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A Thesis Submitted to the Faculty of the Graduate School of Arts And THE ROAD AFTER PARIS: THE RELATIONSHIP BETWEEN CLIMATE CHANGE POLICY STRINGENCY AND ECONOMIC GROWTH AT THE COUNTRY LEVEL A Thesis submitted to the Faculty of the Graduate School of Arts and Sciences of Georgetown University in partial fulfillment of the requirements for the degree of Master of Public Policy in Public Policy By David P. Allen, B.A. Washington, DC April 12, 2016 Copyright 2016 by David P. Allen All Rights Reserved ii THE ROAD AFTER PARIS: THE RELATIONSHIP BETWEEN CLIMATE CHANGE POLICY STRINGENCY AND ECONOMIC GROWTH AT THE COUNTRY LEVEL David P. Allen, B.A. Thesis Advisor: Adam T. Thomas, Ph.D. ABSTRACT Increased emissions of carbon dioxide and greenhouse gases (GHG) have exacerbated the effects of climate change and have led to intensified weather events and a steady rise in the average global temperature. Countries sought to outline an aggressive agenda for combatting climate change at the Conference of the Parties (COP 21) in Paris last year. In order to reach a common goal, countries released national action plans, known as Intended Nationally Determined Contributions (INDCs) for reducing GHGs and CO2 emissions. However, a source of contention is the effect that limiting emissions might have on economic growth. In the context of the recently completed COP21, this paper examines the relationship between the stringency of climate policy implemented prior to 2015 and countries’ gross domestic product (GDP), as a proxy for economic growth. Because INDCs were only introduced in the lead up to COP 21, this paper instead uses the Climate Change Performance Index (CCPI) to measure the stringency of countries’ climate policies from 2010 through 2014. My results show that an increase in the CCPI percentile score is positively associated with a small rise in a country’s GDP. Additionally, this analysis indicates that countries may experience higher increases in GDP for an improved CCPI ranking, depending on the country’s level of development. Therefore, my paper provides some suggestive evidence that countries may be able to enact progressively stricter climate policies without impeding their economic growth. iii TABLE OF CONTENTS Introduction ................................................................................................................................................... 1 Background ................................................................................................................................................... 4 Literature Review .......................................................................................................................................... 7 Economic Cost of Climate Change ........................................................................................................... 7 The Price Tag of Global Mitigation .......................................................................................................... 9 The Kyoto Protocol and Economic Impacts of Regional ETS ............................................................... 10 Conceptual Framework & Hypothesis ........................................................................................................ 15 Economic Factors .................................................................................................................................... 16 Demographic Factors .............................................................................................................................. 17 Political Factors ...................................................................................................................................... 18 Data and Methods ....................................................................................................................................... 19 Dependent Variable ................................................................................................................................ 19 Independent Variable .............................................................................................................................. 20 Control Variables .................................................................................................................................... 21 Model ...................................................................................................................................................... 21 Descriptive Statistics ................................................................................................................................... 25 Regression Results ...................................................................................................................................... 28 Discussion ................................................................................................................................................... 34 Appendix 1: CCPI Background and Methodology ..................................................................................... 38 Appendix 2: List of CCPI Participating Countries ..................................................................................... 40 References ................................................................................................................................................... 41 iv LIST OF FIGURES AND TABLES Figure 1. Influences on a country’s economic growth ................................................................. 16 Table 1. Definition of variables.................................................................................................... 23 Table 2. Descriptive statistics for dependent, key independent, and control variables................ 27 Table 3. Coefficients from OLS Models and Fixed-Effects Models Regressing GDP (USD$ billion) on the CCPI Percentile Score and Selected Control Variables ............................ 32 Figure 2. Components of the CCPI .............................................................................................. 39 v INTRODUCTION The exacerbated effects of climate change in the 21st century have led to steady increases in the global average temperature and increasingly intensified weather events (Coumou, 2012). Symptoms of climate change such as extreme drought, rising sea levels, Arctic ice loss, desertification, and the spread of diseases have the potential to reshape the future of geopolitics and compel countries to reassess their economic priorities and interests. These natural phenomena are predicted to have an adverse impact on the ability of governments to maintain global infrastructure and ensure access to food and electricity for their populations (Harvey, 2011). As virtually every nation will be affected, climate related considerations are being incorporated into the planning, design, and operation of urban infrastructure and energy generation (Moss, 2010). The recently completed Conference of the Parties (COP 21) in Paris this past December has set forth a global agenda on climate change for the next five years and beyond. In preparation for the conference, signatory countries to the United Nations Framework Convention on Climate Change (UNFCCC) publicly released their post-2020 climate action plans, also known as Intended Nationally Determined Contributions (INDCs) (Biru, 2015).1 Major greenhouse gas (GHG) emitters, such as the European Union (EU), the United States (U.S.), China, and Russia, provided their INDCs well in advance. These early INDC submissions prompted developing states to pledge achievable, but ambitious reductions and led to the overall success of the conference. The resulting international agreement aimed to hold any increase in the global 1 The United Nations Framework Convention on Climate Change (UNFCCC) is an international agreement concluded in 1992 and which has been ratified by 197 Parties as of 2016. The agreement established a Secretariat, which is responsible for holding regular Conferences of the Parties (COPs) to coordinate global efforts to address climate change. 1 average temperature to below two degrees Celsius above pre-industrial levels (Leggett, 2015). Additionally, participating countries agreed to “pursue best efforts” to limit temperature increases to 1.5 degrees Celsius. The articulation of these objectives makes the Paris Agreement one of the most robust climate change pacts to be negotiated (Davenport, 2015). One of the biggest concerns leading up to the Paris agreement was whether a critical mass of countries would pledge sufficiently aggressive reduction targets. Many developing countries and newly emerging economies (including the BRICs) are concerned that limiting emissions will significantly curtail their economic growth trajectories (Tian, 2009).2 While mitigating climate change is perceived as an important issue, poverty eradication and socioeconomic development are higher priorities for underdeveloped states (The Economist, 2015). The European Union and U.S. submitted moderately strong INDCs in anticipation of the climate talks, but have substantial resources for investing in renewable energy and other clean power technologies, compared to developing countries. The level of development and economic strength of the EU and the U.S facilitate their ability to reduce GHG emissions in a relatively expedited and efficient manner (Tian, 2009). Additionally, the Global South has largely been more reluctant to commit to the same level of emission reductions as advanced economies.3 As developed countries historically released high amounts
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