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.