The global development of policy regimes to combat climate change

Nicholas Herbert The global development of policy regimes to combat climate change / by Nicholas Stern London School of Economics, UK, Alex Bowen London School of Economics, UK, and John

8949_9789814551847_tp.indd 1 27/2/14 9:27 am

Vol 1 General Equilibrium Global Trade Models

edited by John Whalley

Vol 2 China’s Trade, Exchange Rate and Industrial Policy Structure

edited by John Whalley

Vol 3 International Trade Agreements and Political Economy

edited by Raymond Riezman

Vol 4 The Global Development of Policy Regimes to Combat Climate

Change

edited by Nicholas Stern, Alex Bowen and John Whalley

Nicholas SternLondon School of Economics and Political Science, UK

Alex BowenLondon School of Economics and Political Science, UK

John WhalleyUniversity of Western Ontario, Canada

THE GLOBAL DEVELOPMENT

OF POLICY REGIMES TO COMBAT CLIMATE CHANGE

N E W J E R S E Y • L O N D O N • S I N G A P O R E • B E I J I N G • S H A N G H A I • H O N G K O N G • TA I P E I • C H E N N A I

World Scientific

Library of Congress Cataloging-in-Publication Data

Stern, N H (Nicholas Herbert)

The global development of policy regimes to combat climate change / by Nicholas Stern (London School of Economics, UK), Alex Bowen (London School of Economics, UK), and John Whalley (University of Western Ontario, Canada).

pages cm (The tricontinental series on global economic issues, ISSN 2251-2845 ; vol 4) Includes bibliographical references and index.

ISBN 978-9814551847

1 Climatic changes Government policy Case studies 2 Environmental policy Case studies.

3 Sustainable development Case studies I Bowen, Alex II Whalley, John III Title.

QC903.S832 2014

363.738'74561 dc23

2013038486

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.

Copyright © 2014 by World Scientific Publishing Co Pte Ltd.

All rights reserved This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the publisher.

For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA In this case permission to photocopy

is not required from the publisher.

In-house Editors: Sandhya Venkatesh/Chitralekha Elumalai

Typeset by Stallion Press

Email: enquiries@stallionpress.com

Printed in Singapore

Alex Bowen, Nicholas Stern and John Whalley

Chapter 1 Global Cooperation and Understanding to

James Rydge and Samuela Bassi

Chapter 2 The US and Action on Climate Change 23

Samuela Bassi and Alex Bowen

Chapter 3 Challenges and Reality: China’s Dilemma on

Mou Wang, Huishan Lian and Yamin Zhou

Chapter 4 Sustainable Growth and Climate Change:

Evolution of India’s Strategies 75

Ruth Kattumuri and Darshini Ravindranath

Chapter 5 After Copenhagen and the Economic Crisis:

Does the EU Need to Go Back

Christian Egenhofer and Monica Alessi

v

Chapter 6 The Scope for “Green Growth” and a New

Chapter 8 Unilateral Measures and Emissions Mitigation 181

Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John Whalley

Chapter 9 Compliance Mechanisms in Global Climate

Sean Walsh and John Whalley

About the Contributors

Monica Alessi is a Programme Manager and Research Fellow at CEPS

since September 2006, in the Climate Change and Energy Policy Unit She

is involved in research on different aspects of EU and international climatechange and energy policy, including the EU ETS, the role of cities to addressclimate change, and the SET-Plan Other focus of research includes EUwater policy Before CEPS, she worked as a consultant for the InternationalFund for Agricultural Development (IFAD) on the subject of geneticallymodified organisms as well as auditing development projects She graduatedwith an MPhil in Environmental Policy from the University of Cambridge

in the United Kingdom

Scott Barrett is the Lenfest-Earth Institute Professor of Natural Resource

Economics at Columbia University in New York City, where he holds ajoint appointment in the School of International and Public Affairs and theEarth Institute He was previously on the faculties of the Johns HopkinsUniversity School of Advanced International Studies in Washington, DCand the London Business School He has also been a visiting scholar atPrinceton and Yale His research focuses on institutional remedies to globalcollective action problems such as disease eradication, high seas overfishing,and, of course, climate change

Samuela Bassi is a Policy Analyst at the Grantham Research Institute on

Climate Change and the Environment at the London School of Economicsand Political Science and the Centre for Climate Change Economics andPolicy, where she focuses on green growth and climate change policy.Previously, she worked as a Senior Policy Analyst at the Institute for Euro-pean Environmental Policy, and for an Italian environmental consultingcompany She graduated in Economics from University of Trieste, Italy,and holds an MSc in Economics from Birkbeck College, London

vii

Alex Bowen joined the Grantham Research Institute on Climate Change

and the Environment at LSE in 2008 as Principal Research Fellow, aftermany years at the Bank of England, most recently as Senior Policy Adviser,Monetary Stability He first became involved in climate change issues whenseconded as lead economist to the Stern Review on the Economics ofClimate Change His research interests include the design of public policiesfor a low-carbon economy and the macroeconomic aspects of climate changepolicies He has been a consultant to a wide range of UK governmentdepartments and international bodies, including the World Bank andOECD Dr Bowen has a BA in Economics from Cambridge University and

a PhD in Economics from the Massachusetts Institute of Technology, where

he studied on a Kennedy Scholarship

Shurojit Chatterji is an economic theorist at the School of Economics,

Singapore Management University His principal research field is economic Theory He has worked on economic dynamics under learning,

Micro-on strategy proof mechanism design, and more recently Micro-on climate changeeconomics

Christian Egenhofer has more than 25 years of experience on EU policy

analysis in the areas of energy, climate, environment, transport, and water.Currently, he is Associate Senior Research Fellow and head of the Energy,Climate and Environment Programme at the Centre for European PolicyStudies (CEPS) in Brussels He is also Visiting Professor at the College ofEurope in Bruges (Belgium) and Natolin (Poland), SciencesPo, Paris andGuido Carli LUISS University in Rome

Sayantan Ghosal is a Professor of Economics at the Adam Smith

Business School, University of Glasgow He was a Professor of Economics

at the University of Warwick from October 2004 to March 2013 He wasResearch Director for the ESRC Centre for Competitive Advantage in theGlobal Economy (CAGE) from 2010 to 2012 and continues his associationwith CAGE as a Research Fellow He obtained his PhD from CORE,Universite Catholique de Louvain His research is in economic theory andits applications including foundations of general equilibrium; behavioralwelfare economics; internal constraints and deprivation traps; financialcrisis; endogenous formation of networks and groups; global cooperationand climate change; long-run growth He has published in a number of

peer-reviewed economic journals including the Journal of Economic Theory, Economic Journal, Journal of Economic History, Journal of International Economics, Games and Economic Behavior, Journal of Public Economics,

