Transcript Slide 1
International Environmental Agreements:
Politics, Economics, Law
Economics 331b
Spring 2009
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The Next Step: Effective International Agreements
Step 1. Understanding the science, impacts, potential
remedies such as mitigation, geoengineering, etc.
Step 2. Undertaking economic/political analyses of efficient
and equitable steps to meet environmental objectives at
minimum cost
Step 3. Design and agree to institutions and mechanisms that
will attain objectives:
- by obtaining the necessary agreement among nations
- by ensuring that individual nations meet their
agreements.
In the case of global warming, this is about as difficult as can
be envisioned because of (i) global public good, (ii) stock
quality, and (iii) long time horizon.
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Notes on International Agreements
Potential mechanisms for reaching agreement:
- markets: inefficient for public goods/externalities
- within nations: autocracy, legislation (majority or
supermajority): inefficient for global public goods/externalities
- among nations: force, multinational institutions, treaties
Note on treaties: these are legal “contracts” among govts
Special problems with international governance under current
norms of international law:
- need for voluntary agreements
- generally cannot bind countries over time
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UN Framework Convention on Climate Change
The FCCC is the underlying treaty that sets the framework of further agreements.
Entered into force in 1994.
Article 2. Objective
“The ultimate objective … is to achieve … stabilization of greenhouse gas
concentrations in the atmosphere at a level that would prevent dangerous
anthropogenic interference with the climate system. Such a level should be
achieved … to ensure that … economic development to proceed in a
sustainable manner.”
Article 4. Commitments.
“2. The developed country Parties … commit themselves ... :
(a) Each of these Parties shall adopt national policies … by limiting its
anthropogenic emissions of greenhouse gases ... (b) [E]ach of these Parties shall
communicate… information on its policies … with the aim of returning
individually or jointly to their 1990 levels these anthropogenic emissions of
carbon dioxide and other greenhouse gases …. “
Notes:
- Essentially universally adopted.
- No binding commitments.
- Kyoto Protocol is an agreement within the Framework of the FCCC.
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Y (Low income)
Some bargaining outcomes
A. Low income countries benefits
(Kyoto Protocol)
B. Low income countries hurt
(Mickey Mouse/drug treaties)
C. Efficient with side payments
Efficient with
side payments
A
C
B
Market
Y (High income)
Major Issues in Any International
Climate-Change Regime
1. What should be the overall level of emissions reductions,
and how should that change over time?
2. What should be the distribution of emissions or
emissions reductions (or economic costs) among
countries?
3. Should there by income transfers from high-income to
low-income countries?
4. Design issues of how to coordinate international policies
(quantities v. prices); enforcement; trade linkages;
production v. consumption basis
The Kyoto Protocol
Major provisions:
- A “cap and trade” emissions reduction program
- Protocol negotiated in 1997
- Limiting emissions to fraction of 1990 rates.
- Limited to high-income countries
- Only agreed for 2008-2012 period
- Allows trading of emissions permits among countries
- US Senate passed a resolution in 1997 by 95-0 to warn that Senate
would not ratify.
- Bush Administration withdrew in 2001.
- Protocol went into effect in Feb 2005 after Russian ratification.
Obama administration has proposed entering, but prospects in the
Congress are uncertain in the near term.
Important note: Virtually all US proposals are “cap and trade” like Kyoto
Protocol
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Economic Modeling of Alternative Policies
1. Recall that the modeling strategy is to use the Samuelson-Negishi
theorems to simulate the behavior of market systems:
n
i
i
i
max
W
{
U
[c
(t)]}
i
{ c ( t )}
i 1
2. To analyze policies, we add auxiliary constraints (like Lagrange
maximization) to these:
n
n i
max
W
{
U
[c
(t)]}
(t)
E
(t
)
E(t
)
{ c i ( t )}
i 1
i 1
where E(t) are the limits (Kyoto or whatever).
i
i
i
3. Note: The λ(t) are the Lagrange multipliers. They represent the “dual
variables” or “shadow prices” on carbon emissions in each period. The
market correspondence is the optimal carbon taxes or prices on
emissions permits.
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Attrition of Kyoto Protocol
Fraction of Global Emissions Covered by KP
With US
Without US
Enthusiasts
100%
80%
60%
40%
20%
0%
1990
2002
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Emission Reductions Under KP Will Be Minimal
Differences in CO2 Emissions
Difference from base (percent)
0%
-5%
-10%
-15%
Efficient policy
Original Kyoto Protocol
KP without U.S.
-20%
1995 2005 2015 2025 2035 2045 2055 2065 2075
Winners, Losers, and Big Losers
Abatement Costs of Kyoto Protocol
with and without U.S. Participation
1.0
Abatement costs (trillions of 1990 $)
0.5
0.0
-0.5
-1.0
-1.5
Without US
-2.0
With US
-2.5
USA
OHI
Europe
EE
ROW
World