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Can the Durban Climate Negotiations Succeed?

Two weeks of international climate negotiations begin today in Durban, South Africa. These are the Seventeenth Conference of the Parties (COP-17) of the United Nations Framework Convention on Climate Change (UNFCCC). The key challenge at this point is to maintain the process of building a sound foundation for meaningful, long-term global action, not necessarily some notion of immediate, highly-visible triumph. In other words, the answer to the question of whether the Durban climate negotiations can succeed depends — not surprisingly — on how one defines “success.”

Let’s Place the Climate Negotiations in Perspective

Why do I say (repeatedly, year after year) that the best goal for the climate talks is to make progress on a sound foundation for meaningful, long-term global action, not some notion of immediate triumph? The reason is that the often-stated cliche about the American baseball season — that it’s a marathon, not a sprint — applies even more so to international climate change policy. Why?

First, the focus of scientists (and policy makers) should be on stabilizing concentrations at acceptable levels by 2050 and beyond, because it is the accumulated stock of greenhouse gas emissions — not the flow of emissions in any year — that are linked with climate consequences.

Second, the cost-effective path for stabilizing concentrations involves a gradual ramp-up in target severity, to avoid rendering large parts of the capital stock prematurely obsolete.

Third, massive technological change is the key to the needed transition from reliance on carbon-intensive fossil fuels to more climate-friendly energy sources. Long-term price signals (most likely from government policies) will be needed to inspire such technological change.

Fourth and finally, the creation of long-lasting international institutions is central to addressing this global challenge.

For all of these reasons, international climate negotiations will be an ongoing process, not a single task with a clear end-point. Indeed, we should not be surprised that they proceed much as international trade talks do, that is, with progress only over the long term, building institutions (the GATT, the WTO), yet moving forward in fits and starts, at times seeming to move backward, but with progress in the long term.

So, the bottom-line is that a sensible goal for the international negotiations in Durban is progress on a sound foundation for meaningful long-term action, not some notion of immediate “success.” This does not mean that there should be anything other than a sense of urgency associated with the work at hand, because it is important. But it does mean that we should keep our eyes on the prize.

How Can the Durban Negotiators Keep their Eyes on the Prize?

The keys to success — real, as opposed to symbolic success — in Durban depend upon four imperatives.

1. Embrace Parallel Processes

The UNFCCC process must embrace the parallel processes that are carrying out multilateral discussions (and in some cases, negotiations) on climate change policy: the Major Economies Forum or MEF (a multilateral venue for discussions – but not negotiations – outside of the UNFCCC, initiated under a different name by the George W. Bush administration in the United States, and continued under a new name by the Obama administration, for the purpose of bringing together the most important emitting countries for candid and constructive discussion and debate); the G20 (periodic meetings of the finance ministers – and sometimes heads of government – of the twenty largest economies in the world); and various other multilateral and bilateral organizations and discussions.

The previous leadership of the UNFCCC seemed to view the MEF, the G20, and most other non-UNFCCC forums as competition – indeed, as a threat. Fortunately, the UNFCCC’s new leadership under Executive Secretary Christiana Figueres (appointed by UN Secretary-General Ban Ki-moon in May of 2010) has displayed a considerably more positive and pragmatic attitude toward these parallel processes. That’s a positive sign.

2. Consolidate Negotiation Tracks

There are now three major, parallel processes operative: first, the UNFCCC’s KP track (negotiating national targets for a possible second commitment period – post-2012 – for the Kyoto Protocol); second, the LCA track (the UNFCCC’s negotiation track for Long-term Cooperative Action, that is, a future international agreement of undefined nature); and third, the Cancun Agreements from COP-16 a year ago (based upon the Copenhagen Accord, negotiated and noted at COP-15 in Copenhagen, Denmark, in December, 2009). Consolidating these three tracks into two tracks (or better yet, one track) would be another significant step forward.

