Fighting climate change

What do we do?

The UN Climate Change conference in Poznán, Poland in December ended with a mixed scorecard. There was agreement to move to the next level of negotiations, and some clarification on outstanding issues, but little substantial forward movement.

Critics may wonder if all countries are serious about the urgency of tackling climate change. Still, a number of countries and regions laid on the table their own plans to reduce emissions, and despite the slow progress in international discussions, a consensus appears to be building towards at least a basic framework for a new global agreement at the next UN climate summit in Copenhagen in December 2009.

No-one can predict how Copenhagen will go, but we do know that the tools to tackle climate change are available or within reach. It is a matter of finding the international commitment and leadership to put them in place. Some of these tools are outlined in a booklet which the OECD produced for Poznán and which is available online.

The context has become more complicated, with the current global economic turmoil. But while attention and resources are directed at the financial crisis and restoring growth, every day of inaction on greenhouse gas emissions (GHGs) is steadily carrying the planet towards a catastrophe of an immeasurably greater scale.

The good news is, there is time to act. As Climate Change Mitigation–What Do We Do? argues, although some climate change is already locked-in, measures taken now would help mitigate the worst dangers, and avoid an irreversible build-up of greenhouse gases (GHGs). Importantly, if measures identified by the OECD are introduced now as part of a policy mix, they can be cost-effective and relatively painless to the economy during the initial phase of application. What is needed initially is a clear and long-term policy signal, even if much of the initial action may be low-cost. As was repeated in Poznán and by experts and conferences over the past few years, to delay is to court disaster, and will certainly involve far greater expense.

Certainly waiting for a solution to emerge, such as a sustained rise in energy prices to trigger behavioural changes which curb emissions, would not work, as recent oil price declines have testified. Also, coal remains a very important energy source in countries like the US, Germany and China, and non-conventional oils, such as tar sands in Canada, are also being developed. As these are carbon-intensive fuels, any reduction in carbon emissions elsewhere, for example in motor transport, are likely to be simply cancelled out by expanding fossil fuel power generation.

The only hope of meeting the challenge is an ambitious, comprehensive and radical international approach to reducing emissions. A growing worldwide consensus on the need to cut GHG emissions provides hope that an international framework for action could be agreed at Copenhagen. But agreeing to radical measures will need political vision and courage: most long-term models for stabilising GHG concentrations to a level that threatens only a moderate, rather than severe, impact on climate require reaching, over time, worldwide GHG emissions of between one quarter and one third of those in 2005. That will demand a significant effort to transform how our economies produce and consume energy and emit gases.

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Such a transformation is economically rational, and the current economic downturn is no justification for delaying the process, the report says. On the contrary, significantly reducing emissions can help to put countries onto a more sustainable growth path over the long term, including by reducing the significant economic and social risks associated with climate change impacts.

An economically rational strategy begins by reducing emissions using the current abundance of cheap options, followed by the gradual introduction of more radical, costly changes. For example, underutilised technology is available to sharply reduce methane emissions from landfill. There are also many low or even no-cost options for increasing energy efficiency, but information or other market barriers are hampering their uptake. Importantly, this graduated approach would also offer an economic breathing space over the period of the next 10 to 15 years. But a long-term strategy that allows meeting initial targets through such “softer” means is achievable only if it is introduced now. By first implementing the readily-available, cheaper options, there would be no need to scrap, at significant expense, carbon-intensive facilities such as power generators, well before the end of their life-span. Their replacement later allows for planning investment, and the development of new climate-friendlier technologies.

An effective programme must be comprehensive, both in the number of GHG sources it targets and the geographical spread of countries that adhere to it. As the report states, the costs of incomplete country coverage would be very high, not least because two thirds of GHG emissions worldwide are produced by developing countries outside the OECD, and this output is rising. That is why it is essential that major emitting countries from the developing world also participate in post-2012 climate action if ambitious emissions reductions are to be achieved. Some of the cheaper options for reducing emissions also fall in developing countries, and to keep the overall costs of action low, these opportunities need to be realised. This does not necessarily mean that these countries should pay for the emissions reduction–in many cases, a “decoupling” may be needed between who takes action, and who pays for it.

