A Positive Take on the Future of International Climate Negotiations

In most institutions, individuals range from highly competent to barely qualified.  And they also range from a real pleasure to a real pain to work with.  Such a range of individuals may exist in any organization, and the international climate change negotiations – otherwise known as the United Nations Framework Convention on Climate Change (UNFCCC) – is no exception.

I’m pleased to say that Kelley Kizzier, my guest in the latest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” is an outlier in both of those dimensions.  She is highly competent and exceptionally engaging.  That made me particularly happy to have an opportunity to sit down with her for this podcast.

Kelley Kizzier is well known – and highly respected – by those who have labored in the international climate negotiations over the past 15 years.  But hers may be a new name to some of you. So, please read on.

Kelley Kizzier speaking at COP-24, Katowice, Poland, December 2018

Kelley was the European Union’s lead markets negotiator in the climate negotiations for 14 years. And for the last three years of that period, she also served as the UNFCCC co-chair of the negotiations on Article 6 of the Paris Agreement, a key part of the Agreement, which we’ve had an opportunity to discuss in previous episodes of the podcast – with Andrei Marcu, Paul Watkinson, Jos Delbeke, and Sue Biniaz.

Speaking on a panel (with yours truly) at COP-25, Madrid, Spain, December 2019, organized by the Harvard Project on Climate Agreements

Before beginning work with the EU in Brussels, Kelley held senior roles in Dublin with the Irish Environmental Protection Agency. And most recently, since 2019, Kelley has served as Associate Vice President for International Climate at the Environmental Defense Fund.

Our conversation was wide ranging, including Kelley’s professional background, the evolution of the UNFCCC, the structure of the Paris Agreement, and the challenges and opportunities now facing the climate negotiations.  Through it all, she demonstrates considerable optimism, mixed with a healthy dose of realism.

In addressing a question about the postponement of COP-26 in Glasgow, Scotland, originally scheduled for November, 2020, she remarks that “the postponement of the COP should not delay urgent action by countries to step up their ambition. And I hope that no one finds comfort in that delay, that we are still urgently looking to up our game in terms of ambition.”

Kelley cites several recent positive developments in international climate policy, particularly in the EU where its new “Green Deal” may be implemented.  The Deal stipulates even more significant carbon emission reductions than the 40% cut that was previously promised by the EU member states.

“It’s a centrist acceleration of established EU climate policy,” she says. “And through that, they have announced that they’re going to take that target to 50 or even 55% reduction by 2030 [as compared with 1990 levels].”

Looking forward to the re-scheduled COP-26 in November, 2021, Kizzier expresses her optimism that nations will be prepared to finalize the rules (the so-called “Rulebook”) of international climate policy cooperation (and carbon markets) under Article 6 of the Paris Agreement.

Co-Facilitator of Article 6 discussion at UNFCCC meeting, Bonn, Germany, May 2017

“COP-26 is about ambition, and it’s going to be important, in that context, to push for us to complete The Paris Rulebook. Because the rules matter, and we can’t afford to lock in carbon market rules that undermine the integrity of the targets,” she says. “Agreement on these rules, as important as it is, should not be a barrier to action. We simply can’t afford delay.”

All of this and more is found in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.” Listen to this latest discussion here.  You can find a complete transcript of our conversation at the website of the Harvard Environmental Economics Program.

My conversation with Kelley Kizzier is the twelfth episode in the Environmental Insights series.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

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Economics Can Still Help Solve the Climate Crisis

After climate negotiators from 195 nations at last month’s climate talks in Madrid were unable to reach agreement on rules that would govern global carbon markets, United Nations Secretary General António Guterres lamented that the international community “lost an important opportunity to show increased ambition on mitigation, adaptation, and finance to tackle the climate crisis.”  My view (as I explained in a recent essay at this blog) is that the lack of aspirational statements regarding future increases in ambition was not a significant disappointment, because such aspirational statements are really not meaningful.  Rather, the real disappointment of COP-25 was the failure to finalize rules for carbon markets under Article 6.2 of the Paris Agreement.

That said, the climate negotiators actually did accomplish something important — because of what they did not do. Instead of approving lax rules full of loopholes favored by Brazil, Australia, and a few other countries, the negotiators held the line and pushed off a decision on the rules for carbon markets until next year’s COP-26 in Glasgow, Scotland.

That is the starting point for an interview that was recently recorded for the Harvard Kennedy School’s “PolicyCast,” hosted by Thoko Moyo, HKS Associate Dean for Communications and Public Affairs.  You can listen to the interview, titled, “Economics Can Still Help Solve the Climate Crisis,” or, if you prefer to use your eyes rather than your ears, here is the transcript:

Thoko Moyo: Hello and welcome to the Harvard Kennedy School PolicyCast. I’m your host, Thoko Moyo. Today we’re joined by Harvard Kennedy School Professor Robert Stavins. Professor Stavins is the Director of the Harvard Environmental Economics Program and the Harvard Project on Climate Agreements. He’s also just returned from Madrid, where he was participating in the 12-day UN Climate Change Conference, or COP25. So you’re just back from the UN climate talks, COP25 in Madrid. The general consensus when you’re reading the newspapers are that it didn’t really achieve what people were hoping. Would you agree with that?

