Man-Made Climate Change

At the time of the workshop, upon which this volume is reporting, it was not clear how the international political process on global climate change would develop. Would there be an agreed target for greenhouse gas emission reductions for the so-called Annex I countries as a result of the international negotiating process or would there just be more political rhetoric? Would economic measures like emission trading schemes get a chance or would international climate policy resort to fixed national reduction targets and command-and-control policies making it impossible to achieve international targets through an efficient environmental policy based on market-oriented instruments?

Climate change has largely become a synonym for unsustainable behaviour of mankind, although there must be climate change without any human interference, because the strongly differing time-scales of climate system components like atmosphere, ocean, vegetation, land-ice, and distribution of continents provoke changes in mean values and statistics of deviations from these means on all time-scales longer than the slowest component’ s turn around time (hundreds of millions of years for continents). The problem to be discussed is therefore only the difference in the rate of change between anthropogenic and natural climate change, including the effects of interactions between both and accounting for the strong climate variability on time-scales of interest for the society.

Decision-making Frameworks for Addressing Climate Change is the title of Chapter 2 of the IPCC Second Assessment Report (Arrow et al.,1996, pp. 53–77). That chapter discusses practical decision-making frameworks related to climate change. The implications for decision-making of the unique features of the climate change problem are first reviewed. Then the focus is placed on two interrelated approaches to decision-making: optimising quantitative models and negotiation.

In this paper, the author begins with presenting a concise account of the material of that chapter as well as of the specific implications and recommendations that have emerged as an agreed framework to address the issue (what has been said). Then he investigates “le non-dit” of the chapter — that is, what has not been said: the rather controversial and even clandestine figures that lay behind the report — in order to bring to the surface less systematically explored ways. The examination of these non-standard ways is made in the perspective of propounding further policy options.

The paper proposes two axioms that capture the idea of sustainable development and derives the welfare criterion that they imply. The axioms require that neither the present nor the future should play a dictatorial role in society’s choices over time.

The aim of this paper is to describe and discuss the weak and strong sustainability approach of assessing climate change and to show reasonable applications, weaknesses, possible improvements and linkages of both approaches. Main features of “weak” and “strong” sustainability approaches are characterised. Damage cost studies of global warming representing weak sustainability indicators are discussed. Further, the examples of the “inverse scenario” approach of the German Advisory Council on Global Change (WBGU) and the environmental space concept of the Dutch Advisory Council for Research on Nature and Environment (RMNO) are described and discussed for illustrating advantages and weaknesses of strong sustainability indicators. Finally, the integration of damage cost modules into a broader methodological framework of strong sustainability is recommended.

Decisions with intergenerational consequences may leave future generations worse off (i.e., not be Pareto-optimal) if costs and benefits are not discounted correctly. We point out that this happens if the conventional social discount rate is applied to intergenerational costs: with that rate the justification of intergenerational costs (benefits of a project are invested and the proceeds can cover future costs) leads to an inconsistency over the long term (eventually the supposed benefits of any project become larger than the entire GNP). The conventional approach commits an error by treating the time preference component of the discount rate as if it represented creation of wealth while it really involves only redistribution. The time horizon of the redistribution is limited by the duration of market transactions, especially loans. Thus we recommend a two-step discounting procedure, with the conventional social discount rate for the short term (about 30 years) and the growth rate of the economy for the long term. Data for GNP per capita growth in the US, the UK, France, Germany, Japan, and the Soviet Union since the industrial revolution, combined with data for net economic welfare per capita suggest an intergenerational discount rate in the range of 1 to 2%. For practical application the rate at which costs and benefits will grow over time is just as important as the discount rate; only the difference between these two rates matters. For many environmental costs these rates may be close to each other during the next few generations; this implies that some of the uncertainty in the prediction of rates cancels and one can treat the problem as if the effective rate were close to zero. The consequence for costs such as global warming or nuclear power can be very significant: the valuation can increase by more than an order of magnitude compared to values based on conventional discounting.

Is adaptation to climate change cheaper than prevention? To answer this question is a rather sophisticated job: More ecomomists, more global cost-benefit-analysis and heroic assumptions and calculations are needed. But is it the right question?

Working Group III of the Intergovernmental Panel on Climate Change has discussed the significant differences in the costs of mitigating greenhouse gases in OECD countries in great detail (IPCC, 1996). Most of the analyses and cost projections have been made on limiting or reducing fossil fuel-based CO₂ emissions. The report of the Working Group III concludes that “the results of top-down and bottom-up analyses differ because of such factors as higher estimates of no-regrets potential and technological progress or earlier saturation in energy services per unit GDP.” Unfortunately, the report does not attempt to clarify the discrepancies due to differences in the methodological approach in its summary for policy-makers, but simply states that “in the most favourable assessments, savings of 10–20% in the total cost of energy services can be achieved” (IPCC, 1995, p.22).

While there is some hope that the ongoing climate change negotiations will soon come up with concrete, time scheduled and binding emission reduction commitments, the question of how to achieve these targets is still unsolved.

