Climate change negotiations: Time to reconsider

Jean Tirole

16 November 2009



The Copenhagen Summit in December will be crucial for the future of the fight against climate change. The outcome, in a nutshell, will be “too little, too expensive”.

The Kyoto Protocol was symbolically an important step, but it failed to deliver a major effort toward greenhouse gas reductions. In the absence of a new mindset, the Copenhagen Protocol will bring us eleven more years of the same waiting game. Countries will continue free-riding. They will also realise that staying carbon-intensive will put them in a strong position to demand compensation to join an agreement in 2020.

Of course, there will be some progress. Carbon permits markets exist or will be created in Europe, the US, and Japan. Emerging economies are taking some action as well. A mixture of collateral damages (the emission of SO2, a local pollutant, jointly with that of CO2 by coal plants), the direct impact of own CO2 pollution for large countries like China, and the desire to placate domestic opinion and avoid international pressure will all lead to some carbon control. But not enough. The countries’ reluctance to enter binding agreements is telling.

The outcome of Copenhagen will also be too expensive, as the inefficient patches (sectoral negotiations, standards and other command-and-control approaches, clean development mechanism), to which both industrial lobbies and Kyoto have made us accustomed, will keep being used to address global warming.

Reaching a satisfactory international agreement will not be a piece of cake. Even so, it is striking how little progress has been made since Kyoto. The negotiation has failed to address the compensation issue head-on. The G77 proposal asking developed countries to make a financial transfer of up to 1% of their GDP (and to commit unilaterally to stricter abatement targets) has the merit of putting the compensation issue on the negotiating table, but it fails to defend the interests of emerging countries. Rich countries did not abide by their development aid and AIDS promises. Any plan to increase financial transfers will have to confront the publics’ low tolerance for financial transfers to foreign countries and looming financial tightening.

Economists almost unanimously recommend that the price of carbon be the same for all countries, all sectors and all actors; distributional issues need to be taken care of, as they always have been, through the allocation of permits, not by making abatement overly expensive. Simple? Perhaps, but why make things simple when one can make them complicated?

What steps should negotiators be seeking in Copenhagen instead? They should aim to agree on some early actions and on some broad principles, and a negotiation timetable toward an agreement in 2015-2016:

  • a global emissions target for 2050 in conformity with the IPCC’s consensus view,
  • the rapid deployment of a satellite system able to measure country-level emissions,
  • a long-term, worldwide cap-and-trade type system, leading to a unique carbon price and therefore consistent with the minimisation of the abatement cost; this system would make the agreement sustainable and would provide long-term visibility for those who hesitate to deploy green equipments or to engage in green R&D;
  • governance providing incentives to join the agreement (including the eventual demise of the clean development mechanism) and to abide by it: for example, by treatment of countries’ resulting environmental debts as sovereign debt (monitored by the IMF), a global trade-environment deal (involving the WTO), partial withholding of permits awarded to countries, naming & shaming, and other possibilities;
  • a subsidiarity principle, with permits allocated domestically by the countries themselves, on the grounds that a) to be on board, governments must be able to build a consensus at home, and b) only a country’s global greenhouse gas emissions matter to the international community and so domestic policies can be delegated to countries, which will be made accountable for their emissions.

The negotiation for 2015 would then focus on a single dimension; the allocation of free permits to countries so as to get everyone on board; this would involve for example a generous allocation to emerging countries. Complex as it is, the negotiation would still be simpler than the multi-dimensional one that we are engaged in; it would also lower substantially the global cost of abatement. In the current situation, reaffirming and committing to good governance would be a significant step forward.



Topics:  Environment Global governance

Tags:  climate change, Copenhagen Summit

Director of the Toulouse School of Economics and of the Jean-Jacques Laffont Foundation. CEPR Research Fellow