What to Expect at COP-25 in Madrid

The “Rulebook” for the Paris Agreement puts flesh on the bones of the skeletal 13-page Agreement, and was completed last year at COP-24 in Katowice, Poland, with the exception of one very important part of the Agreement, namely Article 6, which potentially  provides for international carbon markets and other forms of cross-border cooperation.  Watch for key developments in Madrid!

Key Challenge for Long-Term Success of Paris Agreement

There are two necessary conditions for ultimate success of the Paris Agreement.  First, adequate scope of participation.  This has been achieved, with meaningful participation from countries representing some 98% of global emissions – or some 85% if the U.S. withdraws in November, 2020 (compared with the 14% of global emissions from countries committed to emissions reductions under the current, second commitment period of the Kyoto Protocol).  The other necessary condition is adequate ambition of the individual national contributions.  This is where the greatest challenges lie.

The very element of the Paris Agreement that has fostered such broad scope of participation – namely, that the individual national “pledges” (Nationally Determined Contributions or NDCs) are anchored in national circumstances and domestic political realities – implies that individual contributions may not be sufficient, due to the global commons nature of the climate change problem, and the attendant free-rider issues.

So, are there ways to enable and facilitate increased ambition over time?  Linkage of regional, national, and sub-national policies can be part of the answer – connections among policy systems that allow emission reduction efforts to be redistributed across systems.  Linkage is typically framed as between cap-and-trade systems, but regional, national, and sub-national policies will be highly heterogeneous.  More about this below.

Merits and Concerns regarding Linkage

Linkage facilitates significant compliance cost savings by allowing firms to take advantage of lower cost abatement opportunities in other jurisdictions.  According to one recent study, costs could – in theory – be reduced to 25% of what they otherwise would be!  Also, linkage means improved functioning of markets by reducing market power and price volatility, and there are political benefits to linking parties as a sign of momentum when political jurisdictions band together.  Another advantage is administrative economies of scale.  Finally and very importantly, linkage allows for the UNFCCC’s key equity principle of “common but differentiated responsibilities and respective capabilities” (CBDR) to be achieved without sacrificing cost-effectiveness.

There are also some legitimate concerns about policy linkage.  First, there are distributional impacts, both in the form of redistribution within jurisdictions, and redistribution across jurisdictions.  Such impacts are politically problematic.  There is also the automatic propagation of some design elements, in particular, the cost-containment elements of banking and price collars which propagate from one linked system to another.  For that matter, weak design in one jurisdiction affects prices and quality in all linked jurisdictions.  And price shocks can propagate through linked jurisdictions.  Finally, there is decreased autonomy, as rules are set jointly by all linked parties.

Linkage and the Paris Agreement

There are three distinct but closely related levels of relevant policy action.  First, national (or regional) governments can establish emission-reduction policies, including carbon taxes, cap-and-trade systems, and performance standards.  Second, these jurisdictions can link their policy instruments through mutual recognition of permits, allowances, or credits via bilateral agreements.  This allows trade of these units across international borders, which facilitates lower-cost achievement of the aggregate target.  But such transfers of emission reduction responsibilities and actions need to be correctly counted toward compliance with respective NDCs under the Paris Agreement.  This is where Article 6 comes in!

In particular, Article 6.2 provides for Internationally Transferred Mitigation Outcomes (ITMOs) and Corresponding Adjustments, which together can function as the international accounting mechanism to correctly reflect a multiplicity of international private-sector exchanges (under various international linkages).

In other words, I view ITMOs as units of accounting for Corresponding Adjustments, not as a medium of exchange for government-government purchase and sale.  Otherwise, Article 6.2 would become equivalent to the Kyoto Protocol’s Article 17 (international emissions trading), and will fail as that did, because governments are not cost-minimizing agents, and lack requisite information even if they were (Hahn & Stavins, “What Has the Kyoto Protocol Wrought? The Real Architecture of International Tradeable Permit Markets,” 1999).

