Harvard’s Stavins on Climate Deal

C reation of a market to limit pollution originated in the United States. The market was supposed to control emissions of sulphur dioxide. More than two decades ago “acid rain” was the global environmental hype. The cause of acid rains was the sulphur dioxide emitted by coal-burning power plants. Instead of creating a tax or directly regulating these emissions, a market of has been created. Professor Robert Stavins – Director of the Harvard Environmental Economics Program – proposed auctioning the certificates at the time. He authored Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World. Professor Stavins had the kindness to answer us a few questions.



Mihai Stoica: What can we improve within the structure of the Kyoto Protocol, at the moment, before beginning to talk about a post-Kyoto framework?

Robert Stavins: The Kyoto Protocol covers only a limited set of countries, so the first thing we could think about is to increase the number of countries covered in the agreement and then have individual countries decide to implement what is covered in the Kyoto Protocol, taking economy wide approaches rather than sector approaches. Obviously, the EU approach is one that covers 40 percent of the emissions, because they’ve used a downstream program in the EU-ETS. If they had used an upstream cap-and-trade system it would have covered 100 percent of the emissions.

Mihai Stoica: What would be the incentives for the US to join a post-Kyoto framework?

Robert Stavins: At this point, I don’t think you have to worry about the US. The US is going to participate in 2009. There’s going to be a domestic cap-and-trade program in the United States that’s meaningful, and I think it will be a better program than what exists in Europe in terms of its design; in terms of its stringency it will be roughly similar, perhaps not as stringent. Probably, in 2009, which is more or less a deadline for the second commitment period to get going with the post-Kyoto framework, in terms of agreement, the US will participate actively.

Developing countries cannot face severe constraints on their economies and the current project-by-project structure of the CDM is too costly, restrictive and bureaucratic to effectively include developing nations in climate change policy on the long term. How do you get the developing countries to participate so as to get full access to the global carbon market?

The answer is, obviously, to make it in their financial interest to do so. There are ways of doing that. One of the ways is through a meaningful international program such as a cap-and-trade mechanism in which they would have allocations larger than their emissions, so that they’re essentially paid to participate through technology transfer from the industrialized world to the developing world.

Developing nations must come under a cap and have a cap-and-trade system; otherwise they will not have full access to the global carbon market. The other option is to continue to have this one way participation through something like the CDM (Clean Development Mechanism). The CDM has some flaws to it and there are ways in which it can be improved, it ought to be improved, but eventually those developing countries have to graduate from the CDM to full participation.

Mihai Stoica: What would be the best strategy to be implemented for a long-term emissions reduction plan, with minimal loss to the global GDP (Gross Domestic Product)?

Robert Stavins: A cap-and-trade system of some kind is the most likely of the feasible alternatives to achieve targets at a minimum cost. What you also have to do is to put in place public policies that provide incentives for the private market, to find solutions for new technologies.

Mihai Stoica: What are the main issues to be taken in consideration for a post-Kyoto international climate policy?

Robert Stavins: I think the issues identified at the UN summit were appropriate: you have to figure out ways of including developing countries, of financing adaptation, including retarded deforestation etc. These are all important issues that have to be tackled in the years ahead. We also have a major project, the Harvard Project on International Climate Agreements and over the next two years we’re working with a number of countries in the world to try to help identify what are the best design elements for the post-Kyoto climate agreement.

Mihai Stoica: Do you think the United States will fully cooperate during the next climate negotiations?

Robert Stavins: The US is cooperating, but it doesn’t mean that the US will take a position that the EU will be happy with. To say you cooperate it doesn’t mean you agree, so the US and the EU may have different positions and a different approach for the post-2012 framework.

Mihai Stoica: Are you saying the EU might be asking too much of the US in terms of engagement to fight climate change?

Robert Stavins: I’m not making a judgment about that, I’m just saying the governments will cooperate, but that doesn’t mean the governments will agree. It’s sort of like saying you’re going to play a football match: it says that you are willing to go on the field with the other team and play by the rules; it doesn’t mean that you are going to give up and tell the other team they can win. You still compete and you still have different views. The question is whether or not you get on the field.

Mihai Stoica: Is the US able and willing to change its entire policy, from an economic standpoint, regarding emissions and turn to greener technologies?

Robert Stavins: I don’t want to second guess that. I think the important thing to do is to send economic signals to the market and if it turns out that the best thing to do, according to the market, in 5 years, 10 years, 20 years or 50 years from now is carbon capture and storage, then that’s what happens; if the best thing is bio-fuel production, then that happens. The government can set the playing field in terms of economic incentives, so that the private sector makes the best technological choices. Technological change is, obviously, extremely important to address climate change and what those specific technologies should be, I’m going to leave that up to the market.

Mihai Stoica: You mentioned biofuel. As food turns out to be merely fuel, how will this affect 3rd world countries?

Robert Stavins: In general, it’s important to recognize throughout all of this that developing countries have priorities for economic development, health and education that far exceed their concerns right now regarding climate change. It’s very important to recognize that and to continue to recognize that and I think they’re quite rational in feeling that way. I would feel that way too, if I lived in a country that had a per capita income of 500 dollars per year or less. It’s extremely important that one should not have a mono focus only on climate policy.

If you work for an interest group that only cares about the environment and doesn’t care about the price of food, it doesn’t care about education, doesn’t care about healthcare or anything else for that matter, then you have the luxury of arguing in favor of the most stringent environmental policies. If instead you take a broad view and you’re a responsible citizen, then you have to take into account the fact that other things besides environmental quality matter to people, particularly in developing countries. You a have to have a very balanced view. That’s the perspective of developing countries. That’s actually a perspective that’s shared by economists in the west, whether they’re in Europe or in the United States.

Mihai Stoica: Are you optimistic when looking on to the future of our planet?

Robert Stavins: My optimism or lack of optimism for the future of the planet or the future of society has nothing to do with climate change! My view is that global climate change is something that we will deal with and that probably a hundred years from now it will be viewed as a problem that we dealt with. It will be costly to deal with it, but we will deal with it! There are other problems that I’m less optimistic about, but those are not environmental problems.

Those are problems of the distribution of income, of poverty in developing countries, those are problems of nationalism throughout the world, of splinter groups and hostilities, of lack of human rights. There are other issues that strike me as vastly more worrisome, so when I think about my grandchildren, I don’t worry about what the natural environment is that they’ll be in, I worry much more about the social and the economic environment that they’ll be in on this planet.

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