Conclusions

It is necessary to act soon if one wants to satisfy a 3.5 W/m2 forcing constraint.

Under a 3.5 W/m2 forcing scenario, the goal of limiting global temperature increase to 2 degrees may be reached, provided that the climate sensitivity is moderate. However, a 3.5 W/m2 by no means guarantees that the 2 degree goal will be met.

As can be seen in all results of the 3.5 W/m2 scenarios, the ambitious concentration targets needed for a 3.5 W/m2 scenario will require very dramatic emissions reductions, not just in future decades but almost immediately. Simulations with TIAM indicate that China and India will both need to begin to see large scale penetration of CCS by 2015-2020. Considering the lags associated between a decision to build a new power station and it coming online, the decisions needed for deployment by 2020 must be taken almost immediately in order to see any perceptible change in overall generation mix and to have an impact on near term emissions trajectories.

Currently, there is a single CCS project underway in China known as Greengen, which would involve a 250 MW IGCC plant by 2010 to be followed by CO2 capture and expansion to 2-400 MW IGCC units at a later date (Fairley, 2008) while there are no serious proposals to date in India. This single project places China as a global leader because of delays in the implementation of IGCC elsewhere. However, since China has averaged over 50GW of new coal capacity per year, China will need dozens of similar projects to be announced and completed within the next five to ten years to have any discernible impact on Chinese electricity generation and carbon dioxide emissions. India, which lags in deployment of new power generation units overall, has announced plans for numerous «ultra mega» supercritical pulverised coal units of 4GW each either along the coast or at the mine mouth (Chikkatur et al, 2009) in the next few years, with no immediate plans for even a CCS demonstration project.

In addition, 3.5 W/m2 scenarios require major technology breakthroughs outside the electricity sector, which points to another major challenge. In simulations with the coupled GEMINI-TIAM model, the limitation of the covered sectors of non-OECD countries to the electricity sector makes infeasible the limitation of the World radiative forcing to 3.5 W/m2. The smallest feasible radiative forcing would be 3.8 W/m2.

Sheehan (2008) notes that higher than expected economic and emissions growth through 2008 has made stabilisation goals even more difficult to be achieved, and thus policies with an immediate effect on emissions are badly needed. According to some recent analyses, the current, slow pace in climate policy and the steady increase in global emissions have made it virtually impossible to attain the global emission level in 2020 that would be needed to meet a 450 ppm CO2-eq concentration target that was assumed possible 5 or 10 years ago. Of course, the recent economic downturn since September 2008 can alleviate some of those near-term concerns because of the concomitant decline in emissions, but the more general question is how to accommodate such unexpected shifts in growth trajectories (McKibben et al 2008).

Low carbon energy R&D and technology transfer are much talked about, very necessary, and to date completely insufficient.

Spending on energy R&D has significantly declined since the 1980s. What is more, to date only a small part of energy R&D is related to low carbon technologies. The CDM has had only a very limited effect on low carbon technology transfer, yet it is to date the most important mechanism designed for that purpose.

It has been widely recognized in the negotiations that significant change is needed in this field. The Bali Action Plan sets technology as one of the four negotiation tracks, next to mitigation, adaptation, and finance. There have been numerous recent proposals to dramatically expand technology transfer and R&D cooperation to address climate change. However, the actual evolution of investment in recent years gives less grounds for optimism. In spite of strong continued growth in trade in goods and services (both imports and exports of goods rose more than three-fold between 2000 and 2008), bilateral investment is actually going in the wrong direction. EU investment in China fell from €7.1 billion in 2007 to €4.5 billion in 2008 (Ashton, 2008). Chinese investment in Europe decreased even more dramatically, from 2.2 billion in 2006 to €616 million in 2007 and €71 million in 2008 (EC, 2009).