Robert Stavins: Well, there’s what people were hoping and what were reasonable expectations. I would say in general the COP was moderately successful, in that it sort of advances the ball. It passes on the ball till next year. I think what people were disappointed with—that you saw reflected in the popular press—was that there was not a statement, an aspirational statement, of countries talking about new targets that they would come up with next year, not this year, but next year. And that’s what a lot of activist groups, and particularly this new wave of youth activists who are obviously very important, were looking for. But I don’t actually consider those kind of aspirational statements with no meat to be very important in the first place.

Thoko Moyo: Okay, great. Okay, so let’s come back to that. But I think because we might have some people listening who are not experts, who probably maybe need a reminder, things like COP, what is COP? And then let’s also maybe just get it out the way, because it’s going to come up in our conversation, the Paris Accord, what is that? And I know just in September we had the huge UN Climate Action Summit, so what’s that? What are those three things and how do they fit together?

Robert Stavins: It starts in 1992 with the United Nations Framework Convention on Climate Change, which grew out of the Earth Summit in that year in Rio de Janeiro. The signatories to that are the parties to that agreement, the UNFCCC, the United Nations Framework Convention on Climate Change. They met for the first time in 1995, so that was the first conference of the parties. That was COP1. This year was the 25th conference of the parties. That was COP25.

Thoko Moyo: Okay. And so that then grew into or at least led to, in 2016, to the Paris Accord, the Agreement. What was that and why is it such a big deal?

Robert Stavins: Again, I’ll put it in a historical context. I think it might be helpful. That is, in 1997 at COP3 in Kyoto, Japan, countries agreed to the Kyoto Protocol, which was the first significant international agreement on climate change. That expires in 2020, so in 2016 in Paris, the conference of the parties established a new agreement that would succeed the Kyoto Protocol beginning in 2020. That’s what the Paris Agreement is.

Thoko Moyo: And the Kyoto Protocol, if I remember correctly, had targets and sounded like it had some way of enforcing, whereas the Paris Agreement seemed to step back a little bit and make it more the onus of the countries to determine what their reductions would be or not. Is that right, and why did they move in that direction as opposed to more top down?

Robert Stavins: That’s right. The Kyoto Protocol was very much a top-down approach. A very small number of countries actually were engaged in taking on targets. It was the set of countries that were essentially the industrialized countries of the world at the time, plus what were then the emerging market economies of Central and Eastern Europe. Those countries, which were listed in an appendix, Annex 1 of the Kyoto Protocol, they took on targets and timetables, but those targets and timetables that they took on, those specific numbers, were negotiated among the set of countries. So I negotiated what your target would be, and you negotiated what my target would be. That’s the top-down nature of the approach. Everyone was involved.

The scope was very narrow, so that currently in the second commitment period of the Kyoto Protocol, approximately 14% of global emissions are associated with complying countries. That’s European Union plus New Zealand. The United States never ratified the Kyoto Protocol. Russia dropped out, Japan dropped out, Canada dropped out, and Australia dropped out. So it’s a very narrow scope, but it was of a top-down structure.The countries of the world, particularly the United States and China, who played a leadership role leading up to Paris, they realized that that approach was never going to achieve much in terms of meaningful reductions, namely because emissions are either declining or relatively flat in the industrialized countries.

The place where the emissions growth is so great is the large emerging economies, China, India, Brazil, Korea, South Africa, Mexico, and Indonesia. And so those countries had to be brought inside. It was clear that it would not be possible to bring them inside with the top-down approach, that rather each country would have to say what it felt it could do given its national circumstances as well as its domestic politics. So the approach that’s in the Paris Agreement is this bottom-up approach, in the sense of each country says what they’re going to do. There are parts that are top-down that are binding under international law, but those are simply parts that say that every five years each of the countries has to come up with a new target, not what the targets are.

Thoko Moyo: But how does it work? I mean, this is a huge emergency, affects everyone, and it’s a bit of an honor system. You say what you can and you try and keep to that, but does it actually work? I mean, do the countries set ambitious targets, and if there’s no way of enforcing it, how do you even know they’re doing what they said they’d do?

Robert Stavins: Well, there’s an interesting trade-off, that the very element of the Paris Climate Agreement that caused it to have the broad scope of participation it does, namely compared to that 14% under Kyoto, we now have 97% of global emissions associated with signatory countries. If the United States does drop out, as it has said it would approximately a year from now, that 97% drops to 85%. Either way, it’s very impressive scope, but that same element that caused the scope to be very broad and inclusive …

Thoko Moyo: Which is important.

Robert Stavins: … which is very important, it also then brings about the reality that the ambition of the individual commitments or statements is not going to be very great, because it’s a global commons problem. Any country that takes action incurs the cost of taking action, but the benefits are spread globally, meaning that for any individual country, the direct benefits it receives are going to be less than the direct costs that it incurs. So it’s a fundamental consequence of the structure of the agreement, of this trade-off between adequate scope, but perhaps not adequate initial ambition.

