Peter Gallagher on Stern and global CO2 emissions targets

Cross-posted from Peter Gallagher’s site, with Peter’s permission in light of Nicholas Gruen’s post here at Troppo on the same topic.

Sir Nicholas Stern argues, ahead of the Bali meeting of the UNFCCC, for binding, differentiated emission targets and international trading.  I think his own address betrays the fundamental problem with this approach to a collaborative regime for climate change mitigation. 

Experience alone should make any student of history or economics deeply skeptical of a negotiated assignment of effective emission targets.

  • Targets do not work as a means of distributing production or consumption in national or international spheres because the private incentives of the participants are typically not well aligned to target objectives; particularly when the objectives concern a commons such as the atmosphere. With a sufficiently large number of participants (180 or so sovereign governments) and a sufficiently complex or sensitive domain (carbon-based production or consumption), such incentive incompatibility is guaranteed
  • Multilateral organizations such as UNFCCC have demonstrated their inability to set and enforce meaningful targets by negotiation. Negotiation of targets deteriorates, instead, into target bargaining which is very likely to divert attention from underlying objectives into barren exchanges over words. The Montreal Protocol is an exception that proves this rule (for reasons Cass Sunstein has described)

Sterns argument is, briefly, that the scale of the task of cutting GHG emissions by 50% from 1990 levels by 2050 (a cut that he says will keep temperature rises to 2 – 3° Celsius) is feasible with appropriate distribution of binding targets, international emissions trading, a significant technical assistance to developing countries and a reformed Clean Development Mechanism. It implies, he says, an 80% cut in emissions in developed economies and smaller cuts in developing economies.

But his ideas about how to navigate the steps from this analysiseven assuming it is correctto an international regime of binding GHG targets are mistaken, at best.

The building of the deal and its enforcement will come from the willing participation of countries driven by the understanding of the people that action is vital. It will not be a wait-and-see game as in World Trade Organisation talks, where nothing is done until everything is settled. The necessary commitments are increasingly being demonstrated by political action and elections around the world. A clear idea of where we are going as a world will make action at the individual, community and country level much easier and more coherent.”(vox.eu)

His implication that negotiations in the WTO are somehow different because theres no deal until the whole deal is done is simply wrong. He hasapparentlyno experience of multilateral negotiation of binding treaties. This is how theyre all done. The Law of the Sea, to take one example, took a decade of travail in the 1980s for the same reason. Its not a function of the WTOs single undertaking. Its the nature of multilateral agreements designed to meet a variety of national objectives. It is very difficult to arrive at such bargains and it always takes a long time. Global agreements involving multiple factors and governments cannot be made piecemeal any more than you can cross a bridge progressively.

It flies in the face of experience, too, to imagine that popular demand, expressed at the ballot-box will bring about binding agreements on green-house gasses. Theres not much evidence of popular demand for carbon emission limits in places like China, or Russia or India, Vietnam, Nigeria, Indonesia or most other large, energy-intensifying emerging economies. And even if there were, we could not expect it to translate into a coherent program that governments will follow. The fact is that effective private interests in economic legislationwhether about climate, or trade or aidare never expressed through the ballot box.

In fact, Sterns own lecture contains a good example of a useless multilateral target. While advocating increased technological assistance for developing countries, he recommends that rich countries live up to a promise that apparently has strong popular support but has been little more than an embarrassment to them in the thirty years since OECD governments committed to it: the 0.7% of GDP they pledged to devote to aid transfers in the early 1980s.

But most puzzling of all, to me, is why Stern believes that even a large sub-set of the 180-or-so members of the United Nations are likely to accept meaningful targets to restrict emissions when the restriction has such different valuation in each economy? Ive considered this problem in more depth in my submission to the Australian governments enquiry into emissions trading schemes. In summary, carbon-reliant China has, and will have for many years, a valuation of each tonne-of-GHG-foregone that is vastly different from the valuation in e.g. France (where 90% of electricity is produced by nuclear power). What makes Stern think that they will accept a global valuation for each tonne of GHG, set by international trading, even if the new global value is temporarily disguised by a differential target that allows them to ignore the full costs for a period of time.

This is a country that is even more dedicated to administered pricing than Europe. A government that resists pressure from all sides to allow the market to value its currency more accurately, is going to have little time for a market valuation of its economic growth externalities.

Finally, I do not mean to say that targets for emission levels have no use. They can help shape the dialog and they can have no motivating force. My argument is that they are worse than useless as an organizing principle for a collaborative multilateral agreement with economic provisions.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Robert Merkel
13 years ago

China, India, and the other industralizing countries will require, in essence, a combination of bribery and blackmail to be brought to the table.

The bribery is subsidized access to low-carbon energy sources and energy efficiency technologies.

The blackmail is cratering their economies with punitive tarriffs on their trade with the outside world.

Nicholas Gruen
Admin
13 years ago

Too right Robert. So far we’ve only been talking bribery – and pretty dopey bribery at that.

Peter Gallagher
13 years ago

Shameless self promotion: the question of ‘punitive’ trade measures is pretty current — Sarkozy is one champion — so I posted a piece on the legal aspects of doing this a couple of days ago. In short, under certain conditions it would get a tick from WTO. But that threatens Australia’s interests, don’t you think?

Nicholas Gruen
Admin
13 years ago

Yep.

Generally you don’t want to be the bastard, Australia wouldn’t want to in any case, and certainly not after being the bastard oneself for the last decade.