The primary way for this to happen would be for the LCA negotiations to focus on the ongoing work of putting more meat on the bones of the Cancun Agreements, which — along with the Copenhagen Accord — marked an important step forward by blurring for the first time (although not eliminating) the unproductive and utterly obsolete distinction in the Kyoto Protocol between Annex I and non-Annex I countries. (Note that more than 50 non-Annex I countries have greater per capita income than the poorest of the Annex I countries.)

In particular, the UNFCCC principle of “common but differentiated responsibilities” could be made meaningful through the dual principles that: all countries recognize their historic emissions (read, the industrialized world); and all countries are responsible for their future emissions (think of the rapidly-growing, large, emerging economies of China, India, Brazil, Korea, Mexico, and South Africa).

As I’ve said before, this would represent a great leap beyond what has become the “QWERTY keyboard” (that is, unproductive path dependence) of international climate policy: the distinction in the Kyoto Protocol between the small set of Annex I countries with quantitative targets, and the majority of countries in the world with no responsibilities. A variety of policy architectures — including but not limited to the Cancun Agreements — could build on these dual principles and make them operational, beginning to bridge the massive political divide that exists between the industrialized and the developing world.

At the Harvard Project on Climate Agreements — a multi-national initiative with some 35 research projects in Australia, China, Europe, India, Japan, and the United States — we have developed a variety of architectural proposals that could make these dual principles operational. (See, for example: “Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations” by Valentina Bosetti and Jeffrey Frankel; and “Three Key Elements of Post-2012 International Climate Policy Architecture” by Sheila M. Olmstead and Robert N. Stavins.)

3. Make Progress on Narrow, Focused Agreements

A third area of success at the Durban negotiations could be realized by some productive steps with specific, narrow agreements, such as on REDD+ (Reduced Deforestation and Forest Degradation, plus enhancement of forest carbon stocks). Other areas where talks are moving forward, although somewhat more slowly, are finance and technology, particularly in the context of adding meat to the bones of the Cancun Agreements.

4. Maintain Sensible Expectations

Finally, it is important to go into these annual negotiations with sensible expectations and thereby effective plans. As I said at the outset, negotiations in this domain are an ongoing process, not a single task with a clear end-point. The most sensible goal for Durban is progress on a sound foundation for meaningful long-term action, not some notion of immediate triumph. The key question is not what Durban accomplishes in the short-term, but whether it helps put the world in a better position five, ten, and twenty years from now in regard to an effective long-term path of action to address the threat of global climate change.

Wait, What About the Kyoto Protocol?

Those who follow these international negotiations closely — including my colleagues on the ground in Durban — are no doubt wondering why I haven’t said something about the 900-pound gorilla in the closet: the fact that the Kyoto Protocol’s first (and so far only) commitment period runs from 2008 through 2012, and so a decision needs to be reached on a possible second (post-2012) commitment period for the Protocol.

Yes, in addition to the LCA (Cancun) track, the Kyoto Protocol (KP) track of negotiations remains. A decision regarding a possible extension (and presumably an enhancement) of the Kyoto Protocol’s emission-reduction targets for the industrialized (Annex I) countries has been punted annually to the next set of negotiations — from Bali in 2007, to Poznan in 2008, to Copenhagen in 2009, to Cancun in 2010, and now to Durban in 2011. It can’t be delayed any longer, because the necessary process of ratification by individual nations would itself take at least a year to complete.

Keeping the Kyoto Protocol going (and with more stringent targets for the Annex I countries) is very important to the non-Annex I countries, sometimes referred to — inaccurately — as the developing countries. I don’t blame them. An approach that provides benefits (reduced climate damages, as well as financial transfers) for the non-Annex I countries without their incurring any costs is surely an attractive route for those nations.

Is a Second Commitment Period for the Kyoto Protocol Feasible?

Putting aside the possible merits of a second commitment period for the Kyoto Protocol, we can ask simply whether it’s in the cards: is it feasible?

Japan, Russia, and Canada have formally announced that they will not take up targets in a second commitment period. Australia, despite its recent domestic climate policy action, seems unlikely to make a significant commitment. Is Europe (plus New Zealand) on its own credible or feasible? Maybe yes, maybe no.

