no crispation on the favella vs grand archictecture debate The climate regime cant pretend to dictate all core decisions contributing to decarbonisation Carbon prices will not do the job alone They will have weak (and possibly perverse) influence on informal activities and will be swamped by high noise from other price signals (interest rates, real estates, land, shadow price of security, insurance costs) But they can operate as an attractor aligning bottom- up initiatives with pledges and review and the are a pre-condition for securing their consistencu

An architecture which does not avoid confronting four sensitive issues Coal and sequestration: serious environmental integrity question + the « loophole » rethoric Biological sequestration: when, where, under what condition? Coupling with discussions about ODA : crowding out, conditionality versus output based mechanism embedding measurement and control devices Climate regime and WTO; link with the compliance system

Complementary tools for supporting national and regional policy platforms Changing context for overseas aid and funding –Decreasing amounts –Big countries technical and institutional facilitation LDCs adaptation and capacity building Upgraded monitoring and «good quality money» –Misuse of ODA need for monitoring of ODA efficiency : carbon monitoring = opportunity for upgrading the control but need for institutional innovation –Risk mitigation instruments (exchange rate risks…)

What Issue linkages and real motives to act for a compromise? Developed countries perspectives –Will the North consider climate only damages likely to affect them directly? –Will they interpret climate damages in the developing countries as source of instability –Will there be a link with other strategic issues Developing countries perspectives –Degree of concern about global warming: –Not to be isolated from an emerging regime –Opportunity to reform the international economic order

The last G8: good news? We will act with resolve and urgency to meet our shared and multiple objectives of reducing GHGs emissions, improving the global environment, enhancing energy security and cutting air pollution in conjunction with our vigorous efforts to reduce poverty We face a moment of opportunity given the demand for infrastructure investment in DCs; back to the Marshall plan metaphora? To respond the discontents of globalisation: universal solidarity triggered by well-informed perceptions of self-interest