Further, as I see it, someone has to get tough with the Chinese. And I must say I can’t wait for someone else to do it! I’m pretty excited about what Rudd might be able to do for our relationship with them, so I’m also looking forward to attacks on the Chinese being arranged by some other country.

Well the US are spoiling for a fight so it had better be them. Perhaps they might like to sign on first.

Robert Merkel
13 years ago

Peter: depends on how you interpret Australia’s interests.

Ultimately, Australia’s interests lie in a successful response to climate change. Any monstering of the BRIC economies (which would best be done on in a unified manner by the entire developed world, including Japan and South Korea) will cost the entire world, Australia more than most. In fact, it will probably cost the world economy more than taking action on climate change will!

But the simple fact is that action has to be taken, and it has to be taken soon.

The final thing to note is that any substantive action from the USA seems like it will rely on either John McCain or a Democrat being elected in 2009, preferably with a solid Democratic majority in both houses of Congress (though who knows how the Republican nominee will reposition themselves for the general election). If the wingnuts remain in charge past 2009 in the USA, we’re screwed regardless.

Nabakov
Nabakov
13 years ago

the question of punitive trade measures is pretty current Sarkozy is one champion

Slightly off topic but you have seen what Sarky’s just proposed? Another classic example of the Frogs blowing a tech lead. Just after they brilliantly unbundled their broadband, they’re now about to bundle up a whole new kettle of poisson. Does nobody there remember what went wrong with Mintel?

Moreover, the combination of those fuels and solar, wind, tidal and wave action power, and geothermal should allow us to develop a domestic power grid which generated very little CO2. Moreover, some of those emergent technologies themselves have export potential.

Yes, and that’s the tech we should also be building up a market for in China and India as well – but by appealing to their self-interest. “You wanna be utterly dependent on imported carbon fuels? Remember what happened to Japan in the early to mid 1940s?”

Jc
Jc
13 years ago

“But the simple fact is that action has to be taken, and it has to be taken soon.”

Robert, there was a good discussion some time at catallaxy where Mark Hill was good enough to dissect Stern’s report by which he showed that even if we took Stern’s scienctific assumptions contained in the report, accepted his use of a low cost of capital despite what is commonly used (stern used 1/70th the cost of capital) it would be better to leave global GDP unmolested than absorbinging the cost of mitigating GW.

http://catallaxyfiles.com/?p=3066#comments

comment 148

Stern said global GDP will drop by 20%.

He also used a discount rate 1/70 of the cost of capital.

Remember, I am just comparing a ratio between growth rates with different starting principal sums. No need to discount as they are discounted equally. What we are interested in is changes in GDP compunded.

Hence the cost to GDP unmitigated is really 20/70 or 0.2857%

So 1.01-0.2857% = 0.71% even with all costs being impacted in 2087 we will be 0.71% better off by not doing anything.

Are you at all convinced by now JohnZ?

Jc
Jc
13 years ago

while on the French

The French don’t have a problem. In fact they are pushing as hard as they can over this issue seeing their power generation is around 80% nuke based. In fact they have an immediate advantage over others and receive carbon credits fro doing nothing other than selling power through the grid.

Nabakov
Nabakov
13 years ago

Here’s an interesting presentation on climate change risk management odds.

Nicholas Gruen
Admin
13 years ago

Ken,

Not sure you’re implying it, but I wasn’t against heavying China and don’t think it’s against our national (economic) interest for it to happen. I just don’t think it is going to be us who does it – though it would be nice to think that we might quietly get on board a bandwagon ostensibly organised by others. I’m not too concerned by the thought of a fall in the price of coal.

Jc
Jc
13 years ago

Nabakov

I watched your vid and the “really bad shit” box, the doomsday box, is the equivalent of the meteor hitting earth. In other words he’s enticing people to place odds on the most extreme climate change scenario that doesn’t feature even close to the IPCC or Sterns estimates. Therefore the odds go off the rails and consequently one has to choose his “we must act column” to be rational.

If the dude thinks his “really bad shit” square is likely he could try to convince the IPCC.

But that isn’t how the game is played. Economists have to be given the most plausible, well thought out scientific scenarios availaible. From there they then do a cost benefit analysis. If the science changes then so does the CB calcs of course.

Robert Merkel
13 years ago

JC: I’m unconvinced by these arguments.

For one thing, they ignore the small, but non-zero probability of complete bloody disaster.

Second, they seem to assume that “nature goods” – the natural world which will cop the impact – will become cheaper over time just like televisions and cars. I find this assumption dubious to say the least.

Jc
Jc
13 years ago

Robert

Hill simply used Stern’s assumptions. As far as I know Stern used the IPCC report which is pretty much accepted as the gold standard for GW science. If their science is wrong, then that’s a different game. However if it isn’t, then it looks like the do nothing strategy is best leaving GDP unmolested to acummulate at the higher growth rate.

However this is now academic seeing we signed Kyoto.

Marks
Marks
13 years ago

China and India must be looking at the carbon footprint of this Bali talkfest (How many private jets was that again?) and thinking ‘these guys cannot be serious’.

Has anybody heard of videoconferencing?

Perhaps if those that believe in AGW were to act as if it were happening, then countries like India and China might also think there is something in it.

While the IPCC continues to burn up carbon in holiday destinations round the world, I cannot see developing countries taking them seriously.

Additionally, in other blogs in Australia, people are starting to ask the same question – why are climate scientists talking the talk, but not walking the walk as exemplified by Bali.