The “yes” part of the answer comes from the fact that Europe has already committed itself to serious emissions reductions through the year 2020 under the European Union Emission Trading Scheme (EU ETS). This will go forward — barring a change of heart by the EU — with or without a second commitment period for the Kyoto Protocol. That said, Europe’s compliance costs under the EU ETS will be much less than otherwise if offsets continue to be made available from non-Annex I countries under the Kyoto Protocol’s Clean Development Mechanism (CDM). This might suggest that the EU has a significant motivation to keep the Kyoto Protocol going.

But international law scholars — such as Professor Daniel Bodansky of Arizona State University‘s Sandra Day O’Connor College of Law — maintain that the Kyoto Protocol (and its CDM) continues as an institution of law whether or not a second commitment period is put in place. Hence, it’s conceivable that the EU could have its cake and eat it too: an ongoing Kyoto Protocol without a second commitment period. And the political pressure on Brussels from the EU’s member states — and from European businesses — might make it difficult for the EU to sign up for a new series of commitments given the obvious absence in such an arrangement of the United States, Russia, Japan, Canada, and — of course — China and the other emerging economies.

A Forecast

This highly contentious issue of a possible second commitment period for the Kyoto Protocol may come to dominate the talks in Durban. This would be unfortunate, because it would simultaneously reduce the likelihood of the negotiators making progress on a sound foundation for meaningful, long-term global action. It would probably also have the effect of producing some drama in the form of highly-charged debates, and possible threats by some delegations to walk out of the negotiations. For this reason, despite the weather, Durban may come to resemble Copenhagen more than Cancun.

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Further Reading

The Harvard Project on Climate Agreements has pulled together an archive of relevant publications, which we call “The Durban Branch” of our climate library. We hope it will be helpful for those gathered in Durban or watching from afar.

Also, a number of previous essays I have written and posted at this blog will be of interest to those who wish to follow developments at the Seventeenth Conference of the Parties of the UN Framework Convention on Climate Change in Durban. Here are links, in reverse chronological order:

Canada’s Step Away From the Kyoto Protocol Can Be a Constructive Step Forward

A Wave of the Future: International Linkage of National Climate Change Policies

Why Cancun Trumped Copenhagen

What Happened (and Why): An Assessment of the Cancun Agreements

Defining Success for Climate Negotiations in Cancun

Three Pillars of a New Climate Pact

Can Countries Cut Carbon Emissions Without Hurting Economic Growth?

Approaching Copenhagen with a Portfolio of Domestic Commitments

Defining Success for Climate Negotiations in Copenhagen

Only Private Sector Can Meet Finance Demands of Developing Countries

Chaos and Uncertainty in Copenhagen?

What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord

Another Copenhagen Outcome: Serious Questions About the Best Institutional Path Forward

Opportunities and Ironies: Climate Policy in Tokyo, Seoul, Brussels, and Washington

The Promise and Problems of Pricing Carbon

Friday, October 21^st was a significant day for climate change policy worldwide and for the use of market-based approaches to environmental protection, but it went largely unnoticed across the country and around the world, outside, that is, of the State of California. On that day, the California Air Resources Board voted unanimously to adopt formally the nation’s most comprehensive cap-and-trade system, intended to provide financial incentives to firms to reduce the state’s greenhouse gas (GHG) emissions, notably carbon dioxide (CO₂) emissions, to their 1990 level by the year 2020, as part of the implementation of California’s Assembly Bill 32, the Global Warming Solutions Act of 2006. Compliance will begin in 2013, eventually covering 85% of the state’s emissions.

This policy for the world’s eighth-largest economy is more ambitious than the much heralded (and much derided) Federal policy proposal – H.R. 2454, the Waxman-Markey bill – that was passed by the U.S. House of Representatives in June of 2009, and then died in the U.S. Senate the following year. With a likely multi-year hiatus on significant climate policy action in Washington now in place, California’s system – which will probably link with similar cap-and-trade systems being developed in Ontario, Quebec, and possibly British Columbia – will itself become the focal point of what may evolve to be the “North American Climate Initiative.”