At present, worldwide GHG emissions, after doubling since the early 1970s, are set to grow by more than 70% between 2008 and 2050. The OECD maps time paths of scenarios with and without GHG reduction strategies, with projections reaching to the end of the century.

The mid-range estimate of global warming by 2100, in the absence of a new reductions policy, is close to 4° Celsius compared with pre-industrial levels. This is likely to produce destructive climatic events and, even if GHG concentrations were subsequently stabilised, global warming would continue during the next century.

One of the emissions mitigation scenarios examined by the OECD sees GHG concentrations on a pathway to stabilise eventually, at a level of about 550 parts per million in the atmosphere. This represents a fairly ambitious reduction strategy, although it is not as ambitious as some of the targets currently being discussed or proposed. The economic model used calculates the likely cost in reducing these emissions.

The scenario shows that, because of the resources that would be transferred from goods and services to GHG mitigation efforts, annual growth of the world economy between 2008 and 2050 would slow by 0.13 percentage points on average. The impact on GDP growth would be small in the early years, increasing significantly as of 2025. So, while under a no-new-policy baseline world GDP would be expected to grow by 300% from 2005 to 2050, under this emission reduction scenario it would instead grow by about 295%. But, the OECD insists, while an ambitious GHG abatement strategy is not cheap, it is economically rational, and would lead to more secure longer term growth.

This abatement strategy is driven by an implicit price of GHG emissions that equalises costs across all emission sources at each point in time. The cost of each successive phase of abatement options would gradually rise. Setting a price on emissions is most obviously found by using either a GHG tax, or a system of cap-and-trade. There are pros and cons in both; taxes provide an immediately clear price for polluters, but governments would be unable to commit to future tax rates. Cap-and-trade provides greater certainty as to resulting emissions, but the permit price can fluctuate through variations in supply and demand.

A successful strategy requires that its cost be equitable, to accommodate the gulf between poor and rich countries, with separately inequitable potential consequences for both. The OECD report outlines options to bridge these problems, although the way ahead remains partially clouded by both the obstacles and the choices.

The report raises more food for thought too. Take carbon leakage, which many people say would happen as one country’s efforts to reduce emissions are thwarted by a lack of action in another. However, Climate Change Mitigation – What Do We Do? argues that as more countries take action, leakage rates would rapidly fall to low levels. If just a very small coalition of countries took action, for instance the EU, the authors find that about 20% of the emission reductions in the EU would be offset by emission increases in other countries for a simulation of a 50% reduction in emissions by 2050. However, once the group of participating countries is expanded to include so-called Annex 1 countries to the UN climate change convention–essentially, other OECD countries, Russia and transition countries–this leakage rate falls to 9% of emissions.

The report also serves up a word of warning to those banking on R&D solutions through renewable energy and efficiency. The report agrees these must be part of the solution, but insists R&D alone would not be enough. R&D policies would not be able to stabilise long-run GHG concentrations in the absence of carbon pricing, the authors show, even with very large spending increases and optimistic assumptions about future technologies. This is because cheap abatement opportunities that already exist, such as energy efficiency improvements, would be missed out. Long- run emissions would still exceed the absorptive capacity of our planet. Also, it is unlikely that new technologies, such as carbon capture and storage, would be deployed aggressively enough without a carbon price.

So, can a global reductions strategy work? The OECD believes it can, but sees several conditions to be met. First, it must be credible enough to elicit the necessary behavioural responses for its application, and flexible enough to be able to meet mid-term corrections imposed by unexpected economic and/or environmental factors. The strategy must allow for a degree of decoupling between where abatement occurs and who pays for it, so as to ensure reductions are achieved where they are cheapest–the low-hanging fruit. But it must still target all GHGs across every sector and among most countries. Above all, it must be implemented now, or the opportunity to act at a price we can still afford will vanish into the haze. GT/RJC



©OECD Observer No 270/271 December 2008-January 2009

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