www.merit.unu.edu

number 4, 2009

Overview The current financial crisis has tended Toward a Global Science and to sap the momentum of industrialized countries’ policy steps to address climate change. Given the threat of Technology Policy Agenda for runaway global warming, adopting a “minimax-regret” strategy is the Sustainable Development best policy response: aim to stabilize GHG levels close to present levels. This requires accelerating R&D he current economic crisis has tended to expenditures targeting technologies T sap the policy momentum that had developed during 2006 and 2007 behind that radically reduce marginal costs of public R&D programmes and institutional initiatives to expand the portfolio of GHG emissions control. Making severe affordable technological means of controlling global warming. This is unfortunate, emissions cuts less burdensome would since the international negotiations about concerted actions among the leading reinforce efforts to achieve that goal industrial countries to reduce greenhouse gas (GHG) emissions have so far pro- by “cap-and-trade” programmes and ceeded very slowly – too slowly, considering both the global nature of the problem carbon taxes. The global community and the size of the stakes involved. The initial “bargaining” stance taken by some should commit itself to making major, important players, notably Japan and the United States, was in some respects disap- coordinated investments in a diversified pointing in that it appears to fall far short of the EU member countries’ endorsement portfolio of climate change R&D, and to in December 2008 of the package of EC directives designed to activate its “20-20-20” providing global access to the emerging renewable energy strategy – a 20 per cent reduction of GHG emissions, and 20 per technologies. cent of energy consumption from renewable sources, by the year 2020. While there have been more promising developments recently, in the convergence towards that target in some of the legislation introduced in the US Congress, and the Obama administration’s issuance of US Environmental Protection Agency (EPA) regulatory directives requiring the use of the latest emissions control technologies on new and Written by PAul A. David, retrofitted electricity power plants, the outcome of the Copenhagen conference in CAN Huang, Luc Soete and December 2009 remains uncomfortably uncertain. Adriaan van Zon Climate Change: Crisis upon Crisis? © United Nations University, 2009 ISBN 978-92-808-3073-6 The biggest threat of the process of global warming is precisely the lack of long-term ISSN 1814-8026 policy commitment to minimize the likelihood that delays in checking the growth of Licensed under the Creative Commons GHG concentration levels could allow the warming process to run irreversibly out

Deed “Attribution-NonCommercial- of control, even if zero CO2 emissions were eventually achieved. It is likely that there NoDerivs 2.5” are some critical threshold levels of GHG concentrations or temperature thresholds that, when crossed, will impart a self-reinforcing momentum to the process, setting in motion large-scale events that will have direct and damaging consequences, and that will absorb resources in “coping” with the environmental damage and the ensuing economic and socio-political disruptions – thereby impairing further efforts to slow and halt the warming process. www.unu.edu

At present the science of global are hard to estimate and project on warming doesn’t permit one to say with the basis of recorded past experience. complete certainty that thresholds of Consequently, the degree to which they that kind exist, much less at what criti- are unaccounted for by the projections cal GHG concentration levels or tem- of the global warming trends remains peratures they would be passed. That unclear, and the projected restrictions is precisely the worry, because in such of “intended GHG emissions” that situations there is a strong temptation to would be required to stabilize the earth’s “wait and see”. But in the nature of the temperature could well be seriously process, the risk is that when the critical understated. points are identified it will be too late for the world’s population to do anything The Need to Apply the except attempt to manage the escalat- Precautionary Principle ing damage and “adapt” to the profound A robust response to the challenge of alteration of its environment. ongoing global warming must there‑ What is known is that the physics fore make every effort to avoid those of these mutually reinforcing sequences critical thresholds from being crossed. of events tends to accelerate global The problem is that the effects of any warming, so that initial estimates of the policy action, including those aimed degree of control of GHG emissions at climate change control, are prone that would suffice to slow and halt the to unpredictable statistical variations, global rise in temperature will become and the down-side “failings” to check more and more inadequate, and the warming contribute to making the later costs of stabilizing the GHG concen- achievement of even the same target trations at tolerable levels with known more difficult and hence more costly. technological and economic measures Aiming for some stable level of GHG will rise inexorably. concentration with an a priori optimum A striking example of that positive set of policy instruments may lead to feedback, or dynamic self-reinforcement, falling short of the appropriate (mov- is already developing through the ing) target defined in terms of emissions observed reduction in ice coverage in reduction. Given the insurmountable the Arctic regions, leading to a greater adaptation costs involved in switching absorption of infra-red solar radiation, from a stable climate mode to one of and therefore an even faster reduction irreversibly accelerating global warming, of ice coverage. The induced rise in tem- the only sensible course of action is to perature leads, in turn, to the release of adopt the precautionary principle and methane from melting permafrost and commit to pursuing what are known as potentially from hydrates stored in the minimax-regret policies. These aim to deep sea. Methane is a much stronger minimize the likelihood of the worst-