Thoko Moyo: I guess an obvious question, then, is why would, I mean apart from the politics, but there might be another reason, why would the US pull out of an accord that doesn’t tell it what it needs to set as targets, and certainly there’s no enforcing? Why not just reduce the scale of your ambitions and do what you can? Why is it so important to withdraw from the accord, or is it just politics?

Robert Stavins: Well, that’s a very good question, and I guess my flippant answer would be you should ask the resident of the White House, not me, but back when, you may recall that former Secretary General of the United Nations Ban Ki-moon was resident at the Harvard Kennedy School as a visiting fellow and maintains an affiliation. When he was here about two months before the White House issued its decision, before the president spoke in the Rose Garden with his decision to pull out of the Paris Agreement, Ban Ki-moon and I wrote an op-ed that was in the Boston Globe. And we posed the same question, saying that what the United States could do would be to stay in the Paris Agreement so that you have a voice in deciding what’s going on, but to change what is called its nationally determined contribution, this bottom-up pledge. It could even make that to be equivalent to business as usual, so we didn’t have to do anything. It could have set it at anything.

That would have been an approach which would have been consistent in terms of what people in the administration were saying, but what it would not have accomplished is what, in my opinion, and I’m bi-partisan, with what the president wanted to accomplish, which was the announcement. The important thing was not what we did, but what he was able to announce, in terms of his political base. And he had the positive spin on that as he was living up to a campaign pledge. He said over and over again, is that he would pull us out of the Paris Agreement, and that was the decision that was made. What the president may not have recognized, although I would hope that White House staff recognized, was that when he announced that in June of 2017, what he was actually announcing was an intention to remove us from the Paris Agreement approximately three and a half years later, because that was the soonest that it could actually become effective, which is approximately a year from now.

Thoko Moyo: And so how much of that came up in the talks, in the COP25 talks? Because we saw some coverage of the former mayor of New York, Michael Bloomberg, saying that a lot of cities in the US are committed to the Paris Accord and they’ll stay in it if they could. We didn’t really hear much about the official US position. What was said?

Robert Stavins: Well, the US did not have political level appointees present, so it is the State Department officials who have been working on these issues for 20 or 30 years. It’s what sometimes is derogatorily referred to as the deep state, although being at the Harvard Kennedy School, where we’re producing people that go into that world, whether it’s the State Department or the Department of Agriculture, we think it’s not the deep state. It’s rather an extremely important professional class, and it will be wonderful if the US had it of the quality that France and so many other countries do. Those individuals have been consistent. Some have left, but they’re still there.

And in fact, one of the things I’ll tell you that I was struck by, certainly last year when we were at the talks, which were in Katowice in Poland just one year ago, is that when we would sit down in the room to talk with a negotiating team from some other country in the world at their request, because they’re interested in the research we’re doing and looking for help with that, they would say, “Well, Stavins, you’re from Harvard, right?” “Yes.” “That’s in the United States. Before we talk about your research and what you’re doing, we just wanted to say something to you we don’t understand. You know, your president says that climate change isn’t real, and he’s pulling out of the Paris Agreement, but your delegation is here and they’re working very constructively.” And that’s something I never repeated to the press, lest it be read by some congressional staffer, and it’d get back to the White House. But the US delegation has actually continued at that level to be quite constructive. They’ve continued in particular, jointly with China, to run what’s called the transparency, which is the monitoring, reporting, and verification aspects of the climate talks.

Thoko Moyo: And is the US unique in having a sort of high profile, it seems high profile, debate about whether climate change actually exists, or are there other countries as well that have that sort of debate in a way that’s quite prominent in the politics?

Robert Stavins: The United States is close to unique. What is true is that Australia, as it’s gone from governments back and forth from right to left, when governments have been in from the right, conservative governments, they have been very resistant to any action on climate change, and the Australians played a role in that in these talks just now. What’s even more striking is certainly Brazil, President Bolsonaro, who is a right wing populist climate skeptic, so not unlike our own president. They have also played that kind of role. And then certainly the Gulf oil states, in particular Saudi Arabia, have been very vocal in the climate talks, which is perhaps understandable, because for them it’s not just increasing their costs, it’s perhaps sending their economy back to what it was 75 or 100 years ago if there was no demand for fossil fuels.

Thoko Moyo: Okay. The other thing that we were going to get out the way is the UN Climate Action Summit that was in September, and that saw one of the largest youth-led protests in history. How is that different from COP25? What was that?

Robert Stavins: Those climate summits in September is something that was started by the previous Secretary General, Ban Ki-moon, because he had decided to make climate change an important issue for himself, and so he saw a September summit as an opportunity, a cheerleading session really, to bring countries together into the General Assembly, let heads of state give speeches at lots of different sessions in meetings, before three months later when the annual conference of the parties would take place. And they have continued since then. And I would say the role that it has played is precisely what was intended. It’s a cheerleading session, by which I don’t mean to denigrate it, but just to take it at what it is. There’s no legal authority there. It’s not part of the United Nations Framework Convention on Climate Change negotiations.

Thoko Moyo: But it gets attention focused on it.

Robert Stavins: It draws attention, and it certainly does. It also ties up the traffic in Manhattan, as New Yorkers will tell you, for a week.

