Trade, the Environment and Sustainable Development: Transition to a Low-Carbon Economy

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

VIRTUAL INSTITUTE TEACHING MATERIAL ON TRADE, THE ENVIRONMENT AND SUSTAINABLE DEVELOPMENT: TRANSITION TO A LOW-CARBON ECONOMY

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

VIRTUAL INSTITUTE TEACHING MATERIAL ON TRADE, THE ENVIRONMENT AND SUSTAINABLE DEVELOPMENT: TRANSITION TO A LOW-CARBON ECONOMY

New York and Geneva, 2016 NOTE

The views expressed in this volume are those of the author and do not necessarily reflect those of the United Nations.

The designations employed and the presentation of the material do not imply the expression of any opinion on the part of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.

Material in this document may be freely quoted or reprinted, but acknowledgement of the UNCTAD Virtual Institute is requested, together with a reference to the document number. A copy of the publication containing the quotation or reprint should be sent to the UNCTAD Virtual Institute, Division on Globalization and Development Strategies, Palais des Nations, 1211 Geneva 10, Switzerland.

This document has been edited externally.

The UNCTAD Virtual Institute (http://vi.unctad.org) is a capacity-building and networking programme that aims to strengthen teaching and research of international trade and development issues at academic institutions in developing countries and countries with economies in transition, and to foster links between research and policymaking. For further information, please contact [email protected].

ii ACKNOWLEDGEMENTS

This teaching material was developed by the UNCTAD Virtual Institute, under the overall guidance of Vlasta Macku, and in cooperation with UNCTAD’s Trade, Environment, Climate Change and Sustainable Development Branch. The material was researched and written by Caspar Sauter from the Virtual Institute, and benefitted from comments by Bonapas Onguglo and Robert Hamwey of the Trade, Environment, Climate Change and Sustainable Development Branch. The text was English-edited by David Einhorn, and the design and layout were created by Hadrien Gliozzo.

The financial contribution of the Government of Finland is gratefully acknowledged.

iii TABLE OF CONTENTS

NOTE ii ACKNOWLEDGEMENTS iii TABLE OF CONTENTS iv LIST OF FIGURES vi LIST OF TABLES vii LIST OF BOXES vii LIST OF ABBREVIATIONS ix

INTRODUCTION 1

The environment, the economy and trade: The importance of sustainable development 5

1 Introduction 6 2 The economy and the environment: Unravelling the links 6 2.1 Links between the economy and the environment 7 2.2 Environmental impact of economic activities 11 3 Sustainability of the economic system 15 1 3.1 Ecocide: Lessons from history 15 3.2 Sustainability 17 module 3.3 Sustainable development: The international awakening 17 3.4 Trade as a key component of sustainable development 18 4 Impact of trade on the environment 20 4.1 Trade, trade openness and the environment: A first glance at the data 20 4.2 Environmental impact of trade: What we can learn from theory 23 4.3 Environmental impact of trade: What we can learn from empirical evidence 25 5 Exercises and questions for discussion 28 ANNEX 1 29 ANNEX 2 29 REFERENCES 30

The climate science behind climate change 33

1 Introduction 34 2 Climate system and climate change – the theoretical basis 35 2.1 The five components of the climate system 36 2.2 Earth’s energy balance and the natural greenhouse effect 38 2 2.3 Internally and externally induced climate change 40 2.4 Measuring the importance of factors driving climate change: radiative forcing and effective radiative forcing 43 2.5 Human-induced climate change 44 module 3 Observed changes in the climate system 50 3.1 Observed changes in temperature 50 3.2 Observed changes in precipitation 51 3.3 Observed changes in ice and snow cover 52 3.4 Observed changes in sea levels 52 3.5 Observed changes in extreme events 53 3.6 Impacts on natural and human systems 53 4 Anticipated changes in the climate system and potential impacts of climate change 55 5 Exercises and questions for discussion 58 ANNEX 1 59 ANNEX 2 59 REFERENCES 60

iv The economics of climate change 63

1 Introduction 64 2 The competitive markets model and Pareto efficiency 64 2.1 A simple model of market economies 65 2.2 Pareto efficiency 66 3 2.3 Competitive market equilibria and Pareto efficiency 66 3 Climate change: The greatest market failure in human history 68 3.1 The atmosphere: An open-access resource 68 module 3.2 Greenhouse gas emissions: A negative externality problem 69 4 Why is it so hard to solve the climate change problem? 71 4.1 Mitigating climate change: A global public good 71 4.2 Basic game theory notions and concepts 72 4.3 Climate change mitigation: A game theory perspective 74 5 Exercises and questions for discussion 79 ANNEX 1 80 REFERENCES 81

The politics of climate change – towards a low-carbon world 83

1 Introduction 84 2 Policy options and technological solutions to limit climate change 85 2.1 Policy instruments and technologies allowing to stabilize concentrations of greenhouse gases in the atmosphere 85 2.2 Policies allowing to promote technological solutions aimed at increasing the amount of reflected incoming 95 4 solar radiation back into space 3 Climate change adaptation policy options 96 4 The international climate change policy architecture 101 module 4.1 From Rio to Paris – 25 years of climate change negotiations 101 4.2 The Paris Agreement 102 5 Exercises and questions for discussion 107 ANNEX 1 108 ANNEX 2 108 REFERENCES 109

v LIST OF FIGURES

Figure 1 The economy and the environment: Two interdependent systems 7 Figure 2 Classification of natural resources 8 Figure 3 World trade, exports and imports by broad category 8

Figure 4 CO2 – IPAT decomposition 12 Figure 5 Kaya decomposition: Annex I countries (left panel) and non-Annex I countries (right panel) 13 Figure 6 United Nations 2015 world population projection 14 Figure 7 IPAT: The impact of projected population growth on CO2 emissions 14 Figure 8 IPAT: The impact of projected GDP per capita growth on CO2 emissions 15 Figure 9 Trade openness and CO2 emissions, 1960–2014 21 Figure 10 Trade openness and CO2 emissions, 2011 22 Figure 11 Relationship between agreement, evidence and confidence levels 34 Figure 12 The climate system 36 Figure 13 Layers of the atmosphere 37 Figure 14 Photosynthesis – the chemical reaction 38 Figure 15 The global mean energy balance of the earth 39 Figure 16 Extreme events - schematic presentation 41 Figure 17 Correlations of surface temperature, precipitation and mean sea level pressure 42 with the Southern Oscillation Index

Figure 18 Externally induced climate changes 43 Figure 19 Atmospheric carbon dioxide, methane and nitrous oxide concentrations from year 0 to 2005 45 Figure 20 Key properties of main aerosols in the troposphere 46 Figure 21 Radiative forcing of the climate between 1750 and 2011 48 Figure 22 Positive and negative feedback mechanisms 49 Figure 23 Observed surface temperature changes from 1901 to 2012 50 Figure 24 Observed change in annual precipitation over the land surface 51 Figure 25 Selected observed changes in snow cover, ice extent and sea level 52 Figure 26 Observed impacts attributed to climate change 54 Figure 27 Carbon dioxide emission trajectories according to the four representative concentration pathways 55 Figure 28 Predicted increases in mean surface temperature 56 Figure 29 Key anticipated risks per region 57 Figure 30 Equilibrium in a single competitive market 65 Figure 31 A Pareto-efficient level of output in a single competitive market 67 Figure 32 Greenhouse gas emissions: A negative production externality problem 70 Figure 33 Payoff matrix of a two-player game with a dominant strategy equilibrium 73 Figure 34 Payoff matrix of a two-player game with two Nash equilibria 74 Figure 35 Reducing greenhouse gas emissions in a world composed of two countries 75 Figure 36 Overview of implemented or scheduled carbon pricing policy instruments 88 Figure 37 Carbon dioxide emissions per unit of GDP 89 Figure 38 Share of renewable energies in Germany’s energy market 93 Figure 39 Number of large-scale carbon capture and storage pilot projects per year 94 Figure 40 Direct industrial air capture system 94 Figure 41 Potential climate change damage share in relation to population share by region in 2050 (per cent) 96 Figure 42 The Local Adaptation Plans for Action framework 100 Figure 43 Estimated climate financing in 2014 104 Figure 44 Kenya’s carbon dioxide abatement potential by sector 106

vi LIST OF TABLES

Table 1 World population, affluence and technology, 2014 12 Table 2 Trade-induced scale, composition and technique effects 25 Table 3 Selected empirical results on trade and air pollution 35 Table 4 Changes in the probability of occurrence of extreme events 53 Table 5 Reducing greenhouse gas emissions in a world of n countries 76 Table 6 Factors affecting outcomes of collective actions 77 Table 7 Selected policy options to stabilize concentrations of carbon dioxide in the atmosphere 86 Table 8 Comparison of policy options limiting climate change 95 Table 9 Categories and examples of adaptation options discussed in the fifth IPCC assessment report 97

LIST OF BOXES

Box 1 The Paris Agreement 2 Box 2 Patterns of world trade in natural resources 8 Box 3 Interactions among environmental services: The Ganga River case 10 Box 4 Kaya decomposition: Providing additional insights 13 Box 5 The ecocide of the Mayan society 16 Box 6 Trade in environmental goods and services 18 Box 7 A decomposition of scale, composition and technique effects 23 Box 8 Selected empirical evidence on the impact of trade on deforestation and water use 26 Box 9 The IPCC’s terminology to report findings to the public 34 Box 10 Extreme events 41 Box 11 The El Niño-Southern Oscillation – an example of an internal interaction among components 42 of the climate system affecting the means and variability of different climate variables

Box 12 Equilibrium in a single competitive market 65 Box 13 A Pareto-efficient level of production in a single market 66 Box 14 Different collective action outcomes for identical collective action problems 77 Box 15 The results of the Swedish carbon tax 89 Box 16 Carbon leakage, competitiveness, and carbon border tax adjustments 90 Box 17 Germany’s Energiewende policy 93 Box 18 Cyclone shelters and early warning systems in Bangladesh 98 Box 19 The camellones project in Bolivia 98 Box 20 Nepal’s National Framework on Local Adaptation Plans for Action 100 Box 21 Kenya’s Nationally Determined Contribution objectives and approaches 105

vii LIST OF ABBREVIATIONS

°C DEGREES IN CELSIUS ADP AD HOC WORKING GROUP ON THE DURBAN PLATFORM FOR ENHANCED ACTION APEC ASIA PACIFIC ECONOMIC COOPERATION AR ARGON AR4 FOURTH IPCC ASSESSMENT REPORT AR5 FIFTH IPCC ASSESSMENT REPORT BA BORDER ADJUSTMENT

C6H12O6 GLUCOSE CAT CAP AND TRADE CCN CLOUD CONDENSATION NUCLEI CCS CARBON CAPTURE AND STORAGE CFC CHLOROFLUOROCARBON CO CARBON MONOXIDE

CO2 CARBON DIOXIDE

CO2-EQ CARBON DIOXIDE EQUIVALENT COP3 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN KYOTO COP 13 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN BALI COP15 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN COPENHAGEN COP16 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN CANCÚN COP17 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN DURBAN COP18 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN BALI COP21 UNITED NATIONS CLIMATE CHANGE CONFERENCE OF THE PARTIES IN PARIS

CH4 METHANE EDGAR EMISSIONS DATABASE FOR GLOBAL ATMOSPHERIC RESEARCH EGS ENVIRONMENTAL GOODS AND SERVICES EIT ECONOMIES IN TRANSITION EMC EXTERNAL MARGINAL COSTS ENSO EL NIÑO-SOUTHERN OSCILLATION ERF EFFECTIVE RADIATIVE FORCING ESCII ENERGY SECTOR CARBON INTENSITY INDEX ETS EMISSION TRADING SYSTEM GDP GROSS DOMESTIC PRODUCT GHG GREENHOUSE GAS

GTCO2 GIGATONNES OF CARBON DIOXIDE GW GIGAWATT

H2O WATER HS HARMONIZED COMMODITY DESCRIPTION AND CODING SYSTEM IEA INTERNATIONAL ENERGY AGENCY IN ICE NUCLEI INDC INTENDED NATIONALLY DETERMINED CONTRIBUTIONS IPAT ENVIRONMENTAL IMPACT, POPULATION, AFFLUENCE, AND TECHNOLOGY IPCC INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE KA THOUSANDS OF YEARS LAPA LOCAL ADAPTATION PLANS FOR ACTION MT MEGATONNE

N2 NITROGEN

N2O NITROUS OXIDE NAPA NATIONAL ADAPTATION PROGRAMME OF ACTION NDCS NATIONALLY DETERMINED CONTRIBUTIONS NOX NITROGEN OXIDES

O2 OXYGEN

O3 OZONE OA ORGANIC AEROSOLS OECD ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT PMB PRIVATE MARGINAL BENEFITS PMC PRIVATE MARGINAL COSTS POA PRIMARY ORGANIC AEROSOLS PPB PARTS PER BILLION PPM PARTS PER MILLION PPP PURCHASING POWER PARITY R&D RESEARCH AND DEVELOPMENT

viii RCP RREPRESENTATIVE CONCENTRATION PATHWAY RF RADIATIVE FORCING SAR SECOND IPCC ASSESSMENT REPORT SMB SOCIAL MARGINAL BENEFITS SMC SOCIAL MARGINAL COSTS SO SOUTHERN OSCILLATION

SO2 SULPHUR DIOXIDE SOA SECONDARY ORGANIC AEROSOLS SOI SOUTHERN OSCILLATION INDEX SST SEA SURFACE TEMPERATURE TAR THIRD IPCC ASSESSMENT REPORT TPES TOTAL PRIMARY ENERGY SUPPLY TOA TOP OF THE ATMOSPHERE UN UNITED NATIONS UNCED UNITED NATIONS CONFERENCE ON ENVIRONMENT AND DEVELOPMENT UNCTAD UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT UNDESA UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS POPULATION DIVISION UNFCCC UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE UV ULTRAVIOLET VDC VILLAGE DEVELOPMENT COMMITTEES WCED WORLD COMMISSION ON ENVIRONMENT AND DEVELOPMENT WM-2 WATTS PER SQUARE METER WMGHG WELL-MIXED GREENHOUSE GASES WTO WORLD TRADE ORGANIZATION

INTRODUCTION

Climate change is the biggest global environ- our carbon-based economy into a low-carbon mental challenge of the 21st century. Changes economy is now widely acknowledged by poli- in the climate system that are having a signifi- cymakers. At the 21st Session of the United Na- cant impact on the environment and on human tions Framework Convention on Climate Change beings can already be seen today. Since the 1950s, (UNFCCC) in December 2015, the international our atmosphere and oceans have been warming, community adopted the Paris Agreement (see sea levels have been rising, and the amounts of Box 1), which uniformly acknowledged the impor- snow and ice have diminished on a global scale tance of climate change mitigation and adapta- (IPCC, 2014).1 Today, human influence on the cli- tion actions to tackle this global challenge, and 1 The IPCC, founded in 1988 mate system is a scientifically confirmed fact: ac- recognized the need “to strengthen the global by the World Meteorologi- cording to the Fifth Assessment Report of the In- response to the threat of climate change, in the cal Organization and the United Nations Environ- tergovernmental Panel on Climate Change (IPCC), context of sustainable development and efforts ment Programme, is the human activity is extremely likely to have been to eradicate poverty” (Paris Agreement, Article 2, international entity that is the dominant cause of this global warming. If hu- §1). Unlike previous international agreements on assessing the science related manity continues to emit substantial quantities climate change, the Paris Agreement calls upon to climate change. The panel of greenhouse gases (GHG), additional warming developed and developing countries to curb emis- is composed of hundreds of leading scientists who review and other long-term changes are likely to occur. sions while respecting the principle of common the work of thousands of IPCC (2014: 64) estimates that these changes but differentiated responsibilities. The 196 parti- scientists. The IPCC regularly will increase the “likelihood of severe, pervasive cipating parties (195 countries plus the European provides policymakers and irreversible impacts for people, species and Union) agreed on an ambitious goal to limit glo- with assessment reports of ecosystems” and would lead to “mostly negative bal warming to “well below 2°C above pre-indus- climate change, observed and anticipated effects, and impacts for biodiversity, ecosystem services and trial levels and pursuing efforts to limit the tem- mitigation and adaptation economic development and amplify risks for live- perature increase to 1.5°C above pre-industrial options. lihoods and for food and human security.” Moreo- levels” (Paris Agreement, Article 2, §1a). Limiting ver, the IPCC estimates that these risks are gene- global warming to at most 2°C above pre-indus- rally greater for people and communities that are trial levels would, according to IPCC (2014), lead socially, economically or otherwise marginalized. to only moderate risks of global aggregate effects on biodiversity and humans. To achieve this ob- However, there is still scope for action. Human- jective, our carbon-based economy needs to be kind can limit climate risks through a substantial radically transformed into an economy based on and sustained reduction of GHG emissions over low-carbon power sources. Such structural trans- the next few decades (IPCC, 2014). Sustainable formation would in turn reduce human-induced

Development Goal 13 of the United Nations 2030 carbon dioxide (CO2) emissions and thereby help Agenda for Sustainable Development calls for reduce global warming. It could also unleash new urgent action to combat climate change and opportunities for sustainable growth and deve- its impact. This drive to structurally transform lopment, and in turn reduce poverty.

1 Box 1 The Paris Agreement The Paris Agreement1 is the outcome of the 21st Session of the UNFCCC held in December 2015 in Paris which brings all its 196 parties under a common, legally binding framework. The agreement is open for signature and ratification at the UN Headquarters in New York from 22 April 2016 to 27 April 2017 and will take effect in 2020.

The Paris Agreement requires any country that ratifies it to act to reduce its GHG emissions in the coming century, with the goal of peaking global GHG emissions as soon as possible and continuing the reductions as the century progresses. Ratifying parties will aim to keep global temperatures from rising more than 2°C by 2100 with an ideal target of keeping the temperature rise below 1.5°C (Article 2, §1a). Ratifying parties will have to submit what are called Nationally Determined Contributions (NDCs), i.e. national commitments to reduce greenhouse gases. By the end of 2015, 188 NDCs had already been submitted. The agreement provides a mechanism that aims to increase the ambition of NDCs over time: it requires all countries to deliver, every five years, a new NDC (Articles 3, 4, 7, 9, 10, 11, and 13). Each new NDC should represent a “progression” over the prior one, and should reflect the country’s “highest possible ambition” (Article 4.3). This process is crucial, because current NDCs are not strong enough to limit warming to below 2°C. Moreover, the agreement states that countries will “engage in adaptation planning processes” (Article 9) to ensure that they are ready for the effects of climate change. To finance mitigation and adaptation efforts, the agreement places a legal obligation on developed countries to provide financial resources (Article 9.1) and invites wealthier developing countries to contribute as well. The overall implementation of the agreement will be assessed every five years, starting in 2023 (Articles 14.1 and 14. 2).

Unlike past climate change policy frameworks, which had limited scope and ambitious goals, the Paris regime is based on broad participation and relatively limited ambition at the initial stage. This change from limited to broad participation is important given the global nature of the climate change problem. The broad participation, together with the new architecture of the agreement that combines bottom-up NDCs with top-down procedures for reporting and synthesis of NDCs by the UNFCCC Secretariat, represents significant progress towards an effective climate policy solution.

Source: Author. 1 The text of the Paris Agreement is available at http://unfccc.int/paris_agreement/items/9485.php.

This teaching material focuses on the ways and module discusses the different components of means to address our century’s biggest global the climate system and shows that they are all environmental, economic and social, challenge: influenced by the planet’s energy balance. It then the structural transformation of our current car- explains that climate change can occur due to bon-based economy into a low-carbon economy. factors that are either internal or external to the It provides readers with the necessary tools to climate system. External factors such as human analyse this challenge and assist them in devi- activities can affect the climate by influencing sing appropriate solutions. climate change drivers such as atmospheric GHG concentrations, which in turn change the energy Module 1 offers a general introduction to the to- balance of the planet and thus affect climate. pic by highlighting the linkages between the eco- After reviewing different ways in which econo- nomy and the environment. The module shows mic activities affect climate, the module presents that the environment provides several services the observed changes in the climate system and to the economy and demonstrates that the eco- discusses the impact those changes have had on nomic and environmental systems are connected human and natural systems. It then outlines cli- and interdependent. It then explains that human mate changes that are expected to occur in the use of the environment’s services can lead to en- future as well as their potential impact. vironmental impacts such as climate change, and discusses factors determining the size of these Following Module 1 and 2, which have covered impacts. Finally it underlines the importance of the general links between the economy and the sustainable economic systems and concludes by environment and explained how human beings discussing the role of trade as an enabler of sus- can effect climate change, Module 3 introduces tainable development and poverty reduction. readers to the economics of climate change. The module demonstrates that climate change is Module 2 focuses specifically on the climate and arguably the biggest market failure in human climate change by familiarizing the reader with history. It explains that the atmosphere is an the climate science behind climate change. The open-access resource and that GHG emissions

2 are negative externalities. Firms and households gas emissions have continued to increase. Ne- produce GHG emissions as an unwanted by-pro- vertheless, at the 2015 United Nations Climate duct of their economic activities, without having Change Conference (COP21) in Paris, the interna- to pay the cost of related pollution. Instead, they tional climate change policy framework took a dump those gases free of charge into the atmos- new and promising direction. Module 4 provides phere, thereby contributing to climate change, an in-depth analysis of climate change policies and thus, indirectly, imposing costs on present and the international politics of climate change. and future generations. The module concludes It discusses the different policy instruments and by highlighting that the reduction of emissions technological solutions that could enable us to is a global public good, which generates incen- limit climate change and transform economies tives for nations to free-ride and avoid reducing into low-carbon economies. It explains that, in their own emissions, and makes implementation parallel with policies aimed at limiting climate of effective solutions to climate change a difficult change, a society also needs to undertake actions task. to adapt human and natural systems so that they are better prepared for the anticipated impacts Module 3 showed that climate change is the of climate change. The module then reviews key result of a large market failure that can only be international climate change policy develop- corrected by policy interventions at the global ments and discusses several issues surrounding level. Over the past 25 years, the international the Paris Agreement, with a particular focus on community has not found a convincing solution the situation of developing countries. to this market failure, and global greenhouse

Module 1 The environment, the economy and trade: The importance of sustainable development 1 module 2 The environment, the economy and trade: The importance of sustainable development Common andStagl(2004). (2011) andChapters47of Chapter 2ofPerman al . et was inspired by partially this section of structure The 6 h evrnet Scin teeoe attempts therefore 4 Section environment. on the trade of effects recent the to in regard with voiced decades been have concerns various development, sustainable of enabler important an as many by viewed currently is trade While today’s world. in development sustainable of importance the sustainable. Consequently, the section highlights this illustrates that economic systems need to be excessivelythe environment: on negative impact their of because past the in collapsed some societies that shows It large. too become to were impact this of size the if happen could what ing overall sizethis impact, of by ask 3 starts Section the determine factors which and environment the affects economy the how examined Having terial. extensively in the remainder of this teaching ma- important greenhouse gas that will be discussed applying to it the emissions of CO2, a particularly and model simple a using environment the on influence the overall size of an economy’s impact that factors the explains then It services. waste economy’s use of the environment’s resource and is the result of the negative impact caused by the change climate that shows section services. This key four these through environment the affects economy the turn, In sink. waste economy’s the as acts and services, amenity provides services, support life providesbase, resource natural a as provides four key services to the economy: it serves the ways in which they interact. The environment environmentand the economyand the between relationship general the investigates 2 Section tradethe environment. of on all impact sustainable development; and assess the (f) over of enabler important an as trade see many why analyse (e) change; climate of contexttoday’s in development sustainable of concept prehensive com- the of importance fundamental the stand severe,too becomes impact this under (d) if pen hap- can what describe (c) environment; the on determine the size of the impact an economy has that factors the identifyinterdependent; and (b) related are environment the and economy the because climate the affect beings understand human (a) that to them allow module, this in introduced briefly tools, These tools. conceptual general some with equipped be to need readers view,of economist’s point an from policies lated change-re- climate and change climate analyse century.our of vironmentalchallenge to order In Climate global change the important is en- most Introduction 1 - - - • At the end of this module, readers should be able to: terial canbefound inAnnexes 1and2. ma- reading additional and sources data Useful tion 5 covering the issues introduced in Module 1. several exercises and discussion questions in Sec- Toprocess, learning the find support readerswill • • • • • • impact of trade of onCOimpact the on evidence empirical recent review to plied environment. These theoretical tools are then ap- the affectstrade which through channels ferent dif assessing for allows that framework retical theo- comprehensive a to reader the introduces it data, at glance first en- a taking After the vironment. benefits or harms trade international whether of question the to answers provide to ronmental impact. envi- economy’s the of size the determine tors affectthe environment,activities fac and what - economic economy, how the influences system environmental the how explains section This versa. vice and environment the on impact an thereforecan haveopment. Economicactivities devel- social and economic on impact an have both and systems, interdependent and nected The economy and the environment are intercon- economy The and 2 Unravelling world economy. the in services role and goods environmental the of discussing of by transfer technologies the in green trade of role the Assess trade of onemissions;the impact on contributions empirical important Analyse environment; Identify the main effects that trade has on the tainable development; sus- of enabler key a as trade of role the sess tainable development for humankind and as- Describe the fundamental importance of sus- societies; amples ofcollapses ofpast ex to referring environmentalby constraints unsustainable human behaviour that of ignores consequences potential the Understand such asGHGemissions; impact environmental an of size the on ogy changes in population, affluence and technol- of effects the analyse to model simple a Use tems are consideredto beinterdependent; and understanding why and how the two sys- environment the and economy the between the climate by discussing the general linkages affect can activities economic why Describe the links 2

2 emissions. the environment:

- - The environment, the economy and trade: The importance of sustainable development 1 2.1 Links between the economy

and the environment module

As shown in Figure 1, the economic system and the environmental system are closely related and influence one another.3 3 When using the terms “economic system” or “economy” Figure 1 in this section, we are always The economy and the environment: Two interdependent systems referring to the world economic system or the world economy. Energy Rest of the universe

Life support Economic system boundary

Capital Stock KI Environmental L system Consumption R boundary Production Resources Amenities by households G&S by firms

Waste Recycling sink

Source: Author's elaboration based on Common and Stagl (2004: 112). Note: G&S: goods and services; L: labour; K: capital; I: investments; R: natural resources.

It is fundamental to understand that the eco- resources, amenity services, and life support ser- nomic system is a part, or sub-system, of the en- vices to the economy, and acts as the economy’s vironmental system (in simple terms, the earth waste sink. At the same time, the economy af- and its atmosphere). This can be seen graphi- fects the environment by using these services. cally in Figure 1, as the boundary of the economic Each of the services is analysed in a greater detail system lies entirely within the environmental in the sections that follow. system’s boundary. The environmental system, with the economic system inside, is in turn part 2.1.1 Providing natural resources to the economy of a larger system – the rest of the universe, with 4 The environmental system which it exchanges energy.4 Firms extract natural resources from the environ- receives energy inputs from mental system and use them as inputs in their the rest of the universe (in the form of solar radiation Within the economic system, one finds house- production processes. Natural resources can be emitted by our sun) and holds that buy and consume goods and services classified according to a common classification emits energy outputs to (G&S) produced by firms, and that provide la- system used in recent textbooks on natural re- the rest of the universe (as bour (L) to firms. Firms use labour (L) provided by source economics or ecological economics (Com- thermal radiation). Refer households, capital (K) from the capital stock, and mon and Stagl, 2004; Perman et al., 2011). This to Module 2 for a detailed discussion. natural resources provided by the environmental classification system is based on the two ques- system (R) as inputs to produce goods and ser- tions presented in Figure 2. vices. They sell a part of the goods and services they produce to households and other firms, and The first question is whether the current use of invest (I) the other portion in the capital stock. a resource influences the future availability of Firms and households both produce waste that that resource. If the current use of the resource is partially recycled and reused by firms and par- reduces its availability in the future, the resource tially discharged into the environment. is called a stock resource. For instance, the future availability of animal species, healthy soil, fossil The environmental system, which consists of fuels, or minerals is affected by the current use planet earth and its atmosphere, provides servic- of them. If firms extract coal, they will reduce the es to the economy. Common and Stagl (2004) de- remaining quantity of coal available for future fine four classes of environmental services, each usage. Firms can thus affect the environment by of them represented by a green box in Figure 1. extracting stock resources and thereby changing In particular, the environment provides natural their future availability. If the current use of the

7 1 module of years). time horizons (millions ger ratespositive growth for lon- decades, centuries),there are time scales (e.g.human years, indeed zero ifweconsider rategrowth stocks ofoil is correct. the natural While 5 The environment, the economy and trade: The importance of sustainable development Note that this is not entirelythis isnot that Note Developing countries Developed countries 8 BRICS 2004 LDCs 2014 2011 Agricultur quantity of solar radiation or wind that will be will that wind or radiation solar of quantity the on impact no strictly is today,there deploys economy the turbines wind many how matter today, no use or firms radiation solar much how matter radiation.No solar or wind are resources flow of examples resource. Typical flow a called is resource that use, future for available source re- the of quantity the affect not does resource for the use economic once further system has de- available be will oil resources.No non-renewable of examples are fuels Fossil resource. renewable renewable resource. If it does not, it is called a non- a called is resource stock the does, it If itself? ate regener resource stock the ask:does to question When it comes to stock resources, there is a second Source: Author'selaborationthe classificationin basedon Common andStagl(2004) al. et Perman (2011). ores andothersminerals, andnon-ferrous metals asnatural resources. processing.”of amount minimal a definition,this on Based WTO fish, classifies (2010) forestry products, fuels, consumption,or rawafterproduction their or in state useful in economically either scarceand both are that zation (WTO, 2010: 46) defines natural resources as “stocks the in that natural ofexist materials environment From tradea statistics perspective, natural resources are difficult to define precisely. The World Trade Organi- Note: BRICS: Brazil, Russia, India, People's Republic ofChinaandSouthAfrica; LDCs: developed countries. least Source: UNCTAD (2015: 17–18). Box 2 Figure 2 Figure 3 Does Agricultur futur of are W that e orld tr the curr e av sour r Natura W esour ailability of ade bybr e orld tr ce af en ce? Natura l Re t use fe ade bybr ct sour oad categor

l Re ces sour oad categor Manuf No World ces Ye y sY ofworldPatterns acturing Manuf trade, y Classification ofnatural resources acturing by broad andimports category exports re re 0 5 10 15 Stock Flow sour sour ce trillions of US dollars ce 0 5 10 15 trade innatural resources

trillions of US dollars - have devastating effects on the can economic system. forests or soils healthy like resources stock depleting completely 3, Section in see will we As cannot. resources the flow while by system, economic depleted completely be can resources stock – between fundamental is resources stock and flow distinction The tomorrow. available pleted all current oil reserves. rate,the fishstock remains stable time. over growth natural fish the to equal is rate) harvest the amount of thefish economy extracts (the fish as long as Consequently, rate. growth natural a called often is rate,which certain a at reproduce are examples of fish renewable resources. do Fish Ex Ex port Agricultur por s re t andimport Ex Impor Does Ex re gener port itself Agricultur sour por e s ts the t andimport ? ce ate Impor e ts Ex Natur va port lues bybr al s Re Ex Natur va No Import sour port lues bybr cesM es al s s oad category(2014) Re Import sour 5 cesM Animal species like s oad category(2014) Ex port anuf Non-r stock re stock re s Re acturing Ex Import newa port anuf enew s sour sour s acturing ble Import able 0 5 10 15 ce ce s trillions of US dollars 15 5 10 0

trillions of US dollars The environment, the economy and trade: The importance of sustainable development

Box 2 1 Patterns of world trade in natural resources Natural resources are unevenly distributed over the planet’s surface. Several resources are highly concen- module trated in specific geographic areas. Trade in natural resources is thus unsurprisingly substantial. The share of natural resources in world merchandise trade rose from 11.5 per cent in 1998 to 23.8 per cent in 2008 (WTO, 2010). While manufacturing remained by far the largest broad category of goods traded in 2014, with a share of almost 70 per cent, natural resources were the second largest. In addition, unlike developed countries, developing countries export more natural resources than they import (see Figure 3). Moreover, natural resources still represent a large share of developing countries’ exports, particularly in energy-exporting countries in the Middle East and primary commodity-exporting countries in Africa (UNCTAD, 2015).

Source: Author's elaboration based on UNCTAD (2015) and WTO (2010).

2.1.2 Providing life support services ter. Consequently, all extracted material will have to return to the environment in some form and at The second class of environmental services iden- some point in time. One can therefore look at the tified by Common and Stagl (2004) are life sup- waste sink function as a type of complement of port services, i.e. basic conditions that enable hu- the resource extraction function. man life. These conditions include, for instance, liveable temperatures, gravity levels, oxygen Waste can be partially recycled and subsequently levels, etc. Without these services, no human life reused as an input in the production process could exist on earth. (see Figure 1). Unrecyclable or unrecycled waste discharged in the environment may accumulate 2.1.3 Providing amenity services as a stock. Environmental processes may subsequently reduce the waste stock. Whether or not The environmental system provides amenity the particular stock is increasing depends on the services to households. Such services are diverse: type of waste, the rate of discharge, and the en- the joy of taking a walk in a forest, or the pleas- vironment’s capacity to reduce the waste stock. ure of swimming in a lake are just two examples. Take, for instance, plastic waste discharged into These amenity services often do not need any oceans. The stock of this particular type of waste transformation and can be directly consumed by is growing fast because the world economy’s rate households. Moreover, consuming environmental of discharge is high and the environment’s ca- amenity services does often not have an impact pacity to biochemically transform plastic – and on the future availability of these services. Enjoy- thereby reduce the plastic stock – is low. ing flora and fauna by looking at it does not reduce its future quantity or quality. There are however Waste is often not harmful to the environment, exceptions. Mass tourism or illegal harvesting of but in some cases it induces chemical or physical endangered species, for instance, can have a nega- changes that can harm living organisms. This is tive impact on wildlife and thus affect the envi- another example of how the economy affects the ronmental system if organized unsustainably. environment by using one of the four environmental services. There are a variety of relation- 2.1.4 Serving as the economy’s waste sink ships between the quantity of waste and resulting environmental damage. Sometimes, waste The environmental system acts as the economy’s discharged into the environment has no damag- waste sink. Households and firms create waste, an ing impact until a certain threshold is reached. unwanted by-product of economic activity. Waste Sometimes damage increases gradually with the is understood as a rather broad category contain- quantity of waste discharged. Take, for instance, ing such items as chemical, paper, plastic and CO2 emissions. CO2 itself is not a priori harmful metal waste from consumers, organic food waste, to living organisms. After all, humans and other

CO2 emissions, smoke from burning biomass, etc. animal species produce CO2 by breathing, and It is important to understand that waste dis- plants consume it in their respiration and photo- charges into the environment are direct and nec- synthesis processes. However, although CO2 does essary consequences of the extraction and use of not have direct effects on biological systems, it resources from the environment. In physics, the does have a direct physical impact on the earth’s law of conservation of mass explains this phe- atmosphere. When emitted in large quantities, nomenon. Economists often refer to it using the CO2 triggers a greenhouse effect (a phenomenon term “material balance principle,” which states that will be discussed in detail in Module 2) that that matter can neither be created nor destroyed. contributes to changing the climate of the planet Economic activity can thus only transform inputs and poses a threat to a wide range of living or- into outputs but can never create or destroy mat- ganisms, including humans.

9 1 module 7 The environment, the economy and trade: The importance of sustainable development 6 in Box 3. mental isprovided services interactions amongenviron- detailed discussion. detailed Referto Module2for a Asecond example of 10 nrae cnetain f CO of concentration increased atmosphere).the intocombustion fuel fossil The go eape f uh utpe interactions. multiple such of example good a is change, which climate at glance first a take us Let complicated. more even picture overall the makes which themselves, among services interact these also system, economic the with ing interact to addition reality,however,in In vices. ser environmental of classes four the for rately sepa- systems environmental and economic the between links the discussed above sections The and its waste sink service (firms emit CO emit (firms service sink waste its and ment’s resource service (firms extract fossil fuels) tion of a typical interaction between the environ- atmos- accumulate.illustrathey - an wherephereis the This into released are gas, greenhouse 2.1.5 Interaction amongenvironmental n, s b-rdc, msin o CO of emissions by-product, a as and, consumed then are resources These vironment. en- the from gas natural or petroleum coal, like fromenergy fossil fuels. fossil extract Firms fuels on heavily relies system Currently,economic our Basin Project. River Ganga National the called project billion US$1 a with Authority Basin River Ganga National Indian the support to decided Bank Worldthe 2011 in forward,and put been have initiatives policy several1985, Since al.,(BeheraRiver Gangadolphin et 2013). overincreasing problembeen Awarenessrecentthe has decades. of the like species entire of existence the threaten and river the of function support life the on impact levelshavean pollution Moreover, current river). the in bath a taking with associated risks health (e.g. services ity amen- from benefitting of possibility the alsodifferent threaten but (e.g.only waterresourcestocksquality) not that pollution of levels severe to decades recent over led has functions service amenity and extraction, Ganga’s sink, resource the waste of interactions dead.complex These the of remains with it floods regularly waste, industrial and household intensive water fish and extraction, river that the usagereligious of and of inflow the to due pressure considerable under been thus has ecosystem Ganga dolphin. The River Ganga the like ones endangered species,including animal numerous for services support life various providing in (Behera river the into directly wastewaterpass industrial untreated largely of litres million 260 estimated an and day per sewage of litres wastemajor a as foralsoserves increasinglywaste.Gangasink basin industrial and domestic Over billion 1.3 the river use forof mass bathinginclude cremationceremoniesand that ritual of dead bodies. Moreover,the Hindus’ the as services, such amenity important provides fish, water, also basin routes, trade Ganga etc.The in India. For centuries, the Ganga River has served as a major resource base for India’s population by providing An illustrative example of interacting environmental is providedthe Ganga River services of the pollution by lead to severelead casesofenvironmental damage, affectingturn in economic activities. and another one affect can services these how showed also change climate of exampleimpacts. such The of result the is phenomenon this that showed change climate at glance services.these first A using ronmentby envi- the on impact an has economy the economy,the that to and services key four provides system mental environ - the that learned Readersdevelopment. social and economic on impact an has turn in tems,which sys- environmental and economic the between interrelationship complex the at light some shed 2.1 Section Source: Author'selaboration basedonBehera al. et (2013). Box 3 CO services: Fossil fuelextraction, 2 emissions, andclimate change Interactions amongenvironmental services: ., 2013). At the same time, the Ganga ecosystem plays an important part part important an plays ecosystem Ganga the time, same the At 2013).al., et 2 n h atmos- the in 2 a major a , 2 from Short 6 - - summary

more to difficult reduce poverty. it making security,and food decreasingactivity, tourism reducing productivity, agricultural ing growth,economic slowing forby examplelower activities,economic affect turn in changes these IPCC (2014). Finally, to it is note that all important the by predicted effects of range wide the given indefinitely almost extended be could teractions temperatures. This illustrative list of potential in- in rise the to due rivers of capacity assimilative function of rivers can be altered sink by changes waste in the the And summer. the during waves glaciers, shortened ski seasons, and unusual heat ecosystems. of Amenity services can be affected instability by the retreat of and biodiversity of losses causing thus and services support life ing precipitation,alter and temperature in changes cause also can It soils. healthy of availability the reduce instance, for can, which droughts, vere se- like events weather extreme in increase an induce ways.can numerous in It services mental environ- four the affects turn in change Climate fect,to climatechange.thus and ef greenhouse so-called the to leads then phere

Ganga RiverThe case 7 - - - The environment, the economy and trade: The importance of sustainable development 1 2.2 Environmental impact of economic Let us take a look at the climate change example discussed above. One generally expects that

activities module

more fossil fuels are extracted and more CO2 Section 2.1 showed that the economy affects the emissions from fossil fuel combustion are emit- environment by using the four environmental ser- ted if more people live on the planet. This is rela- vices, and illustrated this mechanism using the ex- tively easy to understand, as more people means, ample of climate change. However, we have not yet for instance, increased demand for cars. As most addressed the important related question of tim- of the cars run on energy from fossil fuels, this ing. Why is climate change the biggest environmen- will increase CO2 emissions. At the same time, tal problem of the 21st century rather than having one expects that CO2 emissions will increase if been the biggest problem during the 19th or 20th these people are more affluent, i.e. they consume centuries? Which factors explain why today’s GHG more per person. Higher per capita consumption emissions are at levels that start to threaten the implies, for instance, increased industrial pro- climate system of the entire planet? Or, put more duction, which requires more energy and in turn generally, which factors explain the magnitude of increases CO2 emissions from fossil fuel combus- the environmental impact of economic activities? tion. Finally, CO2 emissions are expected to be higher the dirtier the production technology. Put Assessing the role of factors that influence the differently, if production technology evolves and magnitude of the environmental impact of eco- becomes cleaner, one would expect, all else be- nomic activities is a challenging endeavour. It is ing equal, fewer CO2 emissions. If factories start therefore useful to rely on simplified models that to use machines that require less energy to do allow us to identify the main factors that influ- the same job, this should reduce CO2 emission ence the magnitude of such an impact. These levels. models can also be used to simulate future impact and thereby provide useful information IPAT allows us to visualize the relationship be- about potential future scenarios. The following tween population, affluence, technology, and the two sections discuss two of these models and ap- magnitude of the environmental impact they ply them to the analysis of the size of one particu- can create. The general form of the IPAT identity lar impact of economic activity: CO2 emissions. captures the three main factors driving the size of environmental impact and can be written as: 8 Note that an identity is an 2.2.1 Unravelling the role of main drivers equation that is always true by definition (see footnote 11). of environmental impacts by using the IPAT I P* A* T, identity8 9 See Chertow (2000) for an where, as stated earlier, I stands for environmen- overview on the history of the A simple but very useful way to think about the tal impact, P for population, A for affluence, andT IPAT identity. size of any environmental impact is provided by for technology.10 10 Depending on the appli- the Environmental Impact, Population, Affluence cation, there are a variety of and Technology (IPAT) identity. IPAT emerged dur- The general IPAT identity can be applied to a va- sets of units that can be used with the IPAT identity. Accor- ing a debate on drivers of environmental impact riety of different environmental effects. Depend- ding to Common and Stagl between Paul R. Ehrlich, John Holdren, and Barry ing on how I is defined, IPAT allows for analysing (2004), I can be measured Commoner, three leading ecologists of the 1970s.9 insertions into the environment (e.g. GHG emis- in tons or litres, depending The IPAT identity states that three factors jointly sions) and extractions from the environment (e.g. on the particular impact determine the size of any environmental impact fish or coal extraction). one attempts to analyse. P is always measured in numbers (I): population (P), affluence (A), and technology of people. A is measured as (T). Intuitively this seems rather straightforward. To illustrate how one can use the IPAT identity, the total economic output in All else being equal, the larger the population, we will continue to focus on one specific envi- currency units (often gross domestic product – GDP - in the higher the average per capita consumption, ronmental impact – CO2 emissions – and apply and the more resources a production technology the IPAT identity to global anthropogenic (i.e. hu- US dollars) divided by the number of people. T is mea- uses and/or the more waste a technology gener- man-induced) CO2 emissions. The sources of data sured as units of impact (for ates, then the more one can expect an economy’s used in this analysis are detailed in Table 1. instance tons or litres) per US impact on the environment to be bigger. dollar of GDP.

11 1 module thus collapses to COthus collapses IPAT identity we calculated . The 11 The environment, the economy and trade: The importance of sustainable development holds. which bydefinition always CO Tothis, see that note I 2 = Population 12 A =GDP/population P I =CO

P =Population T = * T =CO Population 2 emissions GDP CO GDP 2 =CO AT 2

2 /GDP 2 * , GD CO 2 P Bank’s DataCatalog, andon CO Source: Author'selaboration (constant prices market 2005USdollars)the basedondatapopulation andGDPat from World it has the same purchasing power parity that the US dollar had in the United States at a given point in time (in this case,time (in agiven in point the UnitedStatesat 2011). hadin the USdollar that the samepurchasing powerparity has it Note: PPP: purchasing powerparity. International isahypothetical ofcurrency dollar widelyusedineconomics. unit Byconstruction, generated byshort-cycle andlarge-scale biomassburning. Figure 4 shows the change in anthropogenicCOin change the shows 4 Figure past. recent the in emissions reduce or increase to contributed have factors three the of which time horizon.longer By doing so, one can analyse a over method the apply to interesting more far by is it but works, identity the how understand to us allows year particular a to IPAT Applying emitted economy world the kilotons 35,684,418.06 of CO that find and I Using the data for 1 identity and thus holdsbyconstruction. identity and IPAT that note to accounting an important is is it caused them, namely that factors into emissions these of composition four last decades.the de- Figurethe also4 shows industrial over cent per and 125 roughly by increased processes use fuel fossil from emissions CO 1970-2013. of period the over processes trial indus- and fuels fossil of use the from emissions impact Ias impact Source: Author. technology hasbecome 39percent). cleaner(by while respectively) cent, per 89 and cent per 97 and world affluence have been increasing fast (by CO = A T P Variable Table 1 Figure 4 7,260,710,677 persons 2 emissionsincludeCO = 35,684,418.06ktons, 1970=100 P international dollars) percapita World GDP(PPP, constant 2011 world GDP(PPP, constant 2011 World CO international dollars) Variable description World population P, * 14,287 2 20 30 10 A, and 2 emissions 15 emissionsgeneratedthe useoffossil by fuelsandindustrial processes exclude but CO 5 P , 1970 A 2 and emissionsdatafrom NetherlandsEnvironmentalThe al., Agency(Oliver Assessment et 2015). person AT T we can calculate the 2 World population, $ in 2014. At this point, 1 per T . World population s$ * 0.000000344 1980 CO2 –IPAT decomposition 2014 2014 2014 Year 11 affluence and ktons kilotons/ internationalkilotons/ dollars international dollars/person 2 2

7,260,710,677 causing accumulations of CO of accumulations causing levels, high such to risen have century 21st early he fcos xli wy CO why explain factors three affluence. and Together,population these of fects ef emission-increasing the out cancel yet cannot history, while technology is still relatively and dirty human in levels highest their currentlyat are and ulation and affluence have been increasing rapidly population, technology:affluence, pop- and world of evolution joint the of because century 20th or environmental problem of the 21st and not the 19th biggest the is change question,climate initial our answer to Thus, affluence. increased population and growth by driven been mainly has decades glance at the future. glance at to also but past, the analyse to only not used be can IPAT that show will 2.2.2 Section emissions. interesting insights into the drivers of past CO past of drivers the into insights interesting additional provides identity,which Kaya the ing impact. Box 4 shows a related decomposition us- environmentaleconomy’s the reducing of size overall the or increasing to contributed factors which identifying IPATin useful very be thus can the climateofourplanet. threaten that h sap nrae f CO of increase sharp the words, other affluence. In in- and population creased of effects emission-generating the offset to able been not has technology cleaner of effect ing emission-reduc- the that reveals 4 FigureOverall, 1990 0.00000034 14,287 Value Y ear technology, persons

2014 The NetherlandsEnvironmentalThe Assessment Agency(seeOliverAssessment World Bank’s DataCatalog World Bank’s DataCatalog 2 emissions over recent recent over emissions 2 in the atmosphere atmosphere the in 2 emissions in the the in emissions ., al., et Source 2010 2 2015 emissions emissions ) - 2

The environment, the economy and trade: The importance of sustainable development

Box 4 1 Interactions among environmental services: The Ganga River case The IPAT identity discussed in this section has been extended by the Japanese economist Yoichi Kaya (1990) to module

provide additional insights in the context of CO2 emissions. This identity is frequently used to decompose CO2 emissions (Nakicenovic and Swart, 2000). The so-called Kaya identity can be expressed as follows:

E CO CO = P A 2 2 * * * GDP E T

where CO2 = anthropogenic CO2 emissions; P = population; A = GDP per capita; E = primary energy consumption; and GDP = gross domestic product.

The Kaya identity decomposes IPAT’s technology variable T into two parts: energy intensity of GDP (E/GDP) and

carbon intensity of the energy mix (CO2/E). IEA/OECD (2015) use the Kaya identity and decompose CO2 emissions for two groups of countries: Annex I and non-Annex I countries of the UNFCC.1

Figure 5 displays the decompositions by country group. According to IEA/OECD (2015), the recent decline in emissions in Annex I countries was driven by a significant reduction in the energy intensity of GDP (TPES/

GDP), and by a slight fall in the CO2 intensity of the energy mix (CO2/TPES). These two emission-reducing effects have offset the emission-generating effects of the growth in GDP per capita and in population. In non-

Annex I countries the growth in CO2 emissions was mainly driven by the increase in GDP per capita and to a lesser extent by the increase in population.

Figure 5 Kaya decomposition: Annex I countries (left panel) and non-Annex I countries (right panel)

1990=100 1990=100 1990=100 1990=100 140 140 300 300 Population 130 130 150 150 120 120 TPES/GDP

110 110 200 200 CO emissions 100 100 2 90 90 150 150 GDP/population 80 80 100 100 70 70 CO /TPES (ESCII) 60 60 50 50 2 1990 19951990 20001995 20052000 201020052013 2010 2013 1990 19951990 20001995 20052000 201020052013 2010 2013

Source: IEA/OECD (2015: xx) Note: TPES: total primary energy supply. ESCII: energy sector carbon intensity index. 1 The UNFCCC divided countries in two broad groups – Annex I and non-Annex I countries – depending on their 1992 commitments to fight climate change. Annex I countries consist of countries that were members of the Organisation for Economic Co-operation and Development (OECD) in 1992 plus countries with economies in transition in 1992, such as the Russian Fed- eration. Non-Annex I countries are the remaining ones, mostly developing, countries that signed the convention (see Module 4 for more information about the different groups of countries and their commitments).

Source: Author’s elaboration based on IEA/OECD (2015) and Kaya (1990).

2.2.2 Assessing potential future scenarios emissions? What role do technological improve- of environmental impact using the IPAT ments play in moderating the effects of increased

equation population and affluence on total emissions?

The previous section showed that population Let us start with population growth. According growth and increased affluence caused a sharp to 2015 world population projections from the

increase in CO2 emissions. This section uses IPAT United Nations Department of Economic and to glance at the future and analyse the potential Social Affairs (UNDESA) Population Division (Fig- impact on emissions of expected future changes ure 6), world population, currently at 7.35 billion, in population and affluence. The IPAT framework is unlikely to stop growing this century. On the can help answer a number of questions: What contrary, the UN estimates that there is an 80 per could happen to total emissions if world popu- cent probability that world population in 2100 lation continues to increase? How could differ- will be between 10.03 billion and 12.44 billion ent GDP per capita growth scenarios affect total (with a median of 11.21 billion). How could this

13 1 module 12 The environment, the economy and trade: The importance of sustainable development projection. this forthe modelunderlying et al . SeeJohanssonet (2013) 14 CO 2 CO , medianpopulation CO prediction interval prediction interval 2 , highpopulation 2 , lowpopulation CO 80 per cent 80 percent 95 per cent 95 percent 2 , observed estimate estimate estimate Median data to simulate CO population UN projected the use we and levels, 2014 their at stay (T) technology and (A) capita To address this question we assume that GDP per expected growth in population affect emissions? 0026 pbihd y h OC (2014). OECD the by published 2010–2060 for projection growth global long-term baseline the on rely we answer an levels.Toprovide 2014 their at stay to were technology and population if emissions per affect might GDP paths different growth capita how is question related A Agency(seeOliverAssessment et. al., 2015). Source: Author'selaboration (2015), basedondatafrom UNDESA World Bank(2016),the NetherlandsEnvironmental and occur.will Note: this situation estimates a 95 (80) The 95 per (80) cent per probability cent the predictionUN that interval that means Source: Author'selaboration (2015). basedondatafrom UNDESA 7 displays observed annual CO annual observed displays 7 lgty eo 25 e cn) ih low-growth a with cent) per of 2.5 below rate slightly growth capita per GDP yearly average an predicts (which projection this complement Figure 7 Figure 6

CO2 Total population (billions) 60 40 20 50 30 10 16 14 12 6 8 4 2 1950 1971 2 IPAT: emissions using IPAT. Figure

impact The United Nations 2015world population projection 2 emissions from emissions onCO ofprojected population growth 2000 2014 12 We We et n O eisos y 00 ih epc to respect with 2060 by emissions CO2 in cent projection in an increase would result of 200 per capita per GDP OECD the levels, technology and population 2014 fixed with see, we As scenarios. those under the three GDP per capita growth rate observed shows CO2 emissions from 8 1971 to 2014, as Figure well as cent). per 4 of rate growth yearly a (with scenario high-growth a and cent) per 1 only of rate growth yearly a (with scenario of 38 to 72 per cent of annual CO annual of cent per 72 to 38 of increase an in result could growth population population predicted the fixed, UN factors other All projections. the using scenarios emission IPAT-basedthree the adds then and 2014 to 1970 tween 2014 and the end of the century.the endof tween 2014and Y Ye ear ar 2050 2050 2 emissions 2 emissions be- emissions 2100 2100 The environment, the economy and trade: The importance of sustainable development 1 2014. The high-growth scenario would result in low-growth scenario would result in an increase an increase of more than 500 per cent, while the of roughly 60 per cent. module

Figure 8

IPAT: The impact of projected GDP per capita growth on CO2 emissions

200 CO2, observed

CO2, 4 per cent GDP 150 growth rate

2 100 CO2, OECD GDP

CO baseline projection

50 CO2, 1 per cent GDP growth rate

1971 2014 2060 Year

Source: Author's elaboration based on data from the OECD (2014), World Bank (2016), and the Netherlands Environmental Assessment Agency (Oliver et. al., 2015).

The analysis in Figure 7 and Figure 8 revealed that analysis, we held technology fixed at the 2014 lev- the predicted growth of population and GDP per el. However, as population and GDP per capita are capita are both likely to increase CO2 emissions both expected to increase significantly over the considerably over the next couple of decades. The coming decades, technological improvements impact of the combined effects of population will have to play an important role if humanity growth and increased affluence on emissions intends to curb CO2 emissions and thereby sta- will be even bigger. This raises the question of bilize CO2 concentrations in the atmosphere. To how humanity will be able to significantly re- offset the effects of a growing and increasingly duce CO2 emissions without limiting population affluent population, it will therefore be crucial to or affluence growth. Technology, the third deter- rely on cleaner technology that can significantly minant of the size of the overall impact within reduce CO2 emissions per produced US dollar. the IPAT model, might be the answer. In the prior

Short summary In Section 2.2, readers learned how to use the simple IPAT model to analyse forces influencing the size of the environmental impact of an economy. Higher population levels and increased affluence generally increase the magnitude of the environmental impact, while technology improvements have the potential to decrease the size of that impact. The IPAT model was used to decompose a particular environmental impact, CO2 emissions, leading to a conclusion that the observed increase in CO2 emissions was due to an increase in population and affluence that was not offset by the effects of cleaner production technology. Subsequently, IPAT was used to glance at the future by establishing carbon dioxide scenarios based on various predictions of population growth and increased affluence.

3 Sustainability of the economic ment. It thus illustrates why an economic system system should be sustainable. In this context, it introduces the concept of sustainable development and The previous section showed how an economy shows why trade is currently viewed by many as affects the environment and discussed different an important enabler of sustainable development. factors that influence the magnitude of the world economy’s environmental impact. This section 3.1 Ecocide: Lessons from history starts by investigating what could happen if the size of such an impact were to become too large. It As a subsystem of our environmental system, the shows that some societies in the past collapsed be- economic system faces a variety of environmen- cause of their devastating impact on the environ- tal constraints that, if systematically disregarded,

15 1 module absorb greenhouse gases. the to atmosphere capacity of climate change, the limited is the context of in important constraint, whichisvery Another environmental their economic activities.and the humans affectmight be destroyed, turn whichin the river’s ecosystem might toxicof wastethe river), into by pumpinglargequantities constraint systematically (e.g. humans disregard this destroying it.without If the river discharge into toxicof waste humanscan the amount restricts that environmental constraint waste islimited, whichisan toxicto absorb capacity ment. For instance, ariver’s the environhumankind by - are limitsimposedon 13 The environment, the economy and trade: The importance of sustainable development Environmental constraints 16 ca’s Anasazisociety,the Mayans, andothers. - Ameri North society, Polynesian Island’s Easter cieties likethe Vikings, Greenland’s Norse society, so- past of collapse the ronmentalconstraintsin envi - of role the analysed (2006) Diamond Jared , Survive or Fail book to Choose his Societies How In Collapse: system. entire the of collapse a to lead even might that problems environmentalface constraints ignore that systems Economic that environmental constraints have disappeared. imply not does this Nevertheless,population. ing enabled increased food production to feed a grow food production were wrong because innovations have known that Malthus’s predictions in terms of Revolution,Industrial the levels. we sistence Since sub- at live to remain who those force and lation popu- human reduce significantly would turn in which shortages, food important to lead evitably man reproduction rates. In his view,this would in- ronmental constraint – could not keep up with hu- convinced the land’s that to produce capacity food – an envi- was Malthus agriculture. in returns diminishing to due production food outpace ally hy eventu centralwill - growth population that waspothesis his which in Population of Principle book famous his published thus man societies. man hu- on effects devastating have potentially could dress the problems finally ended in a total collapse of theMayan totalthe problems of dress endedina collapse finally society. ad- to elite governing the of inability an and resources scarce over droughts.Fighting of risks the increased which reducedfurther the size of fertile lands and potentially triggered local man-made climate change that the erosion,and deforestation toof led society.Mayanand availableentireresources outpaced collapse growth Population the behind mechanisms the of example good a is collapse Copán’sDiamond, to According 850. Population size dropped andafter 1250,there were the Copán nomore signsofhumanslivingin valley. year the around palace royal the of destruction the in culminated that food and land over fights to led This rapidly. equally diminished land the of capacity productive the while rapidly grow to continued population period,this down.the werecut During trees more and forestsmore the wereas reduced of cyclingfunctions water-the because valley the in drought man-made a cause to begun have also may deforestation the that and valley the partially covered the fertile valleyinto soils,spread further reducing the productiveto capacity of the land. started Diamond argues soils hill acidic infertile valley. The the into back move to Consequently,had deteriorated. people soils of quality the and eroded slopes hill time, some After erosion. from hills the protected previously had that slopes hill the on forests the down valley. cut the They around land hilly steep the on cultivate to started people and exhaustedwas land valley fertile the of capacity productive the century, mid-6th the By growth. population to due demand increased satisfy to intensified was production in agricultural(2000), al. rapidly. et WebsterStarting growto Accordingto century, hills. 4th started Copán’sthe population steep unfertile relatively by surrounded valley river the in concentrated was land Fertile Webster by studied Copán of city the of example the using collapse the explains Diamond collapse? society Mayan the did Why then declinedrapidlyreachedthe 8thcenturythe 9thcentury. itspeak and in in classical age of Mayan The America. society begun Centralaround the in year 250.time their The Mayan of population increased exponentially societies and advanced most culturally the of one were Maya The (2006). Diamond by discussed collapse a of example interesting particularly a is society Mayan the of ecocide The Box 5 Sources: Author’s elaboration basedon Diamond(2006)and Webster al. et (2000). 13 In 1798, economist Thomas Mal- Thomas economist 1798, In (2000). Copán was a small, densely populated city in today’s western Honduras. western today’s in city populated densely small, a was Copán (2000). al. et An Essay on the the on Essay An ecocide of The - - the Mayan society the Mayan society. ofexample the using collapse a such illustrates the entire population dying or emigrating. Box 5 society,the of collapse complete a to with cases politics,and culture decreased. economics, This led in some extreme of terms in society the of complexity the parallel, in and, declined levels Population elites. governing overthrew and es People started wars over the remaining resourc- resulting. often starvation and shortages food to abandon the agriculturally marginal lands, people with forced that etc.) overhunting, sion, deforestation,(e.g. mismanagement,water ero- variety of environmental degradation processes a to led then practices agricultural sustainable Un- lands). marginal agriculturally to riculture ag- of expansion geographical and technology improved (through production agricultural of intensification the and population of growth collapsed societies. The process with thestarted these of decline the of pattern common a fies identi - Diamond societies. past several of cline rapidde- the forfactor explanatory major a is – ecocide – suicide ecological him,unintended to siderable area, fortime.” an extended According con- a over complexity, litical/economic/social po- and/or size population human in decrease as collapse defines (2006:3) Diamond drastic“a The environment, the economy and trade: The importance of sustainable development 1 Diamond (2006: 7) identified several processes protect genetic resources and biological diversity through which past societies transgressed en- (Brown et al., 1987). In environmental economics, module vironmental constraints and damaged the en- sustainability is often defined with respect to the vironment up to the point that these societies continued coexistence of the economic and envi- collapsed. These processes include overuse of ronmental systems. We follow this strand of defi- renewable stock resources (e.g. through defor- nitions in this material. Common and Stagl (2004: estation, overhunting, overfishing) and misuse of 8) define sustainability as follows: “Sustainability renewable stock resources (e.g. soil degradation, is maintaining the capacity of the joint economy- water mismanagement, adverse effects of intro- environment system to continue to satisfy the duced species on native species). These processes needs and desires of humans for a long time into still play a major role today. Moreover, according the future.” Processes that are threatening the to Diamond, new environmental problems have joint economy-environment system in a way that been added to the ones that threatened past so- current and future needs and desires of humans cieties. Climate change is one of these new prob- cannot be satisfied are thus by definition called lems and is arguably the most dangerous one unsustainable processes. Processes that do not for humanity in the 21st century. Humankind has threaten the joint economy-environment system been systematically ignoring the environment’s are called sustainable processes. limited capacity to absorb greenhouse gases. This unsustainable behaviour is threatening the 3.3 Sustainable development: entire climate system of the earth and will have The international awakening important consequences for humankind unless sufficient actions are taken to reduce GHG The importance of a sustainable world economy emissions. With the adoption of United Nations has long been neglected. This changed in 1987 Agenda 2030, the Paris Agreement at the 21st with the publication of the World Commission Conference of the Parties, and relevant outcomes on Environment and Development (WCED) re- of other international summits, the international port entitled Our Common Future (WCED, 1987). community has reached agreement to collec- This report, now frequently called the Brundtland tively address the imminent and present danger report (after the chair of the commission, Gro of environmental and climate change through Harlem Brundtland), has become a milestone in national and global actions in the next 15 to 30 terms of durably placing sustainability questions years. on the international policy agenda.

3.2 Sustainability The Brundtland report outlined the complex interactions between the economic and envi- As Diamond (2006) showed, ignoring environ- ronmental systems, stressed the importance mental constraints by engaging in unsustain- of environmental constraints, and argued that able economic behaviour at times resulted in the the current path of economic growth cannot be total collapse of entire societies. Cohen (2009) continued. Acknowledging the need to eradicate argues that the sustainability question today poverty and raise per capita income worldwide, is even more important than ever. He advances the report suggested an alternative pathway of the argument that past competition of different economic growth that it called “sustainable de- organizational forms of the economic system – velopment.” The report defined sustainable de- some more efficient than others – has almost velopment as “development that meets the needs come to an end and resulted in today’s domi- of the present without compromising the ability nance of a single form of economic organization: of future generations to meet their own needs. It the modern market economy. Thus, according to contains within it two key concepts: the concept Cohen, it is the absence of a viable alternative of ‘needs,’ in particular the essential needs of the to the modern market economy that makes the world’s poor, to which overriding priority should question of its sustainability crucial. be given; and the idea of limitations imposed by the state of technology and social organization There are various definitions of sustainability on the environment’s ability to meet present and that differ depending on the context.14 The Ox- future needs.” (WCED, 1987: 45) 14 For an overview of dif- ford English Dictionary states that “sustainabili- ferent usages of the concept ty” is a derivative of the word “sustainable,” which Sustainable development is thus presented as of sustainability, see Brown et al. (1987). is defined as “able to be maintained at a certain the solution that would simultaneously (a) allow rate or level” or “able to be upheld or defended.” for meeting the needs of the present generation In ecology, the definition of sustainability focuses through continued economic growth, thereby on the continued productivity and functioning of raising standards of living worldwide, and (b) ecosystems and often involves requirements to maintain the capacity of the joint economy-en-

17 1 module The The environment, the economy and trade: The importance of sustainable development 18 ing sustainable development. highlighted the role that trade can play in achiev have – agreements environmental multilateral various and Programme, Environment Nations and Development (UNCTAD), the WTO, the United Tradeon Conference Nations United the cluding in- – community international the context, this In worldwide. living of standards raise neously simulta- and generations future and current for system economy-environmental joint the of ity to maintainthe capac- the solution velopment is sustainable de- that The previous argued section development asakey Trade 3.4 component into alow-carbon economy. transformed be to supposed is system economic carbon-based current the module how detail in explains The change. climate human-made of context the in development sustainable moting pro- policies reviews material teaching this of 4 Module §1). 2, Article Agreement, (Paris poverty” eradicate to efforts and development tainable sus- of context the in change, climate of threat the to response global the “strengthen to aims Agreement Paris the which within framework the provides and change climate combating in role key a plays Today,development sustainable goals.development sustainable develop to ment agree- the with prominence global to elevated were development sustainable of pillars three ConferenceUN on Sustainable Development,the (Lehtonen, 2004). Twenty organizations years later at the internationalRio+20 by adopted widely was development sustainable of definition this report, Brundtland the of consequence direct a Janeiro,de conferenceRio in was (UNCED) which Development and Environment on Conference Nations United development.2012 Followingthe social and development, economic environmentalprotection, pillars: three of be combination to a considered today is and evolved further has development sustainable of definition the report, Brundtland the of publication the Since generations) the planet. and future and (present people both serves that path sustainable towardsa economy world the steer to us enable