The Time is Ripe for Reflection

California’s formal adoption of its CO₂ cap-and-trade system is an important milestone on the multinational path to carbon pricing policies, and signals that the time is ripe to reflect on the promise and problems of pricing carbon, which is the title of a new paper that Joe Aldy and I have written for a special issue of the Journal of Environment and Development edited by Thomas Sterner and Maria Damon on “Experience with Environmental Taxation” (“The Promise and Problems of Pricing Carbon: Theory and Experience,” October 27, 2011). [For anyone who is not familiar with my co-author, let me state for the record that Joseph Aldy is an Assistant Professor of Public Policy at the Harvard Kennedy School, having come to Cambridge, Massachusetts, from Washington, D.C., where he served, most recently, during 2009 and 2010, as Special Assistant to the President for Energy and Environment. Before that, he was a Fellow at Resources for the Future, the Washington think tank.]

Why Price Carbon?

In a modern economy, nearly all aspects of economic activity affect greenhouse gas – in particular, CO₂ – emissions. Hence, for a climate change policy to be effective, it must affect decisions regarding these diverse activities. This can be done in one of three ways: mandating that businesses and individuals change their behavior; subsidizing businesses and individuals; or pricing the greenhouse gas externality.

As economists and virtually all other policy analysts now recognize, by internalizing the externalities associated with CO₂ emissions, carbon pricing can promote cost-effective abatement, deliver powerful innovation incentives, and – for that matter – ameliorate rather than exacerbate government fiscal problems. [See the concise and compelling argument made by Yale Professor William Nordhaus in his essay, “Energy: Friend or Enemy?” in The New York Review of Books, October 27, 2011.]

By pricing CO₂ emissions (or, more likely, by pricing the carbon content of the three fossil fuels – coal, petroleum, and natural gas), governments wisely defer to private firms and individuals to find and exploit the lowest cost ways to reduce emissions and invest in the development of new technologies, processes, and ideas that could further mitigate emissions.

Can Market-Based Instruments Really Work?

Market-based instruments have been used with considerable success in other environmental domains, as well as for pricing CO₂ emissions. The U.S. sulfur dioxide (SO₂) cap-and-trade program cut U.S. power plant SO₂ emissions more than 50 percent after 1990, and resulted in compliance costs one half of what they would have been under conventional regulatory mandates.

The success of the SO₂ allowance trading program motivated the design and implementation of the European Union’s Emission Trading Scheme (EU ETS), the world’s largest cap-and-trade program, focused on cutting CO₂ emissions from power plants and large manufacturing facilities throughout Europe. The U.S. lead phase-down of gasoline in the 1980s, by reducing the lead content per gallon of fuel, served as an early, effective example of a tradable performance standard. These and other positive experiences provide motivation for considering market-based instruments as potential approaches to mitigating GHG emissions.

What Policy Instruments Can be Used for Carbon Pricing?

In our paper, Joe Aldy and I critically examine the five generic policy instruments that could conceivably be employed by regional, national, or even sub-national governments for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reduction. Having written about these approaches many times in previous essays at this blog, today I will simply direct the reader to those previous posts or, better yet, to the paper we’ve written for the Journal of Environment and Development.

Although it is natural to think and talk about carbon pricing using the future tense, a few carbon pricing regimes are already in place.

Regional, National, and Sub-National Experiences with Carbon Pricing

Explicit carbon pricing policy regimes currently in place include the European Union’s Emissions Trading Scheme (EU ETS); the Regional Greenhouse Gas Initiative in the northeast United States; New Zealand’s cap-and-trade system; the Kyoto Protocol’s Clean Development Mechanism; a number of northern European carbon tax policies; British Columbia’s carbon tax; and Alberta’s tradable carbon performance standard (similar to a clean energy standard). We describe and assess all of these in our paper.

Also, the Japanese Voluntary Emissions Trading System has operated since 2006 (Japan is considering a compulsory emissions trading system), and Norway operated its own emissions trading system for several years before joining the EU ETS in 2008. Legislation to establish cap-and-trade systems is under debate in Australia (combined with a carbon tax for an initial three-year period) and in the Canadian provinces of Ontario and Quebec. And, of course, California is now committed to launching its own GHG cap-and-trade system.

