A climate change convention is currently taking place in Warsaw, Poland and although the public talks began on the 11th of November, the political commitments were adopted when the government ministers joined the negotiating table on the 27th of November for few days. This convention is the latest summit of the United Nations Framework Convention on Climate Change (UNFCC). The UN talks have been held since 1992, through annual conventions giving, despite high expectancies on the international stage, no legally binding regulation on the carbon emissions yet. The international summits on climate change are often negatively seen by the public due to the fact they are pointing out the major difficulties encountered by the various actors of the international stage to take any global initiative to tackle the issues raised by the carbon emissions from the rich countries. If we need any reminder of that, we only need to put forward the examples of the Kyoto protocol in 1997, which the US never ratified or the Copenhagen summit in 2009, which ended in scenes of chaos despite the ratification of several commitment measures from most of the industrialised countries. So far, these commitments are only running to 2020 and represent far less than the levels that need to be reached according to several key experts such as the intergovernmental panel on climate change. The main goal of the current talks consists in forging an agreement that would come into application by 2020 and that would include significant cuts of greenhouse gas emissions from major economies as well as from emerging countries.
This blog initially aims at giving a clear overview of the main ins and outs of environmental topics and despite the important political dimension that these talks present, it is not in our mission to assess and criticize the international agreements taken from a political perspective. This article will focus on the current tools available to the governments, which aim at reducing their carbon emissions. The question of cutting global carbon emissions is to be paired with the question of the carbon emissions trading that was implemented shortly after the Kyoto protocol in 1997. Emissions trading relies on a restriction of the total amount of carbon that can be released into the atmosphere. The core of this system consists in the ability of a national government to issue shares of its agreed emissions limits in the form of tradable certificates. The companies, which have to comply with the carbon abatement scheme, can then decide for themselves whether to reduce their carbon emissions or to buy these certificates from other company that have exceeded their targets of carbon reductions.
The introduction of a trading framework has the benefit of reaching the cheapest abatement scenario. Without implementing a trading system, the total cost of abatement would be higher and the companies that have the most expensive abatement capacity would be forced to reduce their own carbon emissions at a higher cost. As the trading system currently presents the least cost solution to global emissions reduction, industries and businesses are firmly in favour of such system rather than a carbon tax. One of the advantages of the trading system is its capacity to generate incentives for innovating in abatement technology as long as the market price of carbon rises. In comparison with the trading system, a carbon tax would set a price per ton of carbon and only lead to the incentive of adjusting the production levels, which are not profitable for either the society or the businesses.
One of the other consequences of a trading system is the entry of new suppliers of abatement technology, which enhance the reactivity of companies to adopt a strategy for their abatement targets. Thus, the performances of any company in emissions monitoring and trading will be part of its environmental performance, which is assessed by an increasing number of suppliers and customers. Carbon emissions are about to become a way for companies to gain competitive advantage over each other and as a consequence in the long term, being successful in the abatement strategy will play a key role in the competiveness of companies.
The main example that is put forward for promoting the trading system over the carbon tax comes from a past experience of the introduction of an emissions trading system for sulphur and nitrous oxides (SOx and NOx), which are the main pollutants involved in the precipitation of acid rains. In 1990, the US clean air act required electric plants to lower their emissions of NOx and SOx by 8 millions tons compared with the 1980 levels. The cost of this abatement program was estimated by various experts and eventually happened to be far less than anticipated. The reason for these economic savings comes from the introduction of such decentralized and market-driven approach of the acid rain program. Despite the promising success of such innovative solution to the emissions problem, the Bush administration has refused taking part to the Kyoto protocol and the current US legislation is made of a mix of laws across the states. This regulation system is largely criticized on the international and national stage, which call for a more consistent program based on a trading system for US businesses.
The number of schemes being implemented across the world reveals a clear shift in national strategies of carbon abatement. Nevertheless, the main reason that explains such discrepancies comes from the differences within the industries of the countries, which choose their own strategy for the abatement of their carbon emissions and create a heterogeneous carbon reduction schemes.
To put it in a nutshell, a trading system is often compared with a carbon tax system and based on past experiences with other pollutants; it appears that a trading system offers more advantages for the businesses to comply with the carbon abatement targets to be set on a governmental scale. For a better synergy between the countries, those national targets should be set on a global scale during the climate change conferences, which explains the crucial importance of the success of such international events. However, the main decisions that the international stage agreed on at the 2013 Warsaw climate change conference consisted in the countries responsibility to come forward with their “contributions” to global reductions of greenhouse gas emissions. These contributions will be set at a national level and although such actions will be assessed by other countries, the exact form of assessment is not established yet. The next climate change conference will be held in Lima, Peru in 2014 but most of the global agreements will be eventually ratified at the 2015 climate change conference that will take place in Paris.
1. 2013 Warsaw climate change conference
2. Carbon targets per country (IEA)
3. Establishing and understanding post-2020 climate change mitigation commitments (OECD report by G. Briner and A. Pragg)