Thoko Moyo: Okay, so let’s actually go to the meeting, COP25 in Madrid. This year’s tagline was “Time for Action,” and it does come at a time when there’s been more and more scientific evidence to show that there are devastating effects of climate change on land, oceans, and societies. We started off by saying that you thought it was a moderate success. Let’s talk a little bit about the sort of hopes, expectations, or goals of the meeting going in.

Robert Stavins: They were twofold. I mean, there were the popular press and from the activists, expectations and hopes, and those were for statements in what is called the decision, which just means the statement that comes out at the end of the COP with no legal force, it’s just a statement that comes out at the end, the decision, that they wanted a statement that countries were committed to coming up with much more ambitious targets a year from now in 2020 when the next set of targets will be submitted at the next COP. So that was for them, and that definitively did not happen.

And that’s why those individuals, and I think much of the press, because that’s a pretty obvious sort of thing to talk about, is what are the targets, what’s the aspiration, have characterized it as a terrible failure. I know The New York Times did this morning. But for those people, both the negotiators and for those of us on the outside in NGOs and in universities who are very engaged in the process and in research, what we were looking at much more was the actual text of the Paris Agreement, what wasn’t being completed and what needed to be completed, just in order to achieve the targets that they already have pledged, let alone thinking about the next set of targets.

Thoko Moyo: And what were those things?

Robert Stavins: And that was something very specific in particular, and it ties in with the notion of international carbon markets. There’s one portion of the Paris Agreement, which is Article 6, or even to be more picky, Article 6.2, that provides for countries to cooperate with one another so that one country can help another country to accomplish something. And then the country that does the helping can take credit for that against its pledge that it’s made.

Thoko Moyo: Okay, so said another way, if you are performing poorly on your targets, you could set up a deal with a country that’s over-performing on their targets and somehow get… I mean, how? How does it work?

Robert Stavins: It wouldn’t necessarily be a country who is performing poorly. They might be performing perfectly, but nevertheless that they could finance what’s taking place in another country. So it’s a matter of finance. In fact, it’s a means of foreign direct investment. It just means that the incremental costs, what economists call the marginal costs, of reducing CO2 emissions vary tremendously across different countries, and that’s because the modern economies were already very energy efficient, and so there isn’t a lot of low-hanging fruit. But if you go to other parts of the world, there is low-hanging fruit. There are a lot that can be done at relatively low cost.

So that means if you’re in one of these countries where it’s very costly, you could finance things being done in one of those other countries. That’s to everyone’s benefit, if it’s voluntary on both sides, and it’s a means of foreign direct investment into those countries, which of course they’re very happy about. The big issue there, though, is to make sure that both countries don’t take credit for that same emissions reduction, that there isn’t double counting. That’s where the Paris Agreement comes in. That’s what article 6.2 is potentially about, are accounting measures to prevent double counting. That was not completed. That’s the one part of the Paris Agreement, what’s called the Rule Book, which is the text of the rules, that was not completed last year in Katowice. It was punted to this year. So for the cognoscenti, for those of us who are really involved a lot in the Paris Agreement and in the negotiations, the goal was to complete Article 6. That’s what it was about.

Thoko Moyo: And was it completed?

Robert Stavins: And Article 6 was not completed, but I’m going to give you an important caveat, it was not completed because Brazil and Australia, Saudi Arabia in particular, wanted some aspects in there that would have introduced loopholes that would have allowed double counting. And so what I take as the good news, and that’s why I say a qualified success, is that rather than producing what would have been a bad deal, they produced no deal. And I’m very serious about that.

We did research here at Harvard years ago with colleagues at Tufts University and MIT, in which we said what needed to be in the Paris Agreement on this issue of sharing responsibility, bringing down costs. And we said the first important thing is that they not put in the following kind of items, which would make everything worse, and that didn’t happen. So it’s in that sense that I think it’s a qualified success, that even though there’s no deal, there’s still a possibility for it at the next meeting.

Thoko Moyo: At the next meeting. So you think that something can happen in the next 12 months before Glasgow to get to a point where you have the sort of accounting rules or standards that could get Article 6 done?

Robert Stavins: That’s exactly right. I think that that can happen. I wouldn’t say that I think it will happen, because there is political opposition to it happening.

Thoko Moyo: Let’s talk a little bit about the voices at these talks. The most obvious sort of divide, as it were, would be between developed and developing nations. How does that play out? I mean, who gets to talk here and and who gets listened to?

Robert Stavins: That’s an exceptionally important point, as it is in the United Nations in general. As an economist, whereas normally most of the analysis we do, whether it’s teaching in the classroom or it’s research on the outside or it’s conversations with the government, are focused on efficiency issues. But when you get into climate change, the international aspects, the aspects of distributional equity are extremely important. Going all the way back to the beginning, 1992 Brazil Summit, there’s a very important principle in the overarching document, the United Nations Framework Convention on Climate Change, which is, although it’s a global commons problem, we’re all in it together, nevertheless, there are common, but there are differentiated responsibilities.

Different countries have contributed different amounts to the accumulated stock. United States is number one, China’s second. And there are different capabilities, different wealth. That principle is exceptionally important, and everyone in the negotiations recognizes that. Having said that, as you said, that there has been in the past a polarization between the industrialized countries and the developing countries, and that was codified in the Kyoto Protocol, because only the industrialized countries had responsibilities.