International Coordination Will Be Needed

Of course, climate change is truly a global commons problem: the location of greenhouse gas emissions has no effect on the global distribution of damages. Hence, free-riding problems plague unilateral and multilateral approaches, because mitigation costs are likely to exceed direct benefits for virtually all countries. Cost-effective international policies – insuring that countries get the most environmental benefit out of their mitigation investments – will help promote participation in an international climate policy regime.

In principle, internationally-employed market-based instruments can achieve overall cost effectiveness. Three basic routes stand out. First, countries could agree to apply the same tax on carbon (harmonized domestic taxes) or adopt a uniform international tax. Second, the international policy community could establish a system of international tradable permits, – effectively a nation-state level cap-and-trade program. In its simplest form, this represents the Kyoto Protocol’s Annex B emission targets and the Article 17 trading mechanism. Third and most likely, a more decentralized system of internationally-linked domestic cap-and-trade programs could ensure internationally cost-effective emission mitigation. We examine the merits and the problems associated with each of these means of international coordination in the paper.

What Lies in the Future?

In reality, political responses in most countries to proposals for market-based approaches to climate policy have been and will continue to be largely a function of issues and factors that transcend the scope of environmental and climate policy. Because a truly meaningful climate policy – whether market-based or conventional in design – will have significant impacts on economic activity in a wide variety of sectors and in every region of a country, proposals for these policies inevitably bring forth significant opposition, particularly during difficult economic times.

In the United States, political polarization – which began some four decades ago, and accelerated during the economic downturn – has decimated what had long been the key political constituency in the Congress for environmental action, namely, the middle, including both moderate Republicans and moderate Democrats. Whereas Congressional debates about environmental and energy policy had long featured regional politics, they are now fully and simply partisan. In this political maelstrom, the failure of cap-and-trade climate policy in the U.S. Senate in 2010 was essentially collateral damage in a much larger political war.

It is possible that better economic times will reduce the pace – if not the direction – of political polarization. It is also possible that the ongoing challenge of large budgetary deficits in many countries will increase the political feasibility of new sources of revenue. When and if this happens, consumption taxes (as opposed to traditional taxes on income and investment) could receive heightened attention, and primary among these might be energy taxes, which can be significant climate policy instruments, depending upon their design.

That said, it is probably too soon to predict what the future will hold for the use of market-based policy instruments for climate change. Perhaps the two decades we have experienced of relatively high receptivity in the United States, Europe, and other parts of the world to cap-and-trade and offset mechanisms will turn out to be no more than a relatively brief departure from a long-term trend of reliance on conventional means of regulation. It is also possible, however, that the recent tarnishing of cap-and-trade in U.S. political dialogue will itself turn out to be a temporary departure from a long-term trend of increasing reliance on market-based environmental policy instruments. It is much too soon to say.

Canada’s Step Away From the Kyoto Protocol Can Be a Constructive Step Forward

Canada confirmed this week that it will not take on a target under an extension of the Kyoto Protocol following the completion of the first commitment period, 2008-2012. Given that Canada is likely to miss by a wide margin its current target under the first commitment period, this decision may not be surprising, but it is nevertheless important. More striking, it may actually turn out to be a positive and constructive step forward in the drive to address global climate change through meaningful international cooperation. Why do I say that?

The Current Situation

The Kyoto Protocol, which essentially expires at the end of 2012, divides the world into two competing economic camps. Emission reductions are required for only the small set of “Annex I countries” (essentially those nations that used to be thought of as comprising the industrialized world). Such reductions will not reduce global emissions, and whatever is achieved would be at excessive cost, because of having left so many countries and so many low-cost emissions-reduction opportunities off the table. Furthermore, that dichotomous distinction is by no means fair: more than 50 non-Annex I countries now have higher per capita incomes than the poorest of the Annex I countries. (I have written about this and other issues surrounding the Kyoto Protocol in the past: Defining Success for Climate Negotiations in Cancun; Defining Success for Climate Negotiations in Copenhagen; Three Pillars of a New Climate Pact).