Economic Theory, International Journal of Game Theory, Social Choice and Welfare, and Journal of Mathematical Economics and has authored a

number of policy reports/briefings and media pieces

Ruth Kattumuri is Co-Director of the Asia Research Centre and India

Observatory at the London School of Economics (LSE) With over 25 years

of experience in higher education, research, and policy engagement, shehas pioneered several innovative international research and developmentprograms Her current research and policy publications and engagementpertains to sustainable and inclusive green growth in Asia Ruth is anAssociate with the Grantham Research Institute on Climate Change andthe Environment at the LSE and she is also a Cambridge CommonwealthFellow Prior to joining the LSE, she was a Professor in Statistics andComputer Science in Chennai, India

Huishan Lian is working for the International Finance Corporation (IFC)

of the World Bank Group She is An Access to Finance Operations Analyst

of the China Energy Efficiency Finance Program (CHUEE) Huishan Lianhas been studying and working in the climate change space since 2006and was a delegate to UNFCCC COP 15 Copenhagen Conference Apartfrom the CHUEE Program, she is currently working in the China EmissionTrading Program and China Green Building Program in IFC Prior to IFC,she worked at the Chinese Academy of Social Science (CASS) Huishanholds a Master’s degree in International Political Economy from the LondonSchool of Economics and Political Science (LSE)

Darshini Ravindranath is currently pursuing her PhD with a focus

on the interactions between climate change and land-use change at theInstitute for Sustainable Resources at University College London (UCL).She has worked as a Researcher at LSE’s Asia Research Centre, on greengrowth and climate vulnerability and resilience In the past, she has worked

as a consultant with Asian Development Bank (ADB) and UNDP, India.She has also authored several reports for local authorities in the UK whileworking as a sustainability consultant in London Darshini holds an MSc

in Environment and Development from the LSE and a BA (Hons) inEconomics from the University of Manchester

James Rydge is Dahrendorf Research Fellow at the Grantham Research

Institute on Climate Change and the Environment at the London School

of Economics and Political Science and the Centre for Climate Change

Economics and Policy He works closely with Nicholas Stern, ing across a wide range of research areas, including on green growth,international agreements, and energy and climate policy in developed anddeveloping countries James has a PhD in Economics and a Master’s inFinance from the University of Sydney Previously, he worked at the Bank

collaborat-of New York Mellon in London and PricewaterhouseCoopers in Sydney

Nicholas Stern is IG Patel Professor of Economics and Government

at the London School of Economics and Chairman of the GranthamResearch Institute on Climate Change and the Environment He has taughtand researched at Oxford, MIT and the Ecole Polytechnique and heldchairs at Warwick and the College de France and visiting professorships

at the People’s University of China and the Indian Statistical Institute

He was Chief Economist of the European Bank for Reconstruction andDevelopment and of the World Bank Lord Stern was Head of the UKGovernment Economic Service 2003–2007, and led the Stern Review on theEconomics of Climate Change He was knighted for services to economics

in 2004 and made a cross-bench life peer as Baron Stern of Brentford in

2007 He is currently President of the British Academy

Sean Walsh is an economist and is a Research Associate from the

University of Western Ontario who has been studying the course of theclimate change negotiations, and how they may impact developing countries

in particular, for over 6 years He has participated in an official UNEPhosted session in Copenhagen

Mou Wang, Dr in Science, Associate Professor, Research Centre for

Urban & Environmental Studies, Chinese Academy of Social Sciences.Received his PhD in 2005, major in Environment and Climate ChangeProcess Research interests include environment and social dimensions

of sustainable development, energy and development, post 2020 climatearchitecture, and economics of the environment and natural resources, CDMand Programmatic CDM issues

John Whalley is a Professor of Economics at the University of Western

Ontario (Canada) and a Research Associate of the Centre for CompetitiveAdvantage in the Global Economy (CAGE) at the University of Warwick(UK) He has published extensively both on climate change and on otherareas of applied economics He is a Fellow of the Econometric Society and

a Fellow of the Royal Society of Canada

Yamin Zhou, a Postdoctoral Fellow in Institute for Urban and

Envi-ronmental Studies, Chinese Academy of Social Science (CASS), assistantresearch fellow in national institute of international strategy, CASS Themain research interests are environmental economics, global governance,sustainable development, and low-carbon development The published

green job development in China, and how to address climate change issues.The translated books are about human risk and global governance andenergy economics The author has taken part in several internationalconferences, such as Doha climate change conference, and annual meeting

of international trade and finance association

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About the Editors

Alex Bowen joined the Grantham Research

Institute on Climate Change and the ment at LSE in 2008 as Principal ResearchFellow, after many years at the Bank ofEngland, most recently as Senior PolicyAdviser, Monetary Stability He first becameinvolved in climate change issues when sec-onded as lead economist to the Stern Review

Environ-on the EcEnviron-onomics of Climate Change Hisresearch interests include the design of pub-lic policies for a low-carbon economy andthe macroeconomic aspects of climate changepolicies He has been a consultant to a wide range of UK governmentdepartments and international bodies, including the World Bank andOECD Dr Bowen has a BA in Economics from Cambridge University and

a PhD in Economics from the Massachusetts Institute of Technology, where

he studied on a Kennedy Scholarship

Nicholas Stern is IG Patel Professor of

Eco-nomics and Government at the London School

of Economics and Chairman of the GranthamResearch Institute on Climate Change and theEnvironment He has taught and researched

at Oxford, MIT and the Ecole Polytechniqueand held chairs at Warwick and the College

de France and visiting professorships at thePeople’s University of China and the IndianStatistical Institute He was Chief Economist

of the European Bank for Reconstructionand Development and of the World Bank

xiii

Lord Stern was Head of the UK Government Economic Service 2003–2007,and led the Stern Review on the Economics of Climate Change He wasknighted for services to economics in 2004 and made a cross-bench life peer

as Baron Stern of Brentford in 2007 He is currently President of the BritishAcademy

John Whalley is a Professor of Economics at

the University of Western Ontario (Canada)and a Research Associate of the Centre forCompetitive Advantage in the Global Econ-omy (CAGE) at the University of Warwick(UK) He has published extensively both onclimate change and on other areas of appliedeconomics He is a Fellow of the EconometricSociety and a Fellow of the Royal Society ofCanada

The editors would like to acknowledge the support of the Centre for ClimateChange Economics and Policy (CCCEP) at the Grantham Research Insti-tute on Climate Change and the Environment, London School of Economicsand Political Science, and of the Centre for Competitive Advantage inthe Global Economy (CAGE) at the University of Warwick (UK) Bothresearch centres are designated research centres of the UK Economic andSocial Research Council, for whose support and funding we are grateful.Financial support was also provided through the China Policy and ResearchGroup (CPRG) at the University of Western Ontario (Canada) for theparticipation of Chinese researchers in the project CPRG acknowledgessupport from the Ontario Research Fund

xv

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Alex Bowen and Nicholas Stern