Under Paris, it’s much more of an even playing field, although obviously some countries, particularly the European Union, take on much more aggressive targets than do poorer countries. Certainly, countries in Sub- Saharan Africa, from my point of view, need not do anything, I mean, their contributions are small and they’re mired in terrible poverty. So that differentiation remains, but there are lots of other constituencies at play. A very important one are the Small Island States, because for most countries in the world, ranging from the United States to the European Union to even the Gulf oil states, when we talk about addressing climate change, we’re talking about an increase in cost to our economy or a reduction in productivity. For the small island states, climate change is existential, so it’s at a whole nother level of concern. So their voice is very important, and although they are very small in terms of population, although they are very small in terms of their share of global gross domestic product, they’re actually very vocal and very effective, I’d say, in the talks. Remember, one last point is that under the rules of the United Nations, voices are all one country, one vote. The United States has the same vote as the smallest country in the world.

Thoko Moyo: Okay. Okay. So just one more question, just looking at the actual meeting. Another thing that we’re getting used to is seeing the protests and the demonstrators, and I know in Madrid one session you had protestors actually storm the session. We read a lot about the protest out on the streets. Is that actually having an impact? Is that sort of pressure having an impact on the deliberations and the progress that could be made?

Robert Stavins: Well, I think it certainly provides support, for example, for the small island states, the countries that wanted the most aggressive pledges to be made, because they feel tremendous support there. I don’t think it had any effect on the pace of the negotiations themselves, except that they were disrupted for a few hours that one afternoon. Other than that, I don’t think it has any particular influence. I’m not making a judgment with that. Maybe it should, maybe it shouldn’t, but I don’t think it does.

Thoko Moyo: Okay. We’ve talked a little bit about, you’re an environmental economist. Why is the economic perspective important in environmental issues? I mean, what are some of the things that you think about, and necessarily, what’s in your research?

Robert Stavins: Well, what I’d start by saying is that the causes of environmental problems, whether it’s economics or it’s local hazardous waste, the causes of environmental problems are essentially economic. It’s a result of the fact that there are unintentional negative aspects, consequences, factors that are the result of fundamentally meritorious activity by private firms making the products or the services that you and I want to buy. And sometimes the result of consumers when they’re using those products. They are external to the decision-making, which is why economists refer to environmental pollution as an externality.

And there are also then consequences of environmental pollution that have economic dimensions. So surely, if the causes of environmental pollution are fundamentally economic, which they are, and if the consequences of environmental pollution have important economic dimensions, then that would suggest that an economic perspective can be helpful for understanding those problems fully.

But you know, we’re sitting here at the Harvard Kennedy School, not at the Department of Economics in the Faculty of Arts and Sciences, so it’s not understanding just for understanding’s sake, it’s understanding so that we can make a difference. And the way that this understanding can make a difference is to identify public policies that are effective. And by effective, I mean they reduce pollutant emissions, they don’t simply demonize the bad guys, that they are economically sensible, by which I mean they’re cost effective, that we don’t shoot ourselves in the foot and spend more than we have to. After all, we don’t only care about the environment, we care about the cost of education, healthcare, food, fuel, and a thousand other things. And that perhaps they’re more likely to be politically pragmatic. I think this economic perspective, although it’s not the only legitimate perspective, surely, can be helpful in those regards.

Thoko Moyo: You mentioned the private sector in that, actually, and we haven’t talked about that. What role does the private sector have in the solutions in climate change, and what sort of actions are required of, and what sort of actions are private sector taking?

Robert Stavins: Well, the private sector plays an extremely important role, because that’s where the emissions for the most part come from, either actually from private industry, from manufacturing, electricity generation, or from products that they produce, such as motor vehicles. So their role is exceptionally important, and I’ve long had the view that only working through the market can much be accomplished. You know, that’s why, if I may say, back in 1988 when I first joined the faculty at the Kennedy School, a previous dean, Graham Allison, that he and I launched a project which was titled Harnessing Market Forces To Protect the Environment with two members of the US Senate, a bi-partisan pair of senators, something you couldn’t conceive of today, because it’s so important to work through the market.

Robert Stavins: And private industry in my view is aware of that. So there’s a lot of support actually from private industry for, for example, the Paris Agreement. The lobbying of the White House on the Paris Agreement, when there was about a six-month period in which it wasn’t clear what the president was going to decide about pulling out of Paris or not, private industry, with one exception, that’s the coal industry, was lobbying to stay in the Paris Agreement. And that includes the oil and gas industry.

Thoko Moyo: Interesting. And so what sort of promising approaches have you seen, the things that you’re particularly excited about in the markets that you think could have a real impact on the goals for climate change?

Robert Stavins: Well, I think the best thing, frankly, that private industry can do is to press for public policies in this realm, so it really takes me back to government. I don’t think it’s ever going to be dealt with sufficiently through voluntary actions by private industry, because again, it’s an externality. It’s not in the interest of their bottom line. They have fiduciary responsibilities to shareholders, and it’s taking money from shareholders to spend more than your competition is. So I think the best thing they can do is what to some degree they have been doing, and that’s to press for more aggressive public policies, whether it’s in the international domain or more importantly in the domestic national policies. And then when those public policies are put in place, not to fight them, but to comply.