The United States did not ratify the Kyoto Protocol, and has made it clear that it will not take on a target under a second commitment period. The U.S. position continues to be that a considerably broader agreement is necessary – one that includes commitments not only from the Annex I (industrialized) countries, but also from the key emerging economies, such as China, India, Brazil, Korea, Mexico, and South Africa.

For much the same reason, Russia and Japan announced last year that they would not take on post-2012 commitments under the Kyoto Protocol. Further, it is unlikely that Australia will take on such a commitment under Kyoto, essentially leaving the European Union on its own.

On the other hand, the Kyoto Protocol is enthusiastically embraced by the non-Annex I countries (sometimes inaccurately characterized as the “developing countries”), because it holds out the promise of emissions reductions by the wealthiest nations without any responsibilities (costs) borne by others, including the emerging economies.

The Path from Copenhagen to Cancun to Durban

Year after year, the Conference of the Parties to the United Nations Framework Convention on Climate Change has failed to reach agreement on a second commitment period for the Kyoto Protocol. Most recently, in December, 2010, the issue was punted from the annual conference held in Cancun, Mexico, to the next conference, scheduled for December, 2011, in Durban, South Africa.

Because Durban provides the last opportunity to set up post-2012 targets (with time remaining for national ratification actions), it has been anticipated that the negotiations in Durban will re-ignite the divisiveness and recriminations that highlighted the Copenhagen negotiations in 2009 – with verbal hostilities between Annex I countries and non-Annex I countries dominating the discussions at the expense of any other considerations or meaningful actions.

A Positive and Constructive Step Forward

The decision just announced at meetings in Bonn, Germany, by the Canadian delegation that Canada will not take on a target in a second commitment period of the Kyoto Protocol can be a very constructive step forward. This is because it greatly reduces the risk that this year’s annual meeting of the Conference of the Parties in Durban will be dominated by acrimonious debates about a second commitment period for the Kyoto Protocol.

On the contrary, this announcement should encourage the non-Annex I (“developing”) countries, which have been insisting on a second commitment period, to begin to accept the reality that with the United States, Japan, Russia, and now Canada on record as not endorsing a second commitment period for the Kyoto Protocol, it is infeasible for the European Union to go it alone. (Indeed, one might suspect that Australia and most European nations are privately pleased by Canada’s announcement.)

The reality is that the world will be better off by focusing on sensible alternatives under the Long-Term Cooperative Action track of the UN negotiations and by “getting real” about post-Kyoto international climate policy architecture for the long term, such as by putting some additional meat on the Cancun Agreements and by considering any supplemental and sensible architectures the various parties wish to discuss. (For previous posts on the Cancun Agreements, see: Why Cancun Trumped Copenhagen; What Happened (and Why): An Assessment of the Cancun Agreements; Defining Success for Climate Negotiations in Cancun. For descriptions of a wide range of potential global climate policy architectures — ranging from top-down to bottom-up — see the diverse publications of the Harvard Project on Climate Agreements.)

Next Steps

At Cancun, it was encouraging to hear fewer people holding out for a commitment to another phase of the Kyoto Protocol, but it was politically impossible to spike the idea of extending the Kyoto agreement entirely. Instead, it was punted to the next gathering in Durban. Otherwise, the Cancun meeting could have collapsed amid acrimony and recriminations reminiscent of Copenhagen.

Usefully, the Cancun Agreements recognize directly and explicitly two key principles: (1) all countries must recognize their historic emissions (read, the industrialized world); and (2) all countries are responsible for their future emissions (think of those with fast-growing emerging economies). In important ways, this helps move beyond the old Kyoto divide.

The acceptance of the Cancun Agreements last December suggested that the international community may have begun to recognize that incremental steps in the right direction are better than acrimonious debates over unachievable targets. Canada’s announcement should help advance that recognition, and can thereby lead to vastly more productive talks this year in Durban.