Mitigating climate change - The role of developing countries

Abstract: The objective of the UN Framework Convention on Climate Change is to stabilize greenhouse gases in the atmosphere at a level that prevents dangerous anthropogenic interference with the climate system. It is still politically and scientifically uncertain at which level greenhouse gases must be stabilized to achieve this objective. However, if low stabilization levels are to remain achievable, climate change mitigation is urgent. Low stabilization levels require global per capita emissions by the end of this century to be on the order of current emissions in less-developed countries. When must countries commit to abating emissions, and how can the commitment process be encouraged and facilitated? Should developed nations, who are mainly responsible for the current levels of CO2 in the atmosphere, go first? If developed nations do go first, will others follow, or will carbon instead leak, along with production, from the carbon-constrained to the developing nations? How can developing countries, whose emissions are projected to increase dramatically in the absence of climate policies, be encouraged to make emissions reductions? This thesis explores and helps answer these questions. We show that a generous allocation of emission allowances to developing countries can generate incentives for India as well as most other developing countries to participate in international emissions trading. For Latin America, the revenue from emissions allowances is not enough, but including the revenue from trade in biomass may provide sufficient incentive. We even find that global carbon-abating policies may benefit the OPEC. OPEC profits from conventional oils may actually increase under carbon policies because unconventional oils (which are rare in almost all of OPEC) and coal-to-liquids are more carbon-intensive, and the cost of these fuels increases more rapidly. However, we also show that for developing countries with high present per-capita emissions, it is difficult to generate economic incentives for mitigation. Of course, an allocation comparable to business-as-usual can give economic incentives even for these countries in the medium term. Since expected emissions in a business-as-usual scenario are uncertain, a large amount of surplus allowances may be established. In the first commitment period of the Kyoto Protocol, a carbon surplus probably exists in the former Soviet Union block. We show that the U.S. withdrawal from the Protocol threatens to render permits worthless during the Kyoto Period 2008-2012. We also show that the permit price probably in fact will not collapse due to the concentration of the surplus which may allow Russia and Ukraine to operate under oligopoly conditions. A similar situation could arise if initial excess permits are allocated to developing countries as an incentive for their joining a climate protocol. We estimate that excess permits equal to the present CO2 emissions in the EU may result. Market power factors (a concentration of excess permits in China and India) would likely preclude a collapse of the permit price. Finally, we consider whether developing countries may reduce emissions compared to projected increases as a result of developed countries adopting policies to mitigate climate change. We find that the CO2 efficiencies of various energy intensive processes tend to converge globally, historically, and they tend to converge toward the more efficient processes. This suggests that developing countries may end up reducing emissions, once policies in developed countries yield the technology and practices for doing so. This provides an additional justification for early action in developed countries.

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