And actually, the largest corporations do that, partly because they’re more equipped to take on the costs, but it’s particular sectors that would be really hard pressed that find it most difficult. It’s interesting, something that’s, I don’t know if it’s even recognized in the popular press, but that if you look at the climate legislation during the Obama administration, which was called the Waxman-Markey Bill, this was going to include a cap and trade system and lots of other policies to address climate change, that at that time there was a private industry consortium supporting the legislation, and that included a lot of large corporations. But there’s something that all of those corporations had in common. They all produced energy-consuming durable goods. So in there leading it was General Electric. The automobile companies were in there, Boeing was in there, because a climate policy means an increase in energy prices. When energy prices go up, that’s good for those companies, because it renders prematurely obsolete the current stock of energy-consuming equipment, because suddenly energy is more expensive. I mean, the reason why United Airlines buys a new airplane is not because they want the one with blue lights in the ceiling instead of white lights, it’s because it’s more efficient. And it’s more efficient, actually, not because of more efficient engines, it’s more efficient because the aircraft is lighter. They use composite materials rather than metals to build the aircraft.

Thoko Moyo: So there’s a business case for it.

Robert Stavins: There’s a business case, so those are the ones that were supportive. On the other hand, you didn’t see United Airlines or Lufthansa lobbying for that, because for them it’s an increase in cost. The price of jet fuel goes up a little bit, that’s the difference between profit and loss year after year after year for commercial airlines. So a lot of industries are supportive of climate policy because of the fact that it’ll help their bottom line. There are other ones that are not affected much one way or the other, but they’re still supportive, for example, of staying in the Paris Agreement or of some climate policies, because what they want is certainty. What they really hate is the uncertainty of not knowing what’s the price on carbon going to be 10 years from now? It’s so hard to make investment decisions on that basis.

Thoko Moyo: We don’t have a lot of time left, but I do have two more questions. I want to hear a little bit about your research, what it is that you are working on and sort of key findings and any sort of policy recommendations that come out of it. And then I want to look ahead to next year at Glasgow. I mean, what are the big expectations or hopes for that meeting, and what’s your sense in the next 12 months about that?

Robert Stavins: There have been two major threads of my research over, we’ll say, the past year, year and a half or so and going forward. One we’ve already talked about, it ties in with international cooperation and how that connects with Article 6 of the Paris Agreement, so I won’t say more about that. The other thread has been looking at and comparing the two major carbon pricing policy instruments, the two ways of working through the market to address climate change. One is with a tax on the carbon content of fossil fuels, coal, petroleum, and natural gas. That’s a carbon tax. The other is with a carbon or CO2 cap and trade system.

These instruments are hotly debated. Economists around the world and most policy analysts would say yes, we need to have carbon pricing in a modern economy. We won’t be able to achieve sufficient emission reductions in any other way. Why is that? Because when we’re talking about CO2 emissions in a country such as the United States, for example, we’re not just talking about 1,500 sources, as we were for sulfur dioxide with acid rain. We’re talking about every electricity producer that uses fossil fuels, every manufacturer, every commercial facility, every residence, every motor vehicle, every backyard barbecue grill and lawn mower.

Robert Stavins: It is inconceivable that those could be regulated with conventional standards, technology and performance standards. The only way to affect all of those is with the dissemination through the market of relative prices. So there’s this agreement that carbon pricing is necessary, maybe not sufficient, for the task, but necessary. Where the disagreement has come in is carbon tax versus cap and trade.

I recently did research for the National Bureau of Economic Research, in which I think I wrote what is a relatively exhaustive and probably the most comprehensive study that’s ever been done of comparing the two instruments. And my conclusion, which surprised even me, was that actually the choice between the two, that dichotomous choice, is vastly less important than the design of either one, that actually there’s a policy continuum from a pure carbon tax to a pure cap and trade, from a pure price-based mechanism to a pure quantity-based mechanism, if both work through the market. And then it’s various points along this spectrum are determined by the design.

Thoko Moyo: So either-or or both together, well-designed.

Robert Stavins: Yeah, either one well designed, either one well designed. And so then the question comes up is, if it is well designed, gee, it’s still not happening in the United States, and that’s surely because of political factors. So what I’m working on now with a Harvard Kennedy School PhD student in public policy, Dan Stewart, and a Harvard PhD recipient, now a professor at Duke University, William Pizer, is looking at the politics of this, really, and analyzing how these different instruments, and some others that are of great interest in the Congress, compare when we really take into account the political feasibility of different approaches going forward. And that’s research that we’re just beginning at this moment.

Thoko Moyo: Okay. So to end off, we’ve talked about COP25 and how that went. Another one coming up next year in Glasgow. What’s the sort of focus there, and what’s your sense about what should be focused on between now and next year and what the meeting will center on?