Centre for Climate Change Economics and Policy, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (LSE),

Houghton Street, London WC2A 2AE

1988 by two UN bodies, the World Meteorological Organization andthe United Nations Environment Programme, to assess “the scientific,technical and socioeconomic information relevant for the understanding

of the risk of human-induced climate change,” providing a mechanism tofilter and distil scientific research findings These have fed into countrynegotiations through the UN Framework Convention on Climate Change(UNFCCC) process, inaugurated at the UN Conference on Environmentand Development in Rio de Janeiro in 1992 This process works throughthe “Conferences of the Parties” (or COPs), which provide the focus forsubstantive negotiations and develop agendas for subsequent meetings.Much has been learnt about the science, ethics and political economy ofclimate change, and a number of national and international initiatives toreduce greenhouse gas emissions have been launched, stimulated by theUNFCCC discussions, but so far global actions have been modest and not

on the scale required to meet global aspirations

xvii

Reminiscent of the negotiating rounds in the General Agreement onTariffs and Trade (GATT) and later in the World Trade Organization(WTO), COP meetings are intended to discuss matters broadly related

to climate change, and from time to time, move forward to substantivetreaty-like negotiations

The first of these occurred in 1997 at the COP 3, when the KyotoProtocol was negotiated This divided the world into a group of countries(effectively “developed countries”) making commitments to limit emissions

in various ways related to a 2012 benchmark, and a larger group ofdeveloping countries, which were not subject to any limitations This was

an embodiment of the principle agreed at the birth of the UNFCCC,under which developing countries were to be subject to “common butdifferentiated responsibilities.” Kyoto, however, proved to be weak disci-pline for a number of reasons The Senate of the US, the largest emitter atthe time, failed to ratify the treaty, so the US did not implement it Nor didAustralia, with one of the highest levels of greenhouse gas emissions percapita on the planet Mechanisms for assessing compliance were vague, andthere was very little by way of effective measures to enforce compliance.More recently, two key countries, Canada and Japan, have withdrawn fromthe Protocol It has been left with little force or impact outside Europe,although it may have helped develop monitoring, verification and reportingregimes and stimulated some development of carbon markets This hasinevitably meant that subsequent attempts to conclude a global deal to fightclimate change have first had to strengthen the foundations for agreement.The more recent Bali Road Map process effectively became the secondround of global negotiations on climate change policy, initiated by nations’desire to have a global regime in place at the end of the first KyotoProtocol implementation period in 2012 This began within a COP meeting

in Bali in December 2007 (COP 13) that greatly broadened the scope of theUNFCCC discussions to include the four elements of mitigation, adaptation,finance and innovation The aim was to come to a comprehensive globalagreement at COP 15 in Copenhagen in 2009 However, the UNFCCCnegotiators were unable to travel quite that far The Copenhagen Accord,agreed at COP 16 in Cancun, primarily embedded in an internationalagreement pre-existing unilateral commitments made by parties (althoughmany of those commitments were probably made with an eye on the need tostrengthen countries’ negotiating positions at the Copenhagen COP) Thetwo substantive innovations, or elements of progress, were the support forthe Accord from both the US and the larger developing countries, led by

India and China The hope was that more substantive commitments were

to follow, and many countries have indeed volunteered stronger nationalaction plans to reduce greenhouse gas emissions relative to “business asusual.” The Copenhagen–Cancun targets of the USA, China, and the EUlook likely to be met But for progress after 2020, COP 21 is key This will be

in Paris at the end of 2015, preceded by COP 20 in Lima at the end of 2014.The commitment to the UNFCCC process as a framework for nego-tiation also remains COP 17 in Durban in 2011 adopted the “DurbanPlatform for Enhanced Action,” which agreed to “launch a process todevelop a protocol, another legal instrument or an agreed outcome with

force by 2020 COP 17 also recognized the gap between existing pledges

UNFCCC participants Progress toward a strong deal in 2015 is slow anduncertain, with only very little advance at COP 18 in Doha in 2012 andCOP 19 in Warsaw, in late 2013 The UNFCCC executive is planning totable at COP 20 in Lima a draft for agreement in Paris a year later

This volume contains nine chapters dealing with various aspects ofglobal climate change negotiations, principally under the 1997 UNFCCC,touching on the 1992 Kyoto negotiations and the process of implementationthat followed, the later (December 2007) Bali Road Map process culminat-ing in the 2011 Durban COP, and the prospects beyond for whatever mayfollow

The chapters develop analysis of the post-Durban outlook in variousways and set out a number of country perspectives, including those of keydeveloping countries, China and India, on the state of play and perspectives

on some key negotiation issues The issue of implementation throughenforcement arrangements and the merits of alternative approaches, includ-ing multilateralism, are also considered

It is evident that there is a strong commitment around the world tothe established UN institutions and processes within which the search forfurther agreed actions will occur The volume does, however, highlight thelarge gaps that still exist between developed and developing countries,

as well as the limited achievements of the Kyoto Protocol, one of thebuilding blocks for future constraints on emissions The chapters notesome of the major problems arising from varying interpretations of the

“common but differentiated responsibilities” of developing countries agreed

as part of the UNFCCC, as well as of historical responsibility for emissions.When combined with other issues, such as the choice of consumption or

production as the basis for mitigation commitments, the appropriate timeframe and base date for their measurement and whether level or intensitycommitments are to be negotiated, one can see that the challenges thatneed to be overcome are considerable Strong political will and civic actionare required It is against this background that the papers in the volumeproceed.

2 The Global Perspective

In their broad introductory chapter to the volume, “Global Cooperation andUnderstanding to Accelerate Climate Action,” James Rydge and SamuelaBassi argue that, partly as a result of the global negotiations, public policy

on climate change now has a far higher profile than six or seven years ago.However, as was recognized in Durban, even the emissions targets for 2020leave a major gap between what is planned and what is consistent with

would need to fall by a factor of 2.5 and emissions intensity by a factor ofseven or eight: a major global industrial revolution They suggest that therate and direction of technical progress are encouraging but must accelerateand that the low-carbon industrial revolution to come will benefit fromoverlap with waves of technical change in information, communications andtechnology and biotech They suggest, there should be a broad approach

to encouraging new technology, as it would be a mistake to close off anyoption Richer countries need to think through how best to rejuvenate theireconomies and there is great potential for low-carbon growth that at thesame time will help to encourage stronger action in the developing world.They argue that strong action could see an intense period of innovation anddiscovery across the board, with top-down (collective international action)and bottom-up (national policy) approaches both important to action onthe scale required

3 Country and Regional Perspectives

The volume investigates perspectives on climate change policy prospectsfrom the vantage points of the US, India, China and the EU