greenhouse gas than CO2 , and at pres- case outcomes, i.e. those that would ent enough methane is stored in the cause the maximum regret. permafrost alone to more than double The appropriate minimax-regret the total cumulative GHG emissions climate change strategy derived from resulting from all the fossil fuel that application of the precautionary prin‑ has been burnt so far. The amount of ciple focuses on doing whatever is fea- methane stored in the form of hydrates sible to stabilize GHG concentrations is much larger still. Worryingly, the at present levels, or as close to the present rate and scale of these self-reinforcing as possible – in the hope that there is and mutually reinforcing processes still enough surplus environmental

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absorption capacity left to accommodate would set just the right future prices on the additional warming that is already emissions to induce curtailed consump- About the Authors in the pipeline due to past and pres- tion of goods and services produced Paul A. David is professor ent emissions. The fact that news items by processes yielding high GHG emis- emeritus of economics about thawing permafrost in the tundra sions. The “cap-and-trade” approach sup- at Stanford University, emeritus of Siberia and Canada and sliding and poses that the “free market” can allocate fellow of All Souls College crumbling ice sheets in Greenland and efficiently the resources used directly (Oxford), professeur titulaire at the the Antarctic seem to become more and indirectly in activities that produce Ecole Polytechnique & Telecom frequent year-by-year suggests that the GHG emissions, as well as for invest- Paris Tech and professorial fellow environment is more fragile than earlier ments that will affect the future costs at UNU-MERIT. Intergovernmental Panel on Climate of reducing such emissions. That sup- Can Huang is researcher at Change (IPCC) targets for emissions position is questionable, firstly, because UNU-MERIT. control, GHG levels and warming had it disregards the conclusion (widely supposed. In our opinion, this simply accepted among economists) that com- Luc Soete is the director of reinforces the urgency of formulating a petitive markets cannot be relied upon UNU-MERIT and professor “prudential global strategy”. to set prices that will guide rational of international economic actors to a socially efficient allocation of relations (on leave) at Three Ways to Manage the goods when the goods in question are University. Climate Crisis “public goods” – i.e. when their benefits Adriaan van Zon is senior Broadly speaking there are three ways can be freely enjoyed by others besides researcher at UNU-MERIT and in which governments can attempt to the parties that pay to obtain them. associate professor at Maastricht respond constructively to the climate Averted tonnages of GHG emissions University. change crisis. certainly qualify as global public goods The first of these, which appeals to and one should therefore expect “free a wide consensus of academic econo- riding”, resulting in an under-reduction mists and environmental experts, is to of emissions. A second dubious assump- put a price on actions causing GHG tion which, given the uncertainties emissions, through the introduction of involved, may be the more critical one, “carbon taxes” or “cap-and-trade” pro- is that the government actually “knows” grammes that induce the formation where to set the caps on the deliberate of a market for transferable emissions emission of each of the several variet- licences. If the issuance and trading of ies of destructive greenhouse gases. such licences would constrain a suffi- Obviously this problem is not simply ciently large number of enterprises, the due to the usual uncertainties about rising prices of emission permits, or the how particular economic agents will part of the imposed tax that could not respond to specific incentives. As was be shifted to customers through higher pointed out, there is also the difficulty product prices (without losing rev- posed by major uncertainties about the enues), would create a growing demand need to offset non-volitional releases for more efficient technical methods of of CO2 and methane driven by rising reducing emissions. Private investment GHG concentration levels in the atmo- in developing and commercially intro- sphere. Analogous considerations of the ducing such technologies into the grow- uncertainties of the changing environ- ing market would then be stimulated mental system and the economic agents – so long as the necessary size of the that are interacting within it occasion predictable R&D expenditures was not similar doubts about the ability of sci- excessively large and highly uncertain. entifically informed governments to set Unfortunately, there is nothing to appropriate levels of tax rates on carbon guarantee that the market for licences (or other) emissions. Furthermore, con-

Toward a Global Science and Technology Policy Agenda for Sustainable Development 3 www.unu.edu

tinually correcting the tax rates will be unpalatable actions – thus leaving an a cumbersome legislative or adminis- even bigger challenge for successor trative process, far less “automatic” and administrations. more sluggish than changing prices in a Viewed from the foregoing perspec- market. tive, the enthusiastic reception that has Still another problematic point to greeted government announcements consider in this connection is that trad- that the first-line public response to the

“The absence of scepticism and precautionary attention to the institutional structure and regulation of emissions-permission markets is quite remarkable”

able permissions to emit are as abstract climate change crisis will be to rely on a as negotiable financial assets, and just as new market, and the absence of scepti- subject to being made objects of specula- cism and precautionary attention by tion; because they will have future prices economists to the institutional structure that are subject to fluctuations, they and regulation of emissions-permission could be a basis for new, related assets, markets, are quite remarkable. i.e. “derivatives” that also would be trad- The second mode of response to cli- able. Today there are very real concerns mate change is through publicly-funded about the trouble that can ensue when programmes that aim to stimulate the complex and novel financial instruments search for new knowledge and novel are traded in markets that are not ade- combinations of existing technologies. quately regulated. Yet, the institutional The immediate goal here is to generate specifics of the future markets for the a broad portfolio of R&D programmes, emissions licences that are to be issued seeking technologies that directly or by a variety of distinct political entities indirectly could yield very significant with corresponding distinct regulatory reductions in GHG emissions. The domains remain “sketchy” at best. R&D process itself is of course inher- But even if the patchwork of mar- ently risky; in times of financial crises, kets for emissions licences is well- private firms may find it hard to fund behaved and each performs as its such risky ventures, but even in the designers intended, one should expect best of times few businesses have the that the emergence of high future prices resources and freedom from competi- for emissions will impose severe costs on tive pressures to commit major funding the mass of (low-income) consumers, as to the still more uncertain but required, well as reduced profits and more disrup- exploratory projects in quest of major tions for energy-intensive producers. scientific and technical breakthroughs. The prospects of these “effective” results Nevertheless, the uncertainties involved will be unwelcome and create strong and in climate change call for decisive actions recurring temptations for governments to address the brutal fact that a large to hold back from setting the caps (or part of the climate problem solution the emissions taxes) at levels that really will have to come from the creation and “bite”. The risk is that government agen‑ timely diffusion of new technologies cies will postpone needed but politically (rather than from fundamental changes

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in lifestyles). This implies that building an R&D portfolio covering this area in Useful Sources extenso is of strategic importance, now 20-20 by 2020: Europe’s Climate Change Opportunity (EU) more than ever. http://www.energy.eu/directives/com2008_0030en01.pdf A third line of response is precau- tionary in a different sense. However Stern Review on the Economics of Climate Change (HM Treasury) http://www.hm-treasury.gov.uk/sternreview_index.htm unlikely ex ante, the worst-case scenario could arise ex post, and one would have It’s Easy Being Green (P. Krugman, New York Times, 25 September 2009) to cope with that situation of “forced http://www.nytimes.com/2009/09/25/opinion/25krugman.html?_r=1 adaptation” by undertaking and encour- A Statement on the Appropriate Role for Research and Development in aging the development of technical and Climate Policy (K. J. Arrow, L. Cohen, P. A. David et al., The Economists’ Voice, organizational expertise. The latter 6(1): Article 6, March 2008) would have to reduce the future costs of http://www.bepress.com/ev/vol6/iss1/art6 actions aimed at mitigating the disrup- tion and damage that would ensue from Irreversible Investment under Uncertainty in Electricity Generation the rise in GHG concentrations during (A. van Zon and S. Fuss, UNU-MERIT) the coming decades. Here too there is a http://www.merit.unu.edu/publications/wppdf/2006/wp2006-035.pdf need for knowledge-portfolio widening Analysis on Environmental Problems and Sustainable Development of and deepening, to which a differently Contemporary Economics (Z. Yang and Z. Guo, Renmin University of China) focused category of R&D programmes http://www.cpeer.org/shell/main?appHandler=cencms&pageHandler= can contribute by exploring the possibil- metainfo&id=ABC00000000000004305 ities of reducing vulnerabilities of struc- Transition Management as a Model for Managing Processes of Co-evolution tures and people to “extreme weather”. Towards Sustainable Development (R. Kemp, D. Loorbach and J. Rotmans, These would include adaptive popula- The International Journal of Sustainable Development and World Ecology, 14(1): tion redistribution and geo-engineering. pp. 78–91, 2007, DOI: 10.1080/13504500709469709) Projects of this kind are highly context- sensitive, and call for close interaction and knowledge exchanges, and extensive in superior future techniques – for what feedback among solution providers and (potentially) might be quite a long time. solution users in a multiplicity of specific When such improvements are in view, industrial and environmental settings. rational private actors are likely to post- pone investment not just because of an Existing Technologies: Is it Easy to aversion to risk, but to preserve their Be Green? “option value”. Using the most efficient technologies As global warming is a truly global currently available to control emissions, problem, it seems to be in the global alongside the “emissions-pricing” meas‑ interest that current publicly-subsidized ures reviewed above, seems to make investments in energy conversion equip- perfect sense. But it could err by fixing ment should be focused on the most the energy consumption characteris- efficient equipment that is presently tics of our global production system at available, because otherwise one would a level dictated by the present state of be stuck with the less efficient equip- technology. Energy conversion equip- ment for decades to come. This course ment, such as a coal-fired or gas-fired of action would be relatively straightfor- power plant, has a technical lifespan ward, but in the end it could also prove of three decades or more, and invest- to be more costly than delaying invest- ment in current technologies therefore ments until significantly improved tech- entails some loss of the option to invest nologies emerge. A large commitment

Toward a Global Science and Technology Policy Agenda for Sustainable Development 5 www.unu.edu

of investment resources to deploying the to delay the most lumpy and irreversible immediately available “green technolo- among the necessary capital formation gies” would reduce the size of near-term commitments – thus preserving the technology markets and weaken pri- option of implementing more efficient vate incentives for R&D performance, technologies when those emerge. Since and, by extension, the chance to acquire exploratory research is particularly “A commitment to lowering the actual costs of complying with GHG reductions is a prerequisite for an international agreement on policy”

dramatically improved technologies. uncertain, one wants to make an early Hurrying to pick the low-hanging fruit start with a diversified research portfolio may be attractive simply because it is from which the more promising lines quick and easy, but it may well be better can subsequently be selected for further to wait for the higher-hanging fruit to development. ripen, or even to further that process. To make this R&D hedge work, a globally supported commitment is A Real Commitment and needed that would devote major invest- Long-term Investments ments to implement future compliance A commitment to lowering the actual with “prudential” reductions in GHG costs of complying with GHG reductions emissions. For that effort to be credible, is a prerequisite for an international the R&D effort must be large and collat- agreement on “STI (science, technology eral R&D will be needed to curtail the and innovation) policies”, emphasizing implementation costs so that they will basic and applied research. This would not reduce consumption to unacceptably require major coordinated investment low levels. Given the scale and complex- in basic and applied research aimed ity of the R&D efforts required, it is specifically at cutting the costs of drasti- worthwhile considering measures that cally reducing net GHG emissions. This would enhance the effectiveness of both R&D effort needs to be large, broad and public and private R&D investments diversified. Diversity in R&D is impor- and technology transfers in a wide array tant, both from the perspective of avoid- of “green technologies”, facilitating also ing committing resources too early in knowledge-sharing, adaptation and the the face of ongoing knowledge creation broad diffusion of innovations. This and from the perspective of reducing the calls for a critical rethinking of ways risk of betting on the wrong technol- to mitigate the inhibiting effects upon ogy horse. Weight should therefore be R&D of excessive protection of intel- given in government climate change and lectual property rights (IPR). Targeted energy strategies to undertaking major domains for research exemptions, liabil- programmes of both exploratory and ity approaches to IPR infringement, and more focused scientific and technologi- competition policy adjustments to per- cal R&D investment at this time. mit efficient pooling of patent, copyright Such programmes would seek new and database rights, all deserve consider- technologies that would make it afford- ation under this heading. able to actually achieve the required Importantly, this proposed R&D GHG reductions, and make it rational effort must be made part of a collective

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race against the clock of rising GHG Quite strikingly, China has recently pay-offs from those global R&D concentration levels, instead of fuelling embarked on a course that points the expenditures – by avoiding exces- races among “national champions” in way to escape that dismal scenario. By sive correlation of public and private quest of exclusive rights to exploit “green adding major stimulus funds to ongoing research portfolios, and by suppressing technology”. programmes of focused investments in a the unnecessary duplication of domestic range of GHG emissions-reducing tech- as well as international R&D efforts. Private Sector Involvement nologies – from nuclear power plants Research contributions can then be In view of the required scale of R&D to wind turbines and low-cost carbon- fruitfully combined, and generic prin- activities involved, the necessary capture and sequestration techniques ciples and research tools integrated with resources cannot come from the public – China is opening a path permitting specific knowledge developed in particu- sector alone. For private sector commit- eventually greater exploitation of its lar localized environments and indus- ment to creating more efficient green abundant coal resources without further trial contexts. technology options to occur soon, firms degrading its own environment. More In a certain sense the international must expect that there will be a market striking still is the recent report of the financial crisis and the looming crisis of for such technologies. Yet private sector International Energy Agency that these climate change have brought to the fore- “The diversity of scientific and engineering capabilities relevant for concerted global actions in this regard offers opportunities for mutually advantageous cooperation” investment is unlikely to be forthcom- efforts have yielded such rapid advances front an understanding that the realistic ing as long as there is no commitment to that China could be in the forefront of solution to a truly global sustainable setting an effective price on GHG emis- the world’s green technology movement development strategy is not simply to sions – by setting tight caps that will not by 2020, providing methods that would give the world’s investors global access be quietly loosened by the issuance of permit carbon capture at commer- to affordable finance. Having access to additional emissions permits to alleviate cially affordable costs in other similarly the fruits of expanded public and private industrial “distress”. endowed regions, including the United investments in science and technology at The international community States. the global level will probably be far more thus could find itself caught in an critical in the long run. “low-effort level equilibrium trap”, as Conclusion: The Need for a Global What makes the “climate crisis” a exemplified by the case of carbon- Coordinated Push for Climate unique opportunity, if a perilous one, capture technologies: because current Change R&D is that citizens in the United States, costs of carbon-capture pilot opera- There is an evident need for interna- Europe and Japan are crucially depend‑ tions are too high to make it believable tional coordination on the part of gov- ent in their sustainable future on the that firms facing CO2 emissions limits ernments at different levels regarding speed of (green) knowledge diffusion would adopt these methods, countries the funding of climate change R&D throughout the rest of the world as well with coal deposits and the coal indus- programmes, and the sharing of the as in their own countries. Therefore, try would resist tight caps on CO2 resultant advances in technological the strategic fixation with national sci- emissions – because, in the absence of knowledge. The diversity of scientific ence and technology policies that aim affordable carbon capture, they would and engineering capabilities relevant for to “appropriate” the benefits of greater lose access to that source of energy, and concerted global actions in this regard access to new knowledge that could profits, respectively. But since they will offers opportunities for mutually advan- be exploited for purposes of enhanc- not agree on effective caps, the necessary tageous cooperation. In view of the ing international competitive advantage investment in R&D (required to create large scale of the investments that will is not merely a “dangerous obsession” the expectation that those caps would be needed to achieve “game-changing” among economic advisers and policy- turn out to be tolerable) simply is not technological advances, a compelling makers. It should be recognized as a real going to be forthcoming. case can be made for raising the social danger to all of the world’s peoples.

Toward a Global Science and Technology Policy Agenda for Sustainable Development 7 www.unu.edu www.merit.unu.edu

INSIDE: Policy Brief

UNU-MERIT is the United Nations University Maastricht Economic Toward a Global Science and social Research and training centre on Innovation and Technology. It integrates the former UNU Institute for New Technologies (UNU- and Technology Policy INTECH) and the Maastricht Economic Research Institute on Innovation Agenda for Sustainable and Technology (MERIT). UNU-MERIT provides insights into the social, political and economic contexts within which innovation and technological Development change is created, adapted, selected, diffused, and improved upon. The Institute’s research and training programmes address a broad range of A large part of the climate relevant policy questions dealing with the national and international problem solution will have governance of innovation, intellectual property protection, and knowledge creation and diffusion. UNU-MERIT is located at, and works in close to come from the creation collaboration with, in The . and timely diffusion of new technologies, rather than from a fundamental change

in lifestyle.

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