Robert Stavins: My hope would be that Article 6, this last part of the Paris Agreement in which the Rule Book has not been completed, that this can be completed in ways which are simple and, if I could say so, relatively pure. This is a case in which less is more. It will be much better to have something which is five sentences long, which simply validates global carbon markets and doesn’t get in the way, than to have detailed rules that go on for four pages, but of those four pages, there are two paragraphs that cause problems.

Thoko Moyo: I can’t imagine five sentences in a UN document, though.

Robert Stavins: Well, that’s the challenge. That’s the challenge. But you know, the Paris Agreement is only 13 pages long. It’s not a long document. So there is reason to hold out hope for something which is brief and simple. Last, if you ask me what my expectations are, I think that the demonstrations will be even greater, that youth activism in this realm is surely on the rise. I’m from an era in which there was youth activism I participated in on the Vietnam War. So I applaud the youth activists. I don’t want to sound like my father did to me at that time.

Thoko Moyo: But it’s real. I mean, the young people are the ones who are really, truly going to feel the biggest effects of what’s happening today. It makes sense that they are focused on it. It’s literally their lives at stakes.

Robert Stavins: Yes. No, and continue the analogy with Vietnam, it was because for young people, we were the ones that were going to go off and fight. It wasn’t going to be the 60-year-olds who are going to go off and fight. But you’re right, there is a reason why youth have the attitude they have, and I applaud them for it.

Thoko Moyo: Terrific. Thank you so much. This is great.

Robert Stavins: My pleasure.

Thoko Moyo: Thanks for listening. Please join us for our next episode, when we’ll talk with Harvard Kennedy School Professor Archon Fung about civic engagement and responsibility and how to ensure that in 2020, American democracy isn’t a spectator sport.

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Will the Paris Agreement Help or Hinder Cooperation among Nations?

I just returned from Florence, Italy, where I participated in the Second Carbon Market Workshop, organized by the European Commission, and hosted by the European University Institute.  This workshop, which brought together government representatives from around the world (with a sprinkling of academics and NGO representatives to add some spice to the discussion), was convened to examine how regional, national, and sub-national jurisdictions can cooperate in ways that could increase the effectiveness and/or reduce the costs of their respective climate change policies.  One of my tasks at the workshop was to make a brief dinner speech.  Jos Delbeke, the long-time,  legendary Director-General of Climate Action for the Commission, asked me to talk about how the Paris Agreement might help or hinder practical climate policy cooperation around the world.  I drew extensively upon my research with Michael Mehling and Gilbert Metcalf.  Here is the gist of what I said in my dinner speech.

Some Paris Agreement Fundamentals

The hybrid design of the Paris Agreement was key to its successful enactment in 2015 and its coming into force in November, 2016.  The hybrid design to which I refer is the combination of top-down (centralized) and bottom-up (decentralized) elements.  The top-down elements include, for example, the requirement that countries state their national contributions every five years, a schedule which is binding under international law for those jurisdictions that have ratified the Agreement.  The key bottom-up element is the set of individual Nationally Determined Contributions (or NDCs) themselves, which are not part of the Paris Agreement itself, but rather are listed in a separate Registry.  These are not binding under international law, but rather are left to the domestic authority of the respective countries.

This dual structure led to the achievement of one of two necessary conditions for ultimate success of the Paris Agreement, namely adequate scope of participation, which now includes countries accounting for 97% of global emissions, compared with the 14% that are covered by the current, second commitment period of the Kyoto Protocol.

But adequate scope of participation is only one of two necessary conditions; the other is adequate collective ambition.  Unfortunately, the fundamentally voluntary nature of the NDCs – which is precisely what facilitated the exceptionally broad scope of participation – works against adequate ambition to address this global commons phenomenon, which is plagued by free rider problems.

The Challenge for Climate Negotiators

This raises the key overall challenge that faced the negotiators in Bonn in May and will face them in Katowice, Poland, in December (at the Twenty-Fourth Conference of the Parties of the United Nations Framework Convention on Climate Change):  What can they do, when writing rules to put flesh onto the skeletal Paris Agreement, to encourage countries to increase their ambition over time?  That’s where carbon markets and cooperation among jurisdictions potentially come in.

International Cooperation under the Paris Agreement

Largely because cooperation among jurisdictions — including through carbon markets — can lower abatement costs, such cooperation may be essential for the ultimate success of the Agreement.  This cooperation might take the form of international linkage, where by “linkage,” I mean connections among policy systems that allow emissions reduction efforts to be redistributed among those systems.

Such linkage is typically framed as between cap-and-trade systems, but regional, national, and sub-national policies are and will be highly heterogeneous, including not only cap-and-trade, but offset systems, carbon taxes, performance standards, and technology standards.  Note that we already see this sort of heterogeneity within the European Union’s own set of climate change policies, as well as within California’s suite of climate initiatives.

The good news is that linkage among highly heterogeneous policies is eminently feasible, as I have written about previously in this blog, drawing on my research with Michael Mehling (MIT) and Gib Metcalf (Tufts University).  The even better news is that one part of the Paris Agreement provides a potential home for such international cooperation, linkage, and carbon markets – Article 6.  (If you are interested in the details, I recommend a recent report from the Asian Development Bank, “Decoding Article 6 of the Paris Agreement.”)