In their chapter, “The US and Action on Climate Change,” SamuelaBassi and Alex Bowen note that the US is currently the second biggest

emitter of greenhouse gases and one of the highest ranked in terms of percapita emissions The country will have to cut emissions more sharply than

is to be fulfilled Fortunately, however, despite non-participation in theexecution of Kyoto targets, there are some grounds for limited optimism

At international level, the US is becoming less of an outlier It had apivotal role in Copenhagen in helping to shape the Copenhagen Accord.The approach endorsed at Durban and building on Copenhagen, with anincreased emphasis on the need for developing countries to participate inemissions control, fits well with the US position Also, given the weakness offederal policy to reduce emissions, the emissions intensity of the economyhas fallen remarkably New actions are being taken at federal, state andlocal levels so that, in the words of one academic observer, “the realitysurpasses the rhetoric” (Stavins, 2012) They suggest that, domestically,

US climate change policies need more coherence and ambition, and arebeing held back by widespread political opposition They argue that theintroduction of a single carbon price across the American economy wouldimprove the cost effectiveness of climate change mitigation, speed theintroduction of clean energy technology, reduce investor risks and create

a level playing field across states

Wang Mou, Lian Huishan and Zhou Yamin, in “Challenges and Reality:China’s Dilemma about the Durban Platform Negotiation,” note that atthe 2011 Durban Conference, the UNFCCC adopted a series of decisions,including a second commitment period for the Kyoto Protocol and anew mandate for the Durban Platform This outcome could symbolize asignificant milestone in the global climate negotiations But behind thispositive progress, divergences of parties on key issues such as the sourcesand scale of finance mechanisms, technology transfer, emission reductiontargets and the legal form of the outcome have not been substantiallyresolved In 2012, a complicated negotiation scenario emerged, with threeparallel negotiation tracks operating under two UNFCCC mandates Tominimize the deep divide between the North and South on main negotiationissues, key sticking points may be moved to the Durban Platform andnegotiated under this new track The Durban Platform as a new negotiationmandate has taken center stage in the global community Key negotiationissues such as the principle of “common but differentiated responsibilities,”the issue of legal form and the framework, agenda, roadmap and timetable

of the Durban Platform remain to be addressed in future negotiations

They suggest that China may be willing to participate actively andconstructively in the Durban platform negotiation, but any expectation that

China will pledge more aggressive emission reduction actions goes againstits social and economic development trajectory, which is the dilemma ofChina’s participation in climate negotiations China as the “factory of theworld” is on a fast track of urbanization and industrialization It shouldersthe imperatives to alleviate poverty and narrow domestic regional gaps

in living standards Its coal-based resource endowment and inefficienttechnologies provide challenges to the curbing of emissions Decoupling ofGHG emissions from social and economic development is a conundrum notjust for China but also the world

Despite these challenges, China agreed to the adoption of the DurbanMandate to initiate negotiations on a post-2020 international climateregime This regime, they suggest, must be built on the basis of mutualrespect and equity in accordance with collective responsibility, and takefull account of the right to development of developing countries and theirfinancial and technology constraints in fighting climate change Unrealisticemission reduction targets and unfair “burden-sharing” mechanisms fordeveloping countries will, they argue, neither facilitate the negotiationnor contribute to international cooperation in addressing climate change.Interestingly, and potentially very significantly, the discussions around the13th Five-Year Plan, which are gathering pace in 2014, suggest that Chinamay be moving to strengthen its targets The reasons include increasingrecognition of its own vulnerability, of the scale of its own emissions, of thelocal environmental damage to its cities from air and water pollution and

of the potential markets for low-carbon goods services, and technologies

In their chapter on India, entitled “Sustainable Growth and ClimateChange: Evolution of India’s Strategies,” Ruth Kattumuri and DarshiniRavindranath argue that, with its population of over 1.2 billion andits vulnerability, its history of low per-capita emissions and because ofits democratic, cultural, political and scientific strengths, India is a keyplayer in the global climate change debate They suggest that it has beenplaying an increasingly constructive role in recent international climatechange negotiations For example, in Cancun, Jairam Ramesh (then India’senvironment minister and lead negotiator) suggested the idea of “equitableaccess to sustainable development” as a new interpretation of “common butdifferentiated responsibilities” India is one of the nations most insistent onequity requiring strong action by and financial support from developedcountries as a pre-condition for commitment by developing countries Thislanguage is positive and dynamic, moving away from the language ofburden-sharing, which suggests, misleadingly, a zero-sum game India is

progressing in the right direction in its 12th Five-Year Plan objectives forfaster, sustainable and more inclusive growth The country’s objectivesare achievable but will require faster and stronger action still; efficientimplementation strategies; greater co-ordination among states and amongsectors; stronger public–private partnerships; and enhanced internationalcollaborations.

Christian Egenhofer in “After Copenhagen and the Economic Crisis:Does the EU Need to Go Back to the Drawing Board?” raises the question,does the European Union need to go back to the drawing board to design itsclimate change mitigation policy? He sets out the EU’s policy approach inthe run-up to the Copenhagen Conference of the Parties to the UNFCCC,built on the foundation of the long-term target of keeping the global

been keen to take on a global leadership role, setting an example by adopting

an ambitious set of climate change and energy policies and thus preparing

a path towards a global deal This enthusiasm was bolstered by the desire

to tackle problems in the energy sector such as worsening energy security,energy inefficiency, lack of investment in energy systems and volatile butgenerally rising energy prices Policy-makers also saw an opportunity toestablish a competitive advantage in low-carbon technologies Europeanpolicies in the near term were to be driven by the “20-20-20 by 20” targetsfor emissions reductions, deployment of renewable energy and improvements

in energy efficiency by the year 2020 The centerpiece of the policy edificewas the EU Emissions Trading System (EU ETS)

The adoption of a set of EU-wide policy objectives was only madepossible by a complex arrangement of burden-sharing based on a mixture ofefficiency and equity considerations Subsequent experience has underminedthe edifice Copenhagen failed to come up with a Kyoto Protocol MarkTwo, casting doubt on the EU’s attachment to quantitative emissionsreduction targets The global economic downturn, combined with designfaults, weakened both EU ETS carbon prices and global carbon marketinstruments such as the Clean Development Mechanism

Egenhofer details the evolution of the EU ETS as policy-makers haveattempted to correct its design flaws But he emphasizes the lack ofambition embodied in the EU’s 2020 emission reduction targets in the wake

of economic crisis, arguing that they are probably inconsistent with theEU’s long-term climate goals, the desire to facilitate a strong global dealand the need to generate substantial flows of funds to developing countriesthrough international carbon markets As a result, Egenhofer concludes

post-Durban that the EU needs to consider more radical adjustments,such as raising the 2020 emissions reduction target and, in the EU ETS,introducing stronger market oversight and price stabilization mechanisms.But more fundamentally, the challenge for Europe post-Durban is toreconsider the central role of an emissions trading system in its domesticpolicies in the absence of a global climate change agreement based onnational targets and commitments in a common metric.