Is Heterogeneity a Challenge for Linkage?

Yes, it can be.  There are three major categories of heterogeneity that can pose challenges to effective international policy linkage under the Paris Agreement.  First, there are heterogeneous policy instruments:  cap-and-trade; tradable performance standards; emission reduction credits (offsets); taxes; and performance standards.  Second, there are heterogeneous jurisdictions and geographic scope:  regional, national, and sub-national; and status under the Paris Agreement (Party and non-Party).  Third, the NDC targets themselves area highly heterogeneous:  hard (mass-based) emissions caps; relative mass-based emissions caps (relative to BAU); rate-based emissions caps (per unit of economic activity or per unit of output); and non-emissions caps, such as some degree of penetration of renewable energy sources.  Also, there are differences in base year, target year, sectors, GHGs, estimated global warming potential, and conditionality.

Is Linkage Among Such Heterogeneous Policies Feasible or Wise?

With Michael Mehling (MIT) and Gilbert Metcalf (Tufts University), I have carried out research on heterogeneous linkage and the Paris Agreement (“Linking Climate Policies to Advance Global Mitigation.” Science 359, 2018).  Among our major findings is the following.  Most features of heterogeneity do not present insurmountable obstacles to linkage, but some present real challenges, and indicate the need for specific accounting guidance to avoid double-counting.    Article 6.2 provides an obvious home for this accounting guidance (Schneider, Duan, Stavins, Kizzier, Broekhoff, Jotzo, Winkler, Lazarus, Howard, and Hood.  “Double counting and the Paris Agreement rulebook.”  Science 366, 2019).

The Outlook for Heterogeneous Linkage under Article 6.2 of the Paris Agreement

The negotiators in Madrid have an opportunity to define clear and consistent guidance for accounting for emissions transfers under Article 6.2.  A robust accounting framework can foster successful linkages of climate policies across jurisdictions.  But if guidance extends much beyond basic accounting rules – such as implicit taxes on cooperation via what have been termed “share of proceeds” and “net global emission reduction” – then restrictive requirements will impede effective linkage, and thereby drive up compliance costs.  True to the spirit of the Paris Agreement, less may be more!

So, a combination of sensible common accounting rules and absence of restrictive criteria and conditions can accelerate linkage, allow for broader and deeper climate policy cooperation, and – most important – thereby increase the latitude of Parties to scale up the ambition of their NDCs.

Only time – and the work of the delegates in Madrid – will tell.

 The Harvard Project on Climate Agreements at COP-25

Along with my Harvard colleagues, Joseph Aldy, Robert Stowe, and Jason Chapman, I will be at the Twenty-Fifth Conference of the Parties (COP-25) of the United Nations Framework Convention on Climate Change (UNFCCC) in Madrid, Spain, leading our delegation from the Harvard Project on Climate Agreements (HPCA), December 8-11, 2019.

In addition to holding a series of bilateral meetings with various national delegations, I will participate in at least four events.  Two of these are panel sessions organized by HPCA, while the two others are panel sessions organized by national delegations.  Our team will be at COP-25 during the week of December 8-12, 2019.  COP-25 attendees who wish to meet with the Harvard Project during the conference should send an email Jason Chapman, Project Manager (jason_chapman@hks.harvard.edu).

Four Events in Brief

 Reducing Greenhouse Gas Emissions through Carbon Pricing:  Recent Research, Analysis, and Experience
Robert Stavins, Moderator and Panelist; Joseph Aldy, Panelist; Hosted by Harvard Project on Climate Agreements, Enel Foundation, and Tsinghua University Global Climate Change Institute; Monday, December 9, 2019; 11:30 am – 1:00 pm; Location:  Side Event Room 3

The Seventh Global Climate Change Think Tank Forum:  The Latest Developments in Climate Change Economics
Robert Stavins, Presenter; Hosted by China National Center for Climate Change Strategy and International Cooperation; Tuesday, December 10, 2019;  6:00 pm – 7:30 pm; Location:  China Pavilion