The objective of this paper is to analyse alternative settings of an environmental tax reform and its economic and environmental impacts on the EU. The methodological framework used is based on a multi-country and multi-sectoral computable general equilibrium model for eleven EU-member states. The emphasis of the analysis lies on the institutional setting of a carbon dioxide reduction policy and on the specification of the labour market. The institutional settings analysed are related to the degree of environmental policy coordination. As standard neo-classics neglect the problem of involuntary unemployment, we relax this restriction in the second part of the analysis in order to test alternative (more rigid) labour market specifications. The major findings of the paper can be summarised as follows: 1) There is some potential for a double dividend in the EU. 2) Coordination beats not always unilateral actions. 3) Labour market rigidities play a crucial role to both, the double dividend and the coordination issue.

This paper describes results of a project aimed at developing scenarios for an European energy system in 2050 which emits 80% less carbon dioxide than in 1990 and which does not use nuclear energy. It will, thus, be based on the efficient use of energy and on renewable energies. It is assumed that the necessary transition is started by value changes within the society which will then accept extensive norms and regulations leading to a more efficient energy use, application of renewable energies, and — in limited cases — renunciation or limitation of certain forms of energy use. It can be concluded that there are in principle no technical or financial bottlenecks. However, substantial changes of the economic, legal, and institutional frameworks, in which energy systems are operated, are inevitable.

Emissions reductions to achieve climate stabilisation require fundamental changes to the energy system — high energy efficiency and large scale use of renewable energy sources. It has been shown that these are technically possible and would not impose huge costs over a 60 year period. In evaluating the likelihood of this transition, technical progress and economics are far from the whole story. There is a long standing failure of all economies to achieve the levels of energy efficiency which are known to be economic. This is caused by non-economic barriers. Similar constraints apply to the use of renewable energy. The problems lie in the nature of the energy system developed in industrialised countries, with structures biased against investment in decentralised supplies and end use energy efficiency. There are signs that this is changing, but the transformation required is so substantial it calls for a fundamental change in social attitudes to energy. The climate problem could be a key element in producing such a change.

When taken seriously, global warming prevention is a daunting challenge. It cannot be mastered solely by government action, but requires far-reaching entrepreneurial initiative. A large-scale transfer of capital and know-how is required in order to enable other countries to benefit from the technical standard achieved in the developed countries in terms of energy efficiency and environmental protection.

A trend towards “softer” regulation, especially in the form of negotiated environmental agreements, is observable in national and international environmental policies. Such agreements are controversial, because there are fears that government will relinquish its responsibility for environmental protection. This paper analyses recent experiences with voluntary agreements in Germany. Topical German examples that have prompted public debates include the takeback agreement for cars, the voluntary agreement made by a number of industries on a CO₂ reduction by the year 2005 and the voluntary agreement made by the automobile industry on the development of energy-efficient cars.

Proponents of voluntary agreements argue that this instrument provides incentives to the business sector for the development of efficient, innovative, and environmentally-friendly solutions. Analysing the examples mentioned above, we conclude that it is hard to detect solutions deserving such attributes. These agreements are unlikely to produce results that go beyond what industry would have done in any case and they avoid using economic incentives. The agreements are non-binding and unenforceable, with the negotiating process leading to a watering-down of the environmental goals government had originally aimed at. A preference for negotiated solutions on principle, as currently espoused by the Federal Government in Germany, seems to be “counterproductive.” If the government clearly signals its willingness to refrain from using regulatory or economic instruments in favour of industry agreements, it weakens its negotiating position. The government also limits its options should the implementation of the agreement prove unsatisfactory. Government needs to be “in control” in order to leave its choice of policy instruments open and to be flexible. In a last step, we derive some general conclusions concerning reasonable strategies and applications of voluntary agreements within the European Union.

This paper explores the relationship of potential CO₂ trading and joint implementation to the evolution of international and national law and politics, as mediated through the climate convention processes. I will be looking first, briefly, at why emissions trading is attracting this kind of interest and at its relationship to the comprehensive approach, using multiple gases. Then I consider the question of which sectors we are talking about controlling in connection with tradeable permits, and what that implies; the politics of the process, particularly relating to the European Union rather than the United States; and, more broadly, the international perspective beyond the OECD in the relationship with joint implementation. Finally, I touch upon the role of the Kyoto protocol.

The Kyoto Protocol, completed in the early hours of December 11^th 1997, at present is no more than a potential breakthrough in the development of effective global policy for the control of atmospheric concentrations of greenhouse gases and the mitigation of human-induced global climate changes. The core issue of the negotiations has been deferred until CoP4 in November 1998. The industrial countries have negotiated a compromise that subject to ratification will legally bind them to commitments beyond those in the UNFCCC. But the ratification of the Protocol by the US still remains contingent on achieving the “meaningful participation” of “key” developing countries in the abatement regime and the multilateral acceptance of international emissions trading. This is a struggle to define property rights. These key developing countries include India and China and they have made it clear that their acceptance of trading is contingent on the achievement of “equitable allocations” of emissions entitlements based on achieving equal per capita entitlements globally. COP issued instructions to the technical bodies attached to the UNFCCC to “define the relevant principle, modalities, rules, and guidelines for emissions trading” in time for CoP4 in November 1998 in Buenos Aires.