4 Issues and Negotiating Approaches

Alex Bowen in “The Scope for ‘Green Growth’ and a New TechnologicalRevolution” argues that there is much evidence that high-carbon growthwill eventually become a contradiction in terms, or, as Stern puts it,

“high-carbon growth would kill itself” (Stern, 2010) This paper considersthe implications for growth of the findings of the literature on climate-change mitigation costs and then considers the additional elements fromthe emerging “green growth” literature The broad conclusion is thatwell-designed action against climate change could improve well-being forpeople in the near term as well as over the longer term A concertedattack on market and policy failures to halt climate change would increasestatic efficiency and might generate higher growth in the short to mediumterm as well as the longer term, especially if it stimulated innovation andinvestment This perspective, if sufficiently convincing to negotiators, couldmake reaching an international agreement post-Durban easier, reducing theemphasis on burden-sharing But the potential size of near-term gains ishighly uncertain and it may still make sense to make greater investmentsnow to underpin sustainable development in the future

Scott Barrett in “Negotiating to Avoid ‘Dangerous’ Climate Change”

is more sceptical about the prospects for progress toward a global dealalong Kyoto lines He notes that, although countries have agreed what theyneed to do collectively to avoid “dangerous” climate change, they havefailed so far to put in place the measures necessary to ensure that theiragreed goal will be met Negotiators need to agree how the goal is to beachieved and how the necessary actions are to be sustained Compliance

is the real problem and will not be solved simply by good negotiatingskills Somehow effective incentives need to be put in place for countries

to participate and comply with a global agreement limiting emissions

Barrett sees the threat as being that the world could pass a thresholdbeyond which the costs of climate change rise sharply, and irreversibility

could, in principle, provide the right sort of incentive This may be whyclimate change negotiations have frequently been accompanied by efforts todefine such a threshold and persuade people that it is dictated by science.

He suggests, however, that unfortunately science is not yet in a position toidentify a threshold precisely While there are undoubtedly threshold effects,scientists have used different metrics to assess them and their estimatesusing any given metric have differed The importance of various possiblethreshold effects depends on the economic and ethical evaluations of theirimpacts, and these are uncertain too

Drawing on modeling and results from experiments, Barrett argues thatuncertainty about the location of thresholds fatally weakens the threat thatMother Nature will punish free-riding countries Somehow, he concludes,policy-makers will themselves have to transform the incentives facingnations He speculates that the strategic application of trade restrictions,

or the imposition of technology standards as a condition of market access,could persuade enough countries to reach a tipping point in participation in

a global agreement, beyond which it would pay nations to stick to effectiveemissions-reduction promises

Chatterji et al discuss the option of relying on unilateral actions

rather than negotiated multilateral initiations In “Unilateral Measures andEmissions Mitigation,” they also recognize that the multilateral approachembodied in the Kyoto Protocol has not achieved as much as was hoped.But, unlike Barrett, they look to learning rather than compliance incentives

to build up a critical mass of countries willing to make deep reductions ingreenhouse gas emissions Indeed, they assume that enforcement measuresdesigned to make countries go further than the point to which they wouldunilaterally commit are prohibitively difficult to enact However, they notethe wide range of unilateral measures that have been taken around theworld, driven by several factors, such as the search for greater energysecurity, lower energy costs and other “co-benefits.” Some of these measureshave been taken at the state level but many at the level of the region, city,firm or even individual

For groups with a strong collective identity, collective action problemsare often easier to solve, as there are effective social sanctions against free-riding, so bottom-up climate change mitigation measures may be easier

to initiate, as long as the relevant group has some power of agency inthe relevant fields — more likely in more decentralized political systems.However, bottom-up measures can be contagious They can, for instance,demonstrate low costs of action or actually bring down the costs of action

through learning by doing The authors suggest that the CopenhagenAccord could facilitate log-rolling by pooling information about who isdoing what to reduce emissions They go further and argue that a globaltreaty would be useful to support a platform for the exchange of informa-tion, particularly about the technologies of emission reductions and aboutmeasurement, reporting and verification methods The global intellectualproperty regime should be amended to facilitate the cross-border transfer of

low-carbon innovations Chatterji et al acknowledge that there remains an

issue about how even this modest goal for a global deal could be negotiatedand enforced effectively so they, like Barrett, raise the possibility of tradesanctions eventually being used as an enforcement mechanism

Walsh and Whalley focus on the compliance problems of globalclimate agreements In their chapter on “Compliance Mechanisms in GlobalClimate Regimes: Kyoto and Post-Kyoto,” they develop the analysis ofcompliance mechanisms in global climate change policy regimes They notethe claimed achievements of the Kyoto Protocol, such as the large number

of participants, the seeming ambition of the targets for global emissionsreductions and the creation of an arbitration and dispute settlementprocedure However, like Barrett, they argue that it set up a globalpolicy regime inadequate to achieve its goals, which in any case werenot sufficiently ambitious or long term to match the seriousness of theclimate change threat Walsh and Whalley discuss in detail the methods

of enforcement embodied in the Kyoto Protocol On the one hand, themechanisms set up to process complaints and arbitrate disputes held up

On the other hand, penalties for non-compliance have been minimaland ineffective, so it is hardly surprising that several countries will misstheir Kyoto targets Canada simply announced that it would withdrawfrom the Protocol rather than submit to any sanctions for substantiallyovershooting its emissions reduction objectives However, the authors seesome scope for progress Negotiators of environmental agreements paidlittle attention to enforcement issues prior to the Kyoto Protocol (withthe notable exception of the Montreal Protocol) Now their importance ismore widely appreciated Lessons may also be taken from the evolution

of the world trade policy regime, in which enforcement was tightened upconsiderably after the Uruguay Round of 1994 There is plenty of scope forusing domestic legislation, international contract law, escrow arrangementsand international monitoring, as well as the threat of trade sanctions,

to strengthen enforcement of climate change agreements, particularly ifthe latter allow for more piecemeal progress than envisaged by Kyoto

negotiators One could envisage a two-track process under which eachcountry chooses either Kyoto-style targets or Copenhagen-Accord-typeunilateral, but public, pledges (assessable according to a common metric).But the authors emphasize that it would be sensible for objectives,instruments and enforcement mechanisms to be designed at the same time.