 Realizing the Potential of Article 6 of the Paris Agreement
Robert Stavins, Moderator and Panelist; Joseph Aldy, Panelist; Hosted by the Harvard Project on Climate Agreements; Wednesday, December 11, 2019;  12:30 pm – 2:00 pm; Location:  Pavilion of the International Emissions Trading Association (IETA)

 Enhancing Capacity of Developing Countries to Address Climate Change: Issues and Opportunities
Robert Stavins, Keynote Speaker; Hosted by Korea University, Green Asia, Center for Climate and Sustainable Development Law and Policy, Global Green Growth Institute, UNDP Seoul Policy Centre, UN Office for Sustainable Development; Wednesday, December 11, 2019;  3:00 pm – 4:30 pm; Location:  Korea Pavilion

 Two Harvard Project Events in Detail

 Reducing Greenhouse Gas Emissions through Carbon Pricing:  Recent Research, Analysis, and Experience

Monday, 9 December, 2019; 11:30am – 1:00pm, Location: Side Event Room 3

Speakers will present recent research and analysis of carbon-pricing policy to reduce greenhouse-gas emissions. The panel will give some attention to experience and prospects in South America and to China’s emerging national system. A new research paper by Robert Stavins on the relative merits of cap and trade and carbon taxes will provide a basis for much of the discussion.

Speakers: Joseph Aldy, Harvard University; Simone Mori, Enel; Raffaele Mauro Petriccione, Director General of DG Climate Action in the European Commission; Robert Stavins, Harvard University; Zhang Xiliang, Tsinghua University; government representatives to be invited.

Realizing the Potential of Article 6

Wednesday, 11 December 2019; 12:30pm – 2:00pm; Location:  Pavilion of the International Emissions Trading Association (IETA)

Panelists will discuss the potential of Article 6 to decrease mitigation costs and incentivize increased ambition. They will review the status of the negotiations on the Article 6 rulebook, including issues remaining to be resolved at that point in the COP – including potentially, ongoing discussion about double counting (environmental integrity) and the Article 6 – Article 13 interface (applications of the enhanced transparency framework to Article 6 transfers).

Panelists: Joseph Aldy, Harvard Kennedy School; Kay Harrison, Ministry of Foreign Affairs and Trade, New Zealand; Kelley Kizzier, Environmental Defense Fund; Andrei Marcu, European Roundtable on Climate and Sustainable Transition; Robert Stavins, Harvard Kennedy School

The Path Ahead

After COP-25, I will post an essay at this blog assessing the progress (or lack thereof) made in Madrid – on Article 6, as well as other elements and issues.

In the meantime, if you will be at COP-25, and would like to meet with the Harvard Project on Climate Agreements, please contact Jason Chapman (jason_chapman@hks.harvard.edu).

Share

Sub-National Climate Change Policy in China

At a time when there are considerable political challenges in some countries (such as my own!) for national governments to institute meaningful climate change policies, the potential role of sub-national policies becomes more important than otherwise.  In other countries, sub-national climate policies may be a stepping stone to significant national efforts, as in China.  Partly with this in mind, the Harvard Project on Climate Agreements (HPCA) conducted a research workshop in July of this year on “Sub-National Climate Change Policy in China.”  Tsinghua University’s Institute of Energy, Environment, and Economy — directed by Professor Zhang Xiliang — hosted and co-sponsored the workshop, which was organized by my colleague at the Harvard Kennedy School, Dr. Robert StoweTwenty-seven experts from China, Europe, Canada, India, Australia, and the United States participated (see the photo below).  In addition, a group of students observed the workshop, and the Environmental Defense Fund’s China Program hosted a dinner for workshop participants.  The Harvard Global Institute provided major support for the project.  Here is a link to the full agenda (in both Chinese and English).

