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This article appears in the following Oxford Review of Economic Policy issue: CLIMATE CHANGE [View the issue table of contents]
Climate treaties and the imperative of enforcement
* Paul H. Nitze School of Advanced International Studies, Johns Hopkins University, e-mail: sbarrett{at}jhu.edu
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Abstract |
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The emission limits in the Kyoto Protocol are too generous. Simply tightening these limits, however, will not make a new climate treaty any more effective at addressing climate change unless the other problems with Kyoto are also addressed. A new climate treaty arrangement must enforce both participation and compliance. This might be done by applying an enforcement mechanism, such as a trade restriction, to a new treaty styled after Kyoto. Potent trade restrictions, however, may lack credibility and legitimacy. An alternative approach recommended here is to break the problem up, with separate (but linked) agreements addressing individual gases and sectors, using the most appropriate means to enforce each component of the system. In bundling together all sectors and greenhouse gases in a single agreement, Kyoto has aimed to achieve cost-effectiveness at the expense of enforcement, which depends on the treaty's weakest enforcement link. The imperative must be to ensure that any future treaty arrangement can be enforced.
Key Words: enforcement • participation • compliance • trade restrictions • Kyoto Protocol • Montreal Protocol
I am grateful to Christopher Allsopp, Dieter Helm, Cameron Hepburn, Paul Klemperer, and David Victor for comments on a previous draft.
1 Nicholas Stern (2007) and William Nordhaus (2007) disagree about the level of emission reductions that should be undertaken immediately and the desirable future emissions path.
2 Even if we stabilize concentrations at 1,000 parts per million CO2-equivalent—and no economist I know is recommending this—emissions would need to peak before the end of this century and then decline after this (IPCC, 2007, p. 15).
3 See http://cdiac.ornl.gov/ftp/ndp030/global.1751_2004.ems
4 The targets are summarized in International Energy Agency (1992).
5 In 2005, EU-27 emissions were almost 8 per cent below the 1990 level; see European Environment Agency, Annual European Community Greenhouse Gas Inventory 1990–2005 and Inventory Report 2007, Technical Report No. 7, 2007.
6 As well, to call for identical percentage cuts in emissions from the same base year is to ignore differences among countries. The EU-27 includes countries in economic transition. The emissions of these countries are already substantially below the 1990 level for reasons of restructuring. For other OECD countries to meet the same target would not reflect ‘equal sacrifice’. This is the ‘comparability’ problem, discussed later in this paper.
7 I. Traynor and D. Gow, ‘EU Promises 20% Reduction in Carbon Emissions by 2020’, the Guardian, 21 February 2007.
8 For the relevant section of the roundtable's report, see http://www.nrtee-trnee.ca/eng/publications/c288-response-2007/section4-c288-response-2007-eng.html
9 The current government's projections are that Canada will exceed Kyoto's limits by around 34 per cent; again, see http://www.nrtee-trnee.ca/eng/publications/c288-response-2007/section4-c288-response-2007-eng.html
10 LULUCF is normally treated differently because of various accounting and incentive problems. For example, carbon accumulated in forestry may later be released.
11 This is not to say that the WTO is flawless. For example, it is a problem that the USA found it in its interests to violate the trading rules in the first place. The incentive for the USA to do so is probably due to the long lag between tariffs between imposed and rebalancing being threatened. As well, while the WTO has reduced trade barriers in manufactured goods, it has not done so for agriculture—the focus of the most recent round of negotiations.
12 Even if the domestic policy were not economy-wide, there would be general equilibrium effects, and these would need to be taken into account at the border.
13 For example, Hoel (1996) shows that there is no simple relationship between fossil-fuel intensity and the optimal sector-specific carbon tax.
14 The essential difference between enforcing a trade agreement and a climate agreement is that trade is a bilateral activity whereas climate-change mitigation is a global public good. Bilateral agreements are easy to enforce; multilateral agreements seeking to supply a global public good are much harder to enforce.