The flow of resources and technology from North to South has become a linchpin in determining the success of the current round of climate change negotiations although ambitious goals will be difficult to realise. Licensing advanced technology is undeniably likely to facilitate significant transfers of resources and technology, but concerns over international competitiveness make such proposals politically fraught. Given the current economic downturn, the relatively stronger position of many emerging economies and lingering competitiveness concerns because of large trade deficits with emerging economies, all major developed economies may see opposition to major flows of resources to emerging economies such as China and India and will be limited in the extent of their ambition (Friedman, 2009). Nevertheless, public commitments to increased technology transfer and the importance of Chinese and Indian engagement in mitigation efforts makes a dramatic increase in technology and resource transfers inevitable if there is to be an effective international climate agreement

Climate policy attitudes change, also in India and China, but Annex I support is needed.

Leading emerging economies, including China and India, which are mainly powered by coal, have been facing increasing pressure in climate change mitigation as they are among the main emitters of greenhouse gases emission, China being the largest emitter already today. China is very likely to dominate the future World emissions (up to almost 50% of the global emissions in the reference case) as well as the future reductions (also up to almost 50% of global reductions) under a 3.5 W/m2 scenario. The contribution by India is far less high, with up to 11% of the World emissions and 16% of the global reductions.

Despite these numbers, most developing countries, including India and China, argue against emission caps for their countries in the near future. Differences in ability to pay, historical responsibility and per capita emissions provide strong arguments for this. What is more, China agues that the emission intensive productions driven by developed countries consumptions have significantly contributed to China's recent years' emission surge.

India and China are however two very different nations, both in terms of emissions and GDP per capita, hence it would be beneficial for the discussion to think of their contribution and their commitment separately.

Though India has been building a reputation for intransigence on climate change, on the 17th of September 2009, Jairam Ramesh, the Indian Environment Minister, said that India is ready to quantify the amount of planet-warming gas emissions it could cut with domestic actions to fight climate change, but will not accept internationally binding targets. It is important to bear in mind that India is not a major emitter in per capita terms. India emits about 1.1 tonnes of CO2 per capita while the corresponding figure for the US is more than 20 tonnes. India currently accounts for four percent of global emissions compared to 20 percent for the US and for China.

Despite this, China has taken an even 'softer' line, articulating that China is willing to collaborate on projects to enhance energy efficiency and green energy technology developments (Tollefson, 2009). A clear message can be discerned, besides 'no binding commitments in post 2012', that their attitudes can be changed step-wise according to the amount of financial supports and transfer of core technology elements (e.g. design, production of key elements and maintenance) they could potentially receive from Annex I countries.

Recent domestic policies indicate that a change in attitudes is already underway: China has put its first ever commitment on energy efficiency improvement, set in the 11th Five-Year Plan in 2006. The commitment states that «the country's energy intensity should be reduced by 20% from 2005 to 2010». More recently, China has been raising exports taxes for three times in about 13 months since the end of 2006 on certain carbon intensive products

Technology-oriented agreements can help to advance and diffuse low carbon technologies and address competitiveness concerns.

Technology-oriented agreements (TOAs) can be seen as a sub-group of sectoral agreements. Elements of TOAs can be knowledge sharing, joint research programs, collaborative programs for large-scale demonstration, arrangements on intellectual property rights, technology transfer, capacity building, technology standards, and incentive mechanisms for technology development and diffusion.

Sectoral technology policy can be designed to overcome barriers that prevent the large scale development and diffusion of promising low carbon technologies. Barriers are especially high in developing countries, where lack of credit, information gaps, lack of absorptive capacity, energy subsidies, and public inefficiency constitute severe obstacles to technology diffusion. If technology-oriented agreements are tailored to overcome the specific barriers that a given low carbon technology faces, it is likely to contribute to effective mitigation.

On the other hand, technology policy is criticized, because it requires government intervention in the choice of technologies. As for sectoral approaches, there is a risk that governments pick the wrong winners. While wrong choices are corrected under market allocation, wrong choices by governments can become very costly for society. For international technology-oriented agreements, there is the additional risk that the more powerful countries exercise their power to push forward the technologies which they have a competitive advantage in. Obviously, these technologies do not need to be the best or most cost-effective.