5 The Future

If the results of international climate change negotiation so far have not

it leaves the obvious question of where to go next Scientists are telling usthat there are risks of rises in global average temperatures to levels not seenfor million of years Such temperature changes and other related climateeffects, such as reduced agricultural yields, could transform the relationshipbetween humans and the planet, including where and how they could live.Key to progress will be resolving fundamental issues that divide thedeveloped and developing world The concrete meaning of “common but dif-ferentiated responsibilities” is still being debated, although many countriesare now taking action domestically, an encouraging sign of their willingness

to shoulder more responsibility That sign offers a degree of reassurancegiven that, at current growth rates over the next several decades, climatechange negotiation will inevitably come to depend heavily on the attitudes

of China, India and other large emerging-market economies The role andimplications of historical responsibility are yet to be thrashed out, and manyother issues such as the merits of targets in intensity form rather than levels,and of targets reflecting emissions associated with consumption rather thanproduction, also risk complicating negotiations, not least because theydivide large groups of countries from each other A way forward could be

to develop the concept of Equitable Access to Sustainable Development, asproposed by India at Cancun

If international negotiation proves as difficult as these issues (andpast experience) suggest, there nevertheless remain other possibilities forbuilding up strong action, in turn helping negotiators looking for a globaldeal One is spreading unilateral emissions reductions, as discussed inpapers in the volume Here there is clear evidence of momentum at nationaland sub-national levels in many countries, but the issue remains as towhether it will be enough Are such actions window-dressing to satisfypublic opinion, largely small cosmetic commitments, the implementation ofwhich is delayed, rather than substantive reductions? Another possibility is

for technological progress to bring down emissions intensity rapidly throughimprovements in energy efficiency, including also moves towards solar,wind and other renewables, and switches away from coal to less emissions-intensive energy sources The reductions in emissions intensity over the past

30 to 40 years have been remarkable, but for now the reality is that thesechanges have slowed rather then reversed the growth in emissions

At the root of the current situation seems to be a high-energy-using,ageing capital stock in developed countries, where major modifications tolifestyle and technological shifts are needed to achieve adequate energy andcarbon savings, such changes seem unlikely to be brought about primarily

by negotiations between developed and developing countries Each country,given its endowments and economic opportunities, will have to draw up itsown growth strategy for a process of development that overcomes povertyand raises living standards in a sustainable way Globally, every country is

few have shown both the commitment to emissions reductions on the scalenecessary and the recognition of the scale and nature of action necessary

to bring them about

The evolution of the UNFCCC process in 2015 and beyond, and thecontinuing commitment of UN members to this process, will be a centralfactor in determining what will happen And as China and India increasetheir share of annual global emissions, they will be key to this evolution and

to faster progress Central will be greater political will and leadership acrossall major countries, backed by civil society Prime ministers, presidents, andfinance ministers must all be involved in the heart of international climatepolicy-making

Chapter 1Global Cooperation and Understanding to

Accelerate Climate Action

James Rydge and Samuela Bassi

Centre for Climate Change Economics and Policy, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (LSE), Houghton Street

London WC2A 2AE

International climate change negotiations continue to be slow and atic, with long-standing differences between rich and developing countries difficult to overcome Emission reduction pledges put forward at the United Nations Framework Convention on Climate Change (UNFCCC) meeting in Copenhagen in 2009 provided a strong foundation for progress, but a major gap remains between what is planned and emissions reductions consistent with

problem-a 2◦C path Despite some advance since COP 15 in Copenhagen, progress

remains too slow if the world is to achieve a strong global deal by 2015; all countries need to do more This chapter reviews recent progress in international climate change negotiations, explores prospects for global emissions to 2030 given current commitments, and discusses how to accelerate action, which will need to be on the scale of a new industrial revolution There is already much action in the developed and developing world, but stronger policy is needed if we are to act on the scale required This will involve both bottom-up (national policies) and top-down (collective international action) approaches, which support and encourage each other.

1 Introduction

Public policy on climate change has a far higher profile now than six

or seven years ago However, since the financial and economic crises ofthe last four to five years, it has moved down the agenda in the richworld, while in several developing countries it has moved up China’s12th Five-Year Plan, South Korea’s, Ethiopia’s and Rwanda’s low-carbongrowth and development plans, and Colombia’s Green National Develop-ment Plan, are some examples of how the developing world is increasingly

1

integrating environmental responsibility into national policies In somedeveloped countries, on the other hand, climate change action seems to havelost momentum The European Union is having great difficulty agreeingmeasures to strengthen its carbon price, and discussions around a post-

2020 climate policy framework are proving very difficult In other countries,including the US, many are continuing to question the science, calling forweak or delayed action and/or supporting a commitment to a high-carbongrowth path fueled by shale gas and oil

International climate change negotiations continue to be affected bylong-standing differences between the rich and developing world, particu-larly around notions of historic responsibility and equity These differenceshave made the negotiation process slow and troublesome and have led

to weak outcomes However, even though the United Nations FrameworkConvention on Climate Change (UNFCCC) meeting in Copenhagen in

2009 did not produce the strong result many had hoped for, emissionspledges for 2020, embodied in the Copenhagen Accord and confirmed inCancun in 2010, were an important step forward: they have provided astrong foundation for progress Nevertheless, these pledges leave a major

chance) There was further progress at the 17th Conference of the Parties(COP 17) in Durban in December 2011 and COP 18 in Doha in late 2012,but the pace of the discussions remains slow

The world is heading in a difficult and dangerous direction, which is

exceeding thresholds or “tipping points” at these temperatures are high(they are not in the tails of the distribution), with potentially irreversibleand unpredictable dynamical interactions, e.g there is a risk of severelyweakening the thermohaline circulation, which could trigger abrupt glacialclimate changes (Rahmstorf, 2007)

other words, by a factor of around 2.5 If world output grows by a factor of

3 over this period, which implies an average world growth rate of around2.8% per year, then emissions per unit of output would need to fall by afactor of 7 or 8: surely equivalent to a new energy-industrial revolution Allcountries and sectors will be involved As rich countries think through howbest to rejuvenate their economies, there is great potential for green growththat, at the same time, will help to promote intensification of action in thedeveloping world Strong action could see an intense period of discovery,

Figure 1 International climate change negotiations: Key dates.

innovation and learning across the board International discussions andnegotiations can help to facilitate and accelerate action and transition tothe new low-carbon paths Both “top-down” and “bottom-up” approachesare important to the making of policy and to action Together, they fostermutual confidence, which is fundamental to moving forward national actionand international agreement

2 Key Milestones in Climate Change Negotiations

The process of discussion and knowledge building around internationalaction to reduce emissions and adapt to climate change began over twodecades ago with the establishment of the Intergovernmental Panel onClimate Change (IPCC) An overview of key milestones and dates isillustrated in Figure 1

The IPCC was established in 1988 to provide a clear scientific view onthe current state of knowledge on climate change and has produced fourmajor assessment reports (ARs), in 1990, 1995, 2001 and 2007, with thefifth expected to be finalized in 2014 The UNFCCC was established atthe Rio Earth Summit in 1992 and led, for the first time, to coordinateddiscussion on changing climate mitigation and adaptation action The thirdCOP to the UNFCCC was held in Kyoto in 1997 and adopted the “KyotoProtocol.” This agreement set mandatory greenhouse gas emission targetsfor developed countries during the first commitment period (2008–2012).The Kyoto Protocol was severely weakened by the failure of the US to ratifyand its withdrawal in 2001 The agreement finally came into force following

Russian ratification in 2005.1 Without strong leadership and example

from the US, which at the time was the world’s key emitter, sentiment

on international climate action shifted, and difficulties in internationalnegotiations increased; in particular, this heightened divisions betweendeveloped and developing countries

Despite the US wavering, the pace of global discussion accelerated atCOP 13 in Bali, in December 2007, with the adoption of the “Bali RoadMap.” The Roadmap committed parties to a two-year process to reachglobal agreement at COP 15 in Copenhagen in 2009 and included the “BaliAction Plan,” which set out the process for reaching such an agreement

COP 15 saw, for the first time, the participation of more than 100heads of state in the international negotiation process It was, however,far from the strong and progressive meeting that many had hoped for.Discussion was “cold, chaotic and quarrelsome” (Stern and Rydge, 2012)

A number of factors prevented greater progress, including: poor recognition

path; mistrust, misunderstanding and acrimony between countries; andunwieldy and unproductive procedures and organization of the negotiations.Despite these limitations, the meeting produced a document of value, the

“Copenhagen Accord,” which has proved resilient The Accord recognized,

inter alia, the need to limit global temperatures rising to no more than 2 ◦C,

the importance of adaptation, the different responsibilities of developedand developing countries, the need for action to reduce emissions fromdeforestation and degradation (REDD+) and the intention to set up

a Green Climate Fund where developed countries would provide US$

100 billion per annum by 2020 to developing countries for mitigation andadaptation measures A High-Level Advisory Group was established tostudy potential sources of revenue and their work was published in 2010(UN, 2010) In the short term, the Accord referred to the provision of US$

30 billion of new and additional “Fast-Start Finance” from developed todeveloping countries for the period 2010–2012 The meeting also led to thesubmission of emissions plans for 2020 by major emitters, an importantstep forward Some countries, like China and the US, presented emissionreduction targets for the first time However, as was generally accepted

in Durban, the Copenhagen Accord/Cancun Agreement pledges are not

1The Kyoto Protocol could only enter into force if ratified by at least 55 nations that,

together, accounted for at least 55% of 1990 greenhouse gas emissions.

consistent with a 2◦C path, but more likely with a median temperature

the principles embodied in the Copenhagen Accord, and led to modest but

confirmed the emissions reduction pledges submitted to the Copenhagen

of long-term temperature targets from 2013 The Green Climate Fundwas established, and progress was made on a REDD+ framework, newtechnology mechanisms (including a Technology Executive Committee toidentify how to better deploy and diffuse technology in developing countries;and the Climate Technology Centre and Network to build capacity and

Adaptation Framework” to better plan and implement adaptation projects

in developing countries Developing countries also agreed to producebiennial reports on their greenhouse gas emissions

At COP 17 in Durban, in December 2011, the parties acknowledged the

path, although there were no additional emissions reduction commitments.The meeting made progress in other important respects by agreeing

to the “Durban Platform for Enhanced Action.” Under this agreement,the Kyoto Protocol was extended for a second period — although onlythe European Union, Norway, Switzerland, Ukraine and Australia willparticipate Delegates also agreed to “launch a process to develop aprotocol, another legal instrument or an agreed outcome with legal force”

by 2015, which would enter into force by 2020 (UNFCCC, 2012) Thisagreement is “applicable to all parties,” which is widely understood tomean that developing as well as developed countries should take on bindingcommitments in the future (Jacobs, 2012)

The meeting also led to new arrangements for transparency, which aim

to increase the accountability of both developed and developing countries onactions to reduce emissions Furthermore, Durban firmly established a rolefor market forces and the private sector in the protection of forests, aftermany years of objections to this from members of the Bolivarian Alliancefor the Peoples of Our America (ALBA) countries, including Brazil ThePlatform envisaged the possibility of a formal REDD+ market mechanismunder the COP, and countries agreed to report their forest reference levels(baseline forest emissions) in order to estimate the benchmarks againstwhich progress will be assessed More work is now required on how those

market mechanisms might work to reduce forest emissions On financialassistance to developing countries, however, negotiations effectively stalled.Some progress was made toward an agreement on the design of the GreenClimate Fund, although not on the source of funding itself There wasdisagreement over the share of public and private funding and whether thepublic funds will be “additional” to existing aid commitments Moreover,few developed countries have yet said what they will provide in the muchshorter term (Jacobs, 2012).

Negotiations at COP 18 in Doha in November–December 2012 hadlow expectations and achieved only “incremental” progress (WRI, 2012).However, there were important steps forward First, the rules for asecond Kyoto commitment period were agreed; it will run for 8 years

(the Kyoto Protocol group) and developing countries (the Long-termCooperative Action group) were closed, and all countries will now negotiateunder the plan for the “Durban Platform” to reach an agreement in 2015.There was also a commitment to submit proposals, by March 2013, onways to raise emission reduction ambitions, a commitment to review allcountries’ targets by 2014, a commitment to a heads of state summit in

temperature target Of significance was a decision to discuss compensationfor poor countries for permanent “loss and damage” from climate changeimpacts Negotiations on this will continue at the next COP

There was little or no progress in other important areas, including finance

In finance, there was no “bridge” or roadmap decided between the Start Finance” commitment period 2010–2012 and the US$ 100 billion by

“Fast-2020 There was also little progress on funding the Green Climate Fund.Negotiations were deferred until COP 19 Developed countries did agree,however, to continue current “fast-start” finance levels, around US$ 10 billionper year, to 2015 The central issue of equity once again raised its headprominently at Doha Progress on this difficult issue will be central toagreement in 2015 The emissions landscape has changed radically over recentyears and the arithmetic is stark — all countries must now be involved instrong action to reduce emissions, even if developed countries reduce their

emissions to zero by 2030 Romani et al (2012) discuss ways forward.

2See http://unfccc.int/kyoto protocol/doha amendment/items/7362.php.

3There was little progress in MRV and REDD+ See WRI (2012).

COP 19 was held in Warsaw in November 2013 COP 20 will behosted in Lima in 2014 and COP 21 in Paris the following year There

is much difficult work to be done in the lead-up to COP 21, including onfinance and emission reduction plans and commitments Progress is slow,but acceleration is possible with greater political will from the leaders ofthe major emitters, including China and the United States

3 Where Are We Heading?

The world is heading in a difficult and dangerous direction that is

likely to keep rising for the next few decades There are many differentways of looking at where we might be heading, including analysis of

target (UNEP, 2010), IEA World Energy Outlook scenarios (IEA, 2012),analysis of China’s future emissions (e.g Chinese Academy of Engineering,2011; Jiankun, 2012), and forecasts of the world’s future reliance onhydrocarbons, which are likely to remain at around 75% to 80% of total

These different perspectives, based on current plans and intentions,arrive at similar conclusions At best, it appears likely that global emissions

with a strong possibility they may go much higher by the mid-2030s, haps to 55–60 billion tonnes per year If there is no further action to reduceemissions, beyond current policies already in place, we could see emissions

per-of around 65 billion tonnes by the mid-2030s (IEA, WEO, 2012, p 246)

Romani et al (2012) illustrate that emissions in developing countries

are likely to rise strongly over the period to 2030 (Figure 2) Developing

action on emissions will be required from developing countries, even if richcountries reduce their emissions to zero by 2030 (it is more likely they willreduce emissions to around 11–14 billion tonnes)

4For an explanation of CO2e, see: Gohar and Shine (2007).

2005 Annex I (incl US) 0

16–19

11–14

32–33 28

21

50 60 70

2°C path World

Non-Annex I

Figure 2 Prospects for global emissions (CO2e) in 2020 and 2030 based on current ambitions, targets and plans.

Source: Romani, Rydge and Stern (2012).

would likely imply concentrations of greenhouse gases in the atmosphereranging from 650 ppm to 950 ppm at stabilization a century or so fromnow, consistent with a 50-50 chance of a temperature increases between

over 30 million years This is far outside the range of experience of moderncivilizations, with their sedentary agriculture and village settlements, whichhave been present for the past 8,000 to 9,000 years Such a scenario wouldimply the likely lock-in of vast amounts of high-carbon infrastructure,particularly in the rapidly growing developing world, and a much greaterneed for adaptation on a major scale Such a scenario may even require

us to seriously consider geo-engineering, although recent studies conclude

it should be studied much more carefully and should be considered only

as part of a wider package of options to address climate change (RoyalSociety, 2009) At these temperatures, there are also strong possibilitiesthat adaptation will not be possible due to disruptions to climate andlocal habitats This would require hundreds of millions of people to move,

5See, for example, Yergin (2012).

with risks of severe and extended conflicts.6 Much of the great advances

in development, including in health and education, of the last few decadeswould likely be reversed The risks are immense

4 A New Industrial Revolution

Most nations now agree, as expressed in global negotiations (the Cancun

in the sense that levels above this are (sensibly) regarded as dangerous

WEO, 2012) Figure 3 illustrates global emission paths consistent withthis objective While there are some, albeit limited, options on timing

of reductions, global emissions paths that can achieve a 50-50 chance of

tonnes in 2030 and well below 20 billion tonnes in 2050 (see Stern, 2012,

Lionel Robbins Lectures, Lecture 1).

60 50 40 30 20 10 Global GHG Emissions (GtCO2e) 0

1990 2000 2010 2020 2030 2040 2050

Figure 3 Paths for global annual emissions that lead to a reasonable chance

of a temperature rise of no more than 2◦C.

Note: The shaded area represents the range of emissions paths that are consistent with a

reasonable (50-50) chance of the 2◦C goal and the three lines show specific paths within

this range.

Source: Based on Bowen and Ranger (2009).

6See Box 1–2 and the section on disruptive migration in National Research Council

(2013).

This will imply that, in developing countries, emissions will need to

be around 25 to 27 billion tonnes in 2030, which is less than their currentemissions In the same year, in developed countries emissions will need to

be around 7 to 8 billion tonnes per year, i.e one-third of their current level.Given that the world population now is close to 7 billion and is likely

to increase up to 9 billion by 2050, this means global emissions per capitashould fall from 7 tonnes now to around 4 in 2030 and 2 in 2050 These areessentially a global constraint If broken, it will be very difficult to catch

up later (Stern et al., 2012).

Emissions reductions of this magnitude surely imply change on a scaleequivalent to a new energy-industrial revolution If world output grows by

a factor of 3 in the next 40 years, which is equivalent to an average growthrate of 2.8% per year, then emissions per unit of output (GDP) must be cut

by a factor of at least 7 or 8 by 2050 (Stern et al., 2012) Change on this scale

will require strong action and major investment in all regions of the worldand in all economic sectors, leading to a transformation throughout theeconomy to low-carbon growth Examples include decarbonization of thepower and transport sectors and the recasting of buildings for improvedenergy efficiency; a new agricultural revolution involving new enhancedyield crop varieties, efficiencies in fertilizer and water use and low-till; atransformation to low-carbon manufacturing with great improvements inmaterials efficiency; enhanced information and communications technology(ICT) and so on

The transition to low-carbon growth looks like a far more attractivepath than an attempt perpetuate or resuscitate a high-risk, high-carbongrowth model Economic history has much to teach us here Past periods

of economic and social transformation (Figure 4), such as the development

of steam engines and railways, or electricity and steel, suggest that majorwaves of technological innovation are likely to bring two or three decades

of dynamic, innovative and creative growth, and large and growing marketsfor the pioneers (see, for example, Perez, 2002, 2010) The economist JosephSchumpeter argued that such transitions or economic transformationsinvolve periods of “creative destruction.” During these periods, new andinnovative firms and progressive ideas displace firms and ideas from theprevious period This process of “creative destruction” generates a dynamicand extended period of innovation, opportunity, employment and economicgrowth (Stern and Rydge, 2012)

Fostering the new energy-industrial revolution requires good policy forthe market failures, such as the greenhouse gas externality, imperfections in

Industrial (1770–1830)

Steam & Railways (1830–1870)

Figure 4 Waves of innovation.

Source: DONG Energy (2009); diagram based on Perez (2002) drawing on report by

Merrill Lynch (2008).

risk and capital markets, the public goods nature of research, developmentand deployment (RD&D) and other market failures related to networks (e.g.electricity grids, public transport) and information (e.g lack of awareness).See Stern (2012) for details on these market failures and the principles ofgood public policy Many countries are at the forefront of the revolution,such as South Korea and China However, while public policy for thetransition is generally in its infancy across the world, technical progress ismoving fairly strongly The new low-carbon, energy-industrial revolution isalso overlapping with the ICT and biotech revolution For example, smarttechnologies such as smart buildings, smart grids and smart logistics areadvancing rapidly and have the potential to cut emissions through theapplication of advanced ICT

One area with strong technical progress is renewable energy There havebeen great advances in the capital cost of solar photovoltaic (PV): moduleprices were over US$ 100 per watt (W) in the 1970s, had fallen to aroundUS$ 2/W in 2010, and today are below US$ 1/W (BNEF, 2012a) — seeFigure 5 Further falls are expected over the coming years And discussionswith manufacturers indicate that, while opportunities for economies of scaleand learning-by-doing are now slowing, there is more scope for technicalprogress