Background

Climate change is a global commons problem, and, as such, requires cooperation at the highest jurisdictional level — that is, international cooperation among national governments — if it is to be adequately addressed.  Participation by national governments is key, and sub-national governments can also play important roles. Provinces and municipalities around the world have undertaken initiatives — sometimes working together across national boundaries — to reduce greenhouse-gas emissions. These include jurisdictions in the largest-emitting countries — China, the United States, and India — as well as in the European Union.

The Workshop and its Analyses

Participants in the Beijing workshop examined how Chinese provinces and municipalities work with the central government to implement policy — and discussed challenges to such cooperation. They focused to a considerable degree on the implementation of China’s national carbon-pricing system, including approaches to integrating the seven pilot sub-national market-based systems into the new national scheme, scheduled to launch in 2020 (see “What Should We Make of China’s Announcement of a National CO2 Trading System?,” January 7, 2018).  Participants also addressed sub-national dimensions of other policy approaches to reducing greenhouse-gas emissions in China.

As we have done with previous HPCA research and policy workshops, participants in the Beijing event are now writing briefs on topics related to their respective presentations.  We will edit and compile these short papers in a volume to be released later this year.  In the meantime, you can view the PowerPoint presentations from the Beijing workshop:

  • China’s National Emissions Trading Program (Zhang Xiliang)
  • Ten Drivers Behind Climate Policy Making in China (Qi Ye)
  • Creating Sub-National Climate Institutions in China (Michael Davidson)
  • Multi-Dimension Post-Assessment of China’s ETS Pilots (Qi Shaozhou)
  • Political Economy Framework for Climate Change Policy in China (Christine Wong)
  • Canadian Climate Change Policy (Katie Sullivan)
  • Sub-National Carbon-Pricing Policy in the USA (Robert Stavins)
  • Integration of China’s National ETS with Provincial/Municipal Pilots (Valerie Karplus)
  • Introduction of Beijing ETS (Mei Dewen)
  • Sub-National Implementation Pathways for the National Pricing System (Goerild Heggelund)
  • Assessing Regional Implementation Pathways of National ETS In China (Wu Libo)

The Larger Context

The Beijing workshop was part of a larger initiative of the Harvard Project on Climate Agreements, supported by the Harvard Global Institute, examining and comparing sub-national climate-change policies in China and India. We will conduct a similar workshop in New Delhi next year.

The Harvard Project has previously conducted three workshops addressing climate-change policy in — or related to — China:

  • “Bilateral Cooperation between China and the United States: Facilitating Progress on Climate-Change Policy,” June 2015.  This was hosted by China’s National Center for Climate Change Strategy and International Cooperation (NCSC).  You can read more about this workshop here, and read the full workshop report here.
  • “The Design, Implementation, and Operation of China’s National Emissions Trading System,” December 2016.  Our host was NCSC.  The participants explored technical issues related to the design of China’s emerging national system, including allowance allocation, point of regulation, and price management.
  • “Cooperation in East Asia to Address Climate Change,” September 2017.  This was hosted by the Harvard Center Shanghai, and supported by the Harvard Global Institute. You can read more about the workshop here, and read the complete volume of briefs based on the workshop here.
Share

Harvard Project on Climate Agreements at COP-24

Along with my Harvard colleagues, David Keith, Robert Stowe, and Jason Chapman, I will be at the Twenty-Fourth Conference of the Parties (COP-24) of the United Nations Framework Convention on Climate Change (UNFCCC) in Katowice, Poland, leading our delegation from the Harvard Project on Climate Agreements (HPCA), December 10-13, 2018.

In addition to holding a series of bilateral meetings with various national delegations, the Harvard Project will participate in (at least) five events.  Two of these are panel sessions organized by HPCA, while the three others are panel sessions organized by national delegations.  My team and I will be at COP-24 in Katowice during the week of December 10, 2018.  COP-24 attendees who wish to meet with the Harvard Project during the conference should send an email Jason Chapman, Project Manager (jason_chapman@hks.harvard.edu).