For these reasons, TOAs are unlikely to be a good replacement for a global cap and trade system, because the latter is more consistent in setting global targets and incentives. However, a global cap and trade system is far from being implemented. In this situation, TOAs offer opportunities for engaging major developing countries in mitigation efforts or even - in more general terms - for engaging big emitters in emission reduction agreements (de Coninck, 2009). When these big emitters are industrialized countries, TOAs can offer them opportunities for exploiting first mover advantages in the commercializition of low carbon technologies. When the big emitters are developing countries, they can profit from favourable conditions for adopting advanced low carbon technologies. In general, TOAs can offer benefits to big emitters which pure emission reduction commitments cannot.

Environmental effectiveness of the Kyoto Protocol has suffered from lacking or insufficient involvement of big emitters, notably of the USA and China. Technology-oriented agreements can help to make climate deals self-enforcing by addressing the specific interests of big emitters. The more participatory flexibility there is in order to initially restrict participation in the TOA to those countries with a vital interest in the technology it addresses, the better the TOA can take the interests of individual nations into account.

Currently, negotiations about technology benefit from an important psychological advantage over negotiations on emission reductions: Technology is associated with innovation, export opportunities, development and growth, while emission reductions are associated with costs. These attributes may change as TOAs that achieve significant emission reductions come at a cost as well. Developed and emerging nations are more equal in technology than in most other fields, with countries like China and Brazil pioneering in the commercialization of important low carbon technologies. This could be an advantage when negotiating TOAs.

With a view on COP15 at Copenhagen, developing countries demand to first negotiate on support, then on action. Elements of support to be negotiated are financing and technology. Negotiations on financing can be expected to be extremely difficult, while the field of technology lends itself for trade-offs

A "programmatic CDM" offers opportunities for enhanced technology spillovers.

There are three flaws in current CDM implementation. Firstly, many CDM projects are not «additional», which means that any project registered under the CDM that would have been built anyway (Wara and Victor, 2008), without carbon credit income, allows an industrialized country to emit more than their targets, without causing any changes on the ground where the project is located. It is estimated that 75% of all approved CDM projects were already up and running at the time they were approved (Friend of Earth, 2009). In other words, numerous of CDM projects would be built anyway, regardless of CDM subsidy (Wara and Victor, 2008).

Secondly, many CDM projects do not entail technology spillovers. It has been estimated that only about half of the current CDM projects comprise some kind of technology transfer (de Coninck, 2009). The limited advancement of new technologies is confirmed by a closer look on China: Many CDM projects in China are hydropower projects. Hydropower projects constitute a quarter of all projects in the CDM pipeline, and 67% of these (around 700 projects) are in China (Friend of Earth, 2009). Almost half of all new hydropower capacity being built in China is in the CDM pipeline. Although hydropower is a low carbon technology, the fact is China is far more advanced than many developed countries in building and running hydropower plants.

Thirdly, the scale of the current CDM is small, and its effective scope is limited to a few sectors. CDM projects in China have mainly developed in the power industry. Still, they account for less than 1% of total installed capacity in this industry. China as well as India expect much more financial and technological support from developed countries to tackle the emissions from their coal-dominant power industries. Furthermore, the CDM has proven to be ineffective in reducing emissions from end use sectors such as transportation and households.

If a new post-2012 CDM is to be effective on a much larger scale, it needs to address end use sectors and to consider continuity and sustainability of low carbon technologies development and spillovers. For example, developed countries could provide the initial funding and technology to start a low-carbon project, while China or India implement domestic policies to develop the project to larger scale. Furthermore, BRIC countries, like China or India, can play a valuable role not only in absorbing advanced technologies from the west, but also in creating further spillovers by technology diffusion to other developing countries, including LDCs and LLDCs, with the necessary financial and technological support

Emissions trading could alleviate the macroeconomic cost for India and China.