The Promise and Problems of Article 6

In the negotiations that led up to the 2015 Paris climate talks, it was by no means clear what role — if any — market mechanisms would play in the Paris Agreement.  In the negotiations, the European Union, Brazil, and other countries played crucial roles in generating the compromise that became Article 6 of the Agreement.

That compromise resulted in text that — to put it kindly — is very much subject to interpretation.  Now, as Benito Müller, Kelley Kizzier, and their colleagues have observed, intentional vagueness and ambiguity of text can be quite helpful in achieving a negotiated compromise, but such vagueness is decidedly not helpful when it comes to making an agreement operational.

This compromised home for markets emerged in Article 6 despite the entrenched opposition of a small set of vocal countries — including some Latin American socialist economies (the so-called ALBA coalition) — who wanted nothing of the kind to appear in the Paris Agreement.  They succeeded in keeping the word “market” out the Paris Agreement, but the concept and the potential reality is very much there!  (Ironically, at their insistence, the phrase “non-market” does appear in the Agreement.)

In any event, provision for markets and international cooperation is implicit in Article 6.2, which allows for cooperative approaches involving Internationally Transferred Mitigation Outcomes (or ITMOs), which are vague and without definition, but can function as an international accounting mechanism for international trades, exchanges, and cooperation.  And Article 6.4 establishes a more centralized mechanism to contribute to emissions mitigation and support sustainable development, essentially as a successor to the Clean Development Mechanism (and may soon come to be called the “Sustainable Development Mechanism” or SDM).

Advantages and Concerns about Cooperation and Linkage

Despite the opposition I mentioned, most parties to the Paris Agreement are supportive of cooperative approaches (and more than half explicitly mentioned carbon markets in their respective NDCs).

This may be because of six important advantages of such cooperation:  first, cost savings by allowing firms to take advantage of lower cost abatement opportunities in other jurisdictions; second, reducing market power of individual firms by enlarging the market’s scope, and reducing total price volatility by thickening markets; third, political benefits to Parties, by providing a sign of “momentum” as jurisdictions band together, possibly influencing other parties to participate; fourth, administrative economies of scale through knowledge sharing in design and operations, as well as shared administrative and oversight costs; fifth reducing leakage and competitiveness impacts by harmonizing the shadow price of carbon across jurisdictions; and sixth, allowing for the achievement of the UNFCCC’s critical principle of “Common but Differentiated Responsibilities” without sacrificing cost-effectiveness.

There are also real concerns about linkage:  first, distributional impacts within and across linked jurisdictions; second, automatic propagation of certain design elements, in particular, cost-containment elements (banking, borrowing, and price collars); and third, decreased national autonomy.

Back to the Article 6 Negotiations and International Policy Linkage

Article 6 can be a home both to linkage of the sort we usually talk about, as well as “soft linkage,” such as an agreement — explicit or implicit — to harmonize carbon prices either at some level or within overlapping bands.

Thinking about the UNFCCC negotiations taking place now, most types of heterogeneity – of policy instruments, level of political jurisdiction, and nature of NDC targets – do not present insurmountable obstacles to linkage, but some do present real challenges, and indicate the need for specific guidance as the rulebook of the Paris Agreement is written.

Unfortunately, some countries want the Article 6 guidance to go beyond fundamental issues of accounting and environmental integrity to broader matters of environmental ambition, which properly belong in other parts of the Paris Agreement.  Whereas, accounting provisions to avoid double-counting of NDC actions through ITMOs surely belong in the Article 6 rulebook, some countries have proposed, for example, that all ITMO exchanges themselves must actually reduce net emissions.

This sounds very much like the U.S. Environmental Protection Agency’s 20% rule in its 1970’s Emissions Trading Program, which required that net emissions fall by 20% with each trade.  This was a tax and an inhibition on trading, and the result was that virtually no trading occurred.  This reminds me of a corrupted version of George Santayana’s admonition that those who do not learn from history are doomed to repeat it.  Instead we have, “I’ve learned from my mistakes, and I can repeat them exactly the same again.”

The general problem is that if the guidance extends much beyond basic accounting rules, then restrictive requirements could actually impede effective cooperation.  True to the nature and spirit of the Paris Agreement, less can be more!

UNFCCC Update from Bonn

I closed my dinner comments in Florence with a brief update on the negotiations that concluded the previous week in Bonn.  The two weeks of meetings of the Article 6 group were reported to be much tougher than they had been previously, yet the progress on the Article 6 work is actually ahead of that of groups focused on other parts of the Paris Agreement.  Although positions on Article 6 are hardening, there is no clear blocking party or coalition (unlike in the work on some of the other parts of the Agreement).  There may be less resistance to agreement simply because participation in Article 6 instruments would ultimately be voluntary.

The Path Ahead

So, as the negotiations proceed, a combination of common accounting rules and an absence of restrictive conditions can accelerate linkage, allow for broader and deeper climate policy cooperation, facilitate the emergence of a robust global carbon market, and – most important – increase the latitude of the Parties to the Paris Agreement to scale up the ambition of their long-term contributions to global greenhouse gas emission reductions.

Whether that will come to pass, we simply do not know as of now.  As usual, only time will tell.

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