1 Trade and the Environment – Kyoto Protocol Presentation to Bill Jones, Ph.D. November 1 & 4, 2010 MIM 513: Pacific RIM Economies, International Trade, & Markets

2 Alternative Presentation Title: Are We Really Capable of Successfully Mitigating Climate Change & Continuing Global Economic Development?

3 Agenda Lecture goals Climate change context: climate science primer Brief history: Kyoto Protocol major elements Global implications Trade impacts International Trade Shipping/transport Energy consumption Conclusions Q&A

4 Goals Climate change unique, complex, uncertain Impact all things global & economic International CC agreements create opportunities & obstacles New markets & product Offset trading Continued emissions North/south divide: developing and developed countries Global trade challenges Energy use is key

5 Carbon Cycle 101: Anthropogenic Contribution

6 Unprecedented Atmospheric CO 2 Concentrations

7 Climate Is Getting Warmer

8 Contribution: World’s CO2e Emissions

9 GHG Global Emission Sources Energy Consumption ≈ 65%

10 Long-Term Forecasts Uncertain But Suggest High Concentrations Remain For 100s Of Years Irreversibility of climate change: 1,000 year time horizon impact Inability of natural syncs to absorb carbon dioxide (18% decrease last 50 yrs.) Source: Irreversible climate change due to carbon dioxide emissions; Susan Solomona,1, Gian-Kasper Plattnerb, Reto Knuttic, and Pierre Friedlingsteind, PNAS February 10, 2009

11 Climate Change Impacts: Latest Trends

12 History: Climate Change International Agreements (Early Years)

13 History: Climate Change International Agreements (Kyoto )

14 Key Kyoto Protocol Elements Signed December 1997, in force 2005, reduction period (140 nations ratified; now 192 nations) Assign numerical GHG emission reduction targets – 35 industrialized nations (Annex I) Initially: 55% of all 1990 Annex I nations’ GHG emissions (currently 55 Annex I) – Collective average GHG reduction 5.2% below 1990 benchmark by 2012 – Covered private businesses assigned reduction targets – 6 gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulhpur hexifluoride Mitigation methods (least cost method): – Internal reductions: covered private sector businesses internal process mitigation – Allowance trading: Annex I undershoot trade to Annex I overshoot – Joint Implementation: Annex I nation develop GHG mitigation project in another Annex I nation for credit against emission allowance – Clean Development Mechanism (CDM): Annex I develop “offset” projects as a credit against Annex I nation target in non-Annex I countries (not bound by Kyoto target) Spark investment in sustainable technologies & new business sectors: phase-out GHG emitting sectors Win Win for World: socially, environmentally, economically

15 Developing Countries & Kyoto Protocol: Why Participate? No emission goals for non-Annex I nations (developing) 2016 responsible for 50% GHG emissions – Annex I assist developing countries reduce overall emissions Significant commitment of Annex I nations: – Accelerate economic development in developing countries – Assist nations most vulnerable to CC – Minimize adverse social adverse & economic impacts Article 10: – “Promote facilitate & transfer”technologies, know-how, practices, processes – Transfer environmentally sound technologies that are publicly owned & available to indigenous economies – Development & transfer of education, training & knowledge programs Article 12 – Developing countries share in project “proceeds” of CDM projects

16 Why is Kyoto Unique? First to recognize CC as a global threat & need for global response First to bind responsible countries to emission reductions First to set up a market mechanism (allowance trading, CDM) as most efficient method to meet GHG reduction targets Multiple goals: – GHG emission reductions primary goal – Developing countries cooperate: developed countries invest in economic development (CDM) – Long term reductions Impact global economy – Competitiveness – International trade – Manufacturing – Capital flows – Energy supply & consumption – Transport – Labor supply

17 Kyoto Protocol Implications International trade Economic relationships between countries (regulated, non- regulated) Competitiveness Manufacturing Transport Supply chain Labor supply Energy supply

18 International Trade

19 Trade & GHG Emissions Kyoto Protocol Article 2.3 addresses international trade – Develop policies procedures that minimize adverse impacts on “international trade” Recognizes emission targets can conflict with trade growth: – Trade growth directly related to energy demand (fossil fuel main energy source) – Trend to export manufacturing production from regulated to unregulated nations – Potential to handicap global economic growth both developed & developing nations Greater Trade increase economic growth: energy consumption linked to growth & therefore increase in GHG emissions Kyoto Protocol could create Leakage: where countries with more stringent environmental regulations shift production weaker regulated country

20 International Trade Growth

21 How Trade Impacted Manufacturing – Shift to developing countries – Increase embodied carbon in goods (energy carbon intensity, transport) Emission target impact – Emission leakage (regulated to unregulated countries) – Annex I meeting reduction targets Opportunities: – Cheaper labor developing nations – Lower investment costs – Economic development creates demand – Create new markets for EE & RE development (CDM) Challenges – How do regulated countries meet reduction targets? – Rapidly developing countries (BASIC) increase Share of GHG emissions – Technology shift too slow (clean energy, sustainable technologies)

22 Embodied Carbon: Traded Goods Balance of Emissions Embodied in Trade (BEET)

23 GHG/GDP CO2 Emissions Per Unit GDP

24 Implications There is significant carbon embedded in export trade Developing countries gain economic benefit but increase emissions – Developed countries reduce GHG emissions meet targets Technology transfer not rapid enough – IP become a major concern (violate spirit of Kyoto Protocol) – Annex I concerned with competitive loss BASIC countries: – Pressured to regulate future emissions – Before they agree (Cancun COP/MOP 16) BASIC: want Annex I to meet reduction targets & USA: Participate in reductions (7% below 1990 by 2012) Other developing countries – Excluded or receive little benefit (Small Island Nations, Equatorial Africa)

25 Transport & Trade

26 Transport Energy Forecast Non-OECD Energy Consumption Rapid Growth

27 Freight Energy Growth Freight Energy Use Greatest Increase

28 Modes of Transport Modes of Transportation: International Trade

29 GHG & Transport Transport Represents 24% Total GHG Emissions

30 Transportation & Trade Implication GHG emissions continue to increase as trade increases Little change in fuel carbon intensity International trade will increase GHG emissions

31 International Energy Use

32 Energy Use Non OECD countries account for 86% energy increase

33 Economic Activity & Energy Use Economic Activity & Population Increase Energy Use

34 Increase Petroleum Based Energy Use Nearly All Coal Based Energy Use in Non-OECD Asia Nations

35 Renewables Increase But Remain Small % RE Fastest Growing, But Coal Continues to Dominate Generation

36 Energy Use Implications Continued reliance on fossil-based fuels – Non OECD (mostly Annex I countries + USA) largest % increase Increasing manufacture export & international trade will continue fossil fuel reliance Kyoto Targets more difficult to achieve – Overall global emissions continue to grow Increasing need for more restrictive targets – Political ramifications: nations unwilling to impede economic growth – North/South rancor over emissions controls

37 Conclusions Global GHG targets increasingly difficult to achieve under Kyoto Protocol Annex I countries concerned about: – Post 2012 agreement uncertainty – Pressure to impose GHG emissions targets for developing nations – IP & technology transfer protections (transparency & publicly owned technologies) Developing countries – Not nations that created GHG concentrations – Want Annex I to continue investment in development – International trade – Cannot successfully reduce fossil fuel reliance & grow Bleak outlook given current state of Kyoto – Need for drastic changes in global agreement

38 QUESTIONS AND ANSWERS