It is well known that an international ETS is an efficient instrument for reducing the costs of mitigation. Many simulations show that also developing countries that have the capacity to implement such a scheme can profit from an international ETS. This depends, of course, on the primary allocation of emission rights. Especially allocations that are based on (transition paths towards) equal per capita emissions rights are economically highly attractive for developing countries. It has been shown that developing countries would not only profit from selling Assigned Amount Units, but also benefit from reduced global mitigation costs through international trade effects (Böhringer and Rutherford, 2002).

However, it would be more than difficult to make China or India to take a binding commitment on climate change mitigation in the near term. Therefore, it is hardly conceivable that an international ETS would be implemented between Annex I and India or China after Copenhagen. However, it might be possible for China or India to implement interregional ETS within the country. India and China are very large countries with great regional disparities. Many regions like Beijing, Shanghai, Delhi or Mumbai are well developed. For example, the per capita GDP in Beijing has achieved over US$ 9,000 in 2008 (Caijing Magazine, 2009). Implementing a domestic ETS could help China and India to accelerate technology adoption and to stimulate the diffusion of green technologies in relatively less developed regions

Finding the right mix of instruments and targets for a successful climate agreement is largely a matter of addressing manifold national interests and concerns, while making the climate deal effective.

Simulations with the WITCH model show that increased energy R&D spending alone is not sufficient to solve the problem of climate change. It provides no direct incentives for the adoption of new technologies and it focuses on the longer term, missing near-term opportunities for cost-effective emissions reductions.

A global carbon price signal could provide the type of incentives needed. Simulations with WITCH show that a global ETS combined with an ambitious target such as 3.5 W/m2 would make an international R&D fund obsolete, because the global ETS sets the stronger R&D incentives. However, this may not be in the interest of the biggest emitters of greenhouse gases.

Simulations with the coupled GEMINI-TIAM model indicate that the cost of mitigation in % of GDP in a 3.5 W/m2 global carbon tax scenario:

  • is very important for energy exporting countries, the actualized GDP fall could reach more than 2.9%;
  • is important for developing countries, especially for Latin America, India and China, the actualised GDP loss is superior to 0.7%;
  • is small for developed countries with high energy intensity and which are energy importing countries. This is the case of the European Union and Japan where the actualized GDP loss is less than 0.2%;
  • is significant for the USA, Canada, and Australia, and estimated to a 0.5% actualized GDP fall but less for developing countries.
 

These results show that the implementation of a world carbon tax without tradable permits and without interest-tailored initial allocation rules and possible side payments or agreements would not be acceptable for developing countries, neither for some of the Annex I countries.

Game theoretic simulations in this project explore allocations of emission rights between developing countries (DC, including India), newly industrialised countries (NIC, including China) and two groups of industrialised countries (IC1, including the USA, and IC2, including the EU) under a tradable permits scheme that are compatible with self-enforcing agreements.

It appears that developing countries (DC) as well as newly industrialised countries (NIC) are very sensitive to the allocation rules. NIC tends to be a loser of mitigation policies under most of the prevalent burden sharing rules, mainly because of deteriorating terms of trade due to the decrease of worldwide fossil fuel energy consumption. Indeed Russia and the Middle East countries are part of this group. It is why in the negotiation, these countries ask for financial transfers to compensate these welfare losses.

The situation of DCs is more contrasted, with some of the burden sharing rules leading to substantial welfare gains for this group due to the possibility to generate income from hot air - or rather tropical air - sales. Among the industrialized countries, IC1, which includes the USA, Canada and Australia generally suffers more important welfare losses than the IC2 group.

These results are coherent with the observed positions of countries in the climate negotiation.

Despite this, we show that allocations can be found which lead to a self-enforcing meaningful climate agreement. The corresponding split of the global budget tends to equalize the variations of surplus (in %) at the equilibrium. The resulting allocation is fairly close to contraction and convergence by 2050. Nevertheless it gives more (44%) to the group NIC at the expense of the group IC2 (which includes EU) in order to equalize surplus variations across regions.