15 The example of reducing HFCs exposes another flaw in the Kyoto Protocol. It turns out that most emission reductions under the treaty's Clean Development Mechanism (CDM) have involved HFCs. This would not matter except that too much is being paid for the reductions. One consequence of this is that less is being achieved than could be achieved for the same money. According to Michael Wara (2007, p. 596), HFCs could be phased out for less than 
100 m, saving 4.6 billion ‘in CDM credits that could be spent on other climate-protecting uses’. Wara (2007, p. 596) also notes an allied problem—‘HFC-23 emitters can earn almost twice as much from CDM credits as they can from selling refrigerant gases—by any measure a major distortion of the market.’ The distortion creates incentives for production of HCFCs to expand so that the manufacturers can earn CDM credits for cutting back on their emission of HFCs.
16 For example, ozone depletion harms all countries. Catastrophic climate change (such as a break-up of the West Antarctic Ice Sheet) would similarly harm most states, but ‘gradual’ climate change would create winners as well as losers. As well, the damages from ozone depletion are substantial (primarily owing to increased deaths from skin cancer) and the costs of substituting for ozone-depleting substances modest, whereas for climate change the benefit–cost comparison is less attractive (Barrett, 2007). Finally, it also happened that the companies manufacturing ozone-destroying chemicals were best placed for developing and manufacturing their replacements, and the treaty deftly opened new markets for the substitutes as it shut the old markets down. Altogether, the ‘initial conditions’ for addressing ozone depletion were unusually favourable.
17 As of July 2007, $2.27 billion has been contributed; see http://www.multilateralfund.org. See Barrett (2007) for a discussion of the United Nations scale.
18 See also the comments in footnote 15.
19 This makes Montreal's punishment mechanism better than the WTO’s, which has needed to be imposed, as explained previously. See also footnote 11.
20 ‘Questions and Answers on the Commission Communication, Limiting Global Climate Change to 2°C’, Memo/07/17.
21 This need to account for the consequences of acting or not acting to address the threat of global climate change underlies the analyses of both Stern (2007) and Nordhaus (2007). I noted in footnote 1 that these economists agree that emissions need to be reduced now and that they need to be reduced very substantially later. They disagree as to whether 2°C is the ‘right’ target.
22 The most recent is by Barnes et al. (2008).
23 There is one exception to the situation described here. Imagine that damages (benefits) were discontinuous at the global target: should the world cross this threshold, the consequence would be truly catastrophic for every country. Then avoiding the threshold would be sustainable; it would be a Nash equilibrium. This situation resembles the challenge of averting a certain catastrophic asteroid strike; see Barrett (2007). Unfortunately (or fortunately!), global climate-change damages do not, so far as we know, have this feature. They are not catastrophic in the same sense.
24 A number of alternative approaches have been proposed. For a particularly good collection and analysis, see Aldy and Stavins (2007).
25 After the Bali meeting, Japan proposed a sectoral approach.
26 I am drawing here from the excellent study by Bradley et al. (2007), especially pp. 37–8.
27 Again, see Bradley et al. (2007).
28 The International Thermonuclear Experimental Reactor, being built now in France, is a cooperative endeavour, supported by the European Union, China, India, Japan, South Korea, Russia, and the United States—the same countries that will need to cooperate in addressing climate change.
29 The United States had planned to build a ‘clean coal’ pilot project called FutureGen. The plant was to produce hydrogen and electricity from coal while using carbon capture and storage to sequester the CO2 underground. The initiative was launched in 2003. In December 2007, a site was selected. A month later, the project was cancelled, ostensibly because the cost had risen from $1 billion to $1.8 billion. See M. L. Wald, ‘Higher Costs Cited as US Shuts Down Coal Project’, New York Times, 31 January 2008; available at http://www.nytimes.com/2008/01/31/business/31coal.html?ref=environment&pagewanted=all
30 The International Task Force on Global Public Goods and, more recently, the Club of Madrid have proposed creating a Consultative Group on Clean Energy Research for this purpose. The proposal was inspired by the successful Consultative Group on International Agricultural Research, which gave rise to the ‘green revolution’. See http://www.gpgtaskforce.org/uploads/files/227.pdf and http://www.unfoundation.org/files/pdf/2007/GLCA_Framework2007.pdf
31 See Barrett (2005), especially ch. 9.
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