Five Events in Brief

A Dialogue on Promoting China and US Climate Action
Robert Stavins, Panelist
Hosted by the Counsellors’ Office of the State Council (China) and World Resources Institute
Monday, December 10; 15:30 – 17:00
Location:  China Pavilion

Elaborating and Implementing Article 6 of the Paris Agreement
Hosted by the Harvard Project on Climate Agreements and the Enel Foundation
Tuesday, December 11, 2018;  15:00 – 16:30
Location:  Side Event Room “Wisla”

Governance of Solar Geoengineering Deployment
Hosted by the Harvard Project on Climate Agreements
Wednesday, December 12, 2018;  11:00 – 12:30
Location:  Pavilion of the International Emissions Trading Association (IETA)

Enhancing Capacity of Developing Countries to Address Climate Change: Issues and Opportunities
Robert Stavins, Keynote Speaker
Hosted by Korea University, Global Green Growth Institute, and others
Wednesday, December 12, 2018;  15:00 – 18:00
Location:  Korea Pavilion

Sixth Global Climate Change Think Tank Forum: Global Climate Governance and a Community with a Shared Future for Mankind
Robert Stavins, Keynote Speaker
Hosted by the National Center for Climate Change Strategy and International Cooperation (China)
Wednesday, December 12, 2018;  17:30 – 19:00
Location:  China Pavilion

Two Harvard Project Events in Detail

Elaborating and Implementing Article 6 of the Paris Agreement
Hosted by the Harvard Project on Climate Agreements and the Enel Foundation
Tuesday, December 11, 2018
15:00 – 16:30
Location:  Side Event Room “Wisla”

Participants:

Kelley Kizzier
Co-Chair, Article 6 negotiations
UNFCCC Subsidiary Body for Scientific and Technological Advice

Michael Mehling
Deputy Director, Center for Energy and Environmental Policy Research
Massachusetts Institute of Technology

Daniele Agostini
Head of Low Carbon and European Energy Policies at Enel
Enel Group

Robert Stavins
A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School
Director, Harvard Project on Climate Agreements

Other participant(s) to be determined

Abstract:

Speakers will consider progress in elaborating Article 6 and what remains to be done, with reference to the potential of Article 6 to enhance ambition. Discussion will be based on practical experience with market mechanisms, academic research, and a close reading of the Paris-Agreement negotiations. The discussion will be based in part on a background paper by Michael Mehling.

Governance of Solar Geoengineering Deployment
Hosted by the Harvard Project on Climate Agreements
Wednesday, December 12, 2018
11:00 – 12:30
Location:  Pavilion of the International Emissions Trading Association (IETA)

Participants:

Daniel Bodansky
Regents’ Professor
Sandra Day O’Connor College of Law, Arizona State University

David Keith
Gordon McKay Professor of Applied Physics, Harvard John A. Paulson School of Engineering and Applied Sciences
Faculty Director, Harvard’s Solar Geoengineering Research Program

Robert Stavins
A. J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School
Director, Harvard Project on Climate Agreements

Other participant(s) to be determined

Abstract:

“Solar geoengineering” (SG) refers to technologies that help reduce radiative forcing and cool the planet. Governing SG deployment poses some unique challenges, in part driven by the incentive structure associated with SG, its risks and uncertainties, and its interaction with mitigation. Panelists will discuss these challenges and the potential role of SG in addressing climate change – relative to mitigation and adaptation. The panel is based in part on a research workshop held at Harvard Kennedy School in September 2018, which I wrote about in my previous entry at this blog.

The Path Ahead

After COP-24, I hope to post an essay at this blog assessing the progress (or lack thereof) made in Katowice.  In the meantime, if you will be at COP-24, and would like to meet with the Harvard Project on Climate Agreements, please contact Jason Chapman (jason_chapman@hks.harvard.edu).

Share