This result shows that even if standard allocations proposed by literature fail to find an acceptable agreement, we can find an allocation which could conduct to a stable and acceptable agreement. According to our game theoretic simulation, this agreemant has the following characteristics:

  • The split of tradable emission rights until 2050 is 17% for IC1 (which includes USA, Australia, Canada), 9% for IC2 (which includes EU and other high-income industrialised countries), 44% for NIC (which includes China, other emerging economies and fossil fuel), 30 % for DCs (which includes India and other low-income developing countries).
  • It gives an overcompensation to the region NIC (i.e. especially to fossil fuel exporters), compensating the loss of revenue coming from the decrease of fossil fuel consumption.
  • It is rather generous to the region IC1 (USA, Canada, Australia) to compensate its dependence on oil consumption.
  • In contrary the allocation to IC2, which includes the EU, is slightly restrictive to take into account the actual energy efficiency of these countries;
  • Finally, the allocation of allowances to low-income developing countries are below the one suggested by an equal per capita emission rule.

While it is unlikely that such a global agreement until 2050 is going to be reached in Copenhagen, the analysis shows that balancing the interests of different groups of countries is possible and that is the key to making signatories of a climate agreement stick to their mitigation targets

Technology-oriented agreements can help to strike a meaningful climate deal.

Technology-oriented agreements (TOAs) could be an important element in finding and strengthening a self-enforcing climate deal. TOAs could address concerns of the biggest emitters and ideally make their pay-offs from a climate deal positive.

However, a significant contribution of TOAs to solving the climate change problem can only be expected if they are meant to be more than good will statements, i.e. if they actually lead to significant emission reductions. For this, they have to include ambitious technology standards or mandates as well as strong incentives and considerable financing, e.g. through an international fund (de Coninck, 2009).

Another key factor are arrangements on intellectual property rights that allow for widespread diffusion, yet leave sufficient incentives for research and development where needed. Smart decisions on these arrangements depend, among other things, on the maturity of the technology addressed. Many foreign companies are not motivated to transfer their patents and it is unfair and impractical to ask firms to share their patents without an appropriate compensating mechanism. Therefore, we suggest an international R&D funding scheme should be developed in order to design, research and share new technology. The challenge is that such cooperation has been a mainstay of discussions among policy elites for at least three decades. Such cooperation has long been one of the main goals of the International Energy Agency. For example, Gray et al (1985) provide one of the first reviews of such cooperative efforts. Changing attitudes towards climate policy could make the difference today.

It is commonly recognized that the post-2012 climate policy needs to address technology issues much more than the Kyoto Protocol. TOAs are especially needed for key technologies that are known to be crucial for achieving mitigation goals, but are unlikely to be widely applied at a large scale under other instruments of the climate deal. Given the dependence of China and India on coal as well as the reluctance of both countries to accept binding economy-wide emission targets, carbon capture and storage (CCS) is the most prominent example. Furthermore, technologies that are associated with considerable risks and/or international negative externalities are candidates for TOAs. Examples are biofuels, because of their influence on food markets, and geo-engineering.

The main risk of the TOA approach is the emergence of a fragmented patchwork of agreements with reduced transparency and accountability (Benvenisti and Downs, 2007). TOAs cannot fully replace agreements on emission reductions. Rather they complement these other agreements. If designed properly, they can increase the effectiveness of the climate deal by fostering development and diffusion of important low carbon technologies, especially in countries that are not (yet) ready to accept binding emission targets. To prevent fragmentation, it is desirable to create an institutional link between the TOAs and the climate regime under the UNFCCC. One possible way of linking that is being discussed concerns the integration of TOAs into Nationally Appropriate Mitigation Actions (NAMA) of developing countries

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Contraction and Convergence [C&C] is the name of the global GHG emissions-management-model introduced by GCI to the UNFCCC negotiation in 1996. Some currect information about the origins, meaning and application of C&C are at these links:

www.tangentfilms.com/GCIEAC10nov09.pdf
www.gci.org.uk/briefings/ICE.pdf