OTHER INTERNATIONAL DEVELOPMENTS Climate Protection without Borders

* Senior Research Fellow at the Max Planck Institute for Research on Collective Goods. This text is the author’s translation of an extract from his article “Internationale Energiepolitik” (“International Energy Policy”), published in the anthology Die Zukunft der Energie (The Future of Energy). If the global climate is to be stabilised to ensure that the average temperature on Earth does not increase by more than 2 degrees Celsius, emissions of CO2 and other greenhouse gases (GHGs) must be reduced by at least half of current levels by the middle of this century. In order to achieve this, all major emitters of CO2 must be bound by an international treaty. The partners of such a world climate agreement would have to include the Kyoto States as an entity along with the USA, Brazil, Russia, India, and China. Individual member States would then be allocated CO2 emissions rights that would also be tradable. This trade would be served by a fund that could sell and buy the CO2 rights and, in this way, stabilise the world market price for CO2, initially at around 40 Euros per metric ton of CO2. This idea of globally tradable emissions rights is based on the economic theory according to which a market of this kind for a homogenous good ensures that the scarce resource is used with optimum efficiency. The practical problem of agreeing on the emission volumes for individual countries will constitute a key issue in the negotiations leading to the future world climate agreement. In any case, the target path must lead to a situation whereby the per capita CO2 emissions of the populations in all countries are the same by around the middle of this century. We know from the structure of the global climate problem that the precise time at which CO2 is emitted is not of crucial importance. All that needs to be ensured is that CO2 emissions decline cumulatively and enduringly. Therefore, it could make sense to accept higher CO2 emissions initially if this makes their reduction easier to achieve in the long run. This idea can be illustrated based on the example of China (and similar considerations also apply to India and Brazil). Until recently, China was a very poor country. As a result of its shift to a market economy, however, China now finds itself in the throes of a turbulent catching-up process in relation to economic growth. The standard of living of the Chinese population has doubled in less than ten years. If this trend continues up to the middle of this century, China will reach the same per capita wealth level as the one currently enjoyed by the population of Europe. Historical experience shows that environmental awareness increases with rising living standards. People who are hungry do not think about the distant future. Their priority is getting enough food to survive now. When a population is able to feed itself, it begins to focus on housing and clothing. After this, it becomes interested in a good education for its children and its own health. Environmental awareness starts here, as it cannot be denied that environmental pollution is usually accompanied by negative impacts on health. Initially, people think of their local environment; filters are fitted in power stations to retain the coal dust, sulphur dioxide, and other harmful substances. If living standards continue to increase, the question of climate change gains in significance for the population. Consequently, the paradoxical situation arises where, despite the fact that economic growth is harmful to global climate stabilisation, it is also the subjective, psycho logical precondition for focusing the population’s interest on stabilising the climate. Therefore, as it is absolutely essential that China participates in a world climate agreement, the Chinese population should initially be granted significant CO2 rights so that economic growth there is not halted. However, this should be attached to the condition that China commits itself now to reducing its CO2 emissions in subsequent decades in accordance with the agreement. Such an approach would have the advantage, first, of inducing China to enter into such an agreement and, second, of immediately increasing the price of CO2 emissions in China to the world market level. The opportunity costs of CO2 emission would then also increase for a country like China: although it will have been allocated more emissions rights than the country currently needs, it would be able to sell the emissions rights it does not require to the fund. This would create an incentive for the Chinese government to set the CO2 price on the domestic market at this world market level and establish an efficient allocation mechanism for CO2. This could take place in the immediate aftermath of the establishment of the world climate agreement. Such an approach would not stunt the growth process in China in any way, as the increase in the price of electricity arising from the establishment of this CO2 regime would be countered by the additional yields from the sale to the fund of CO2 rights, which would constitute, in turn, financial resources available for use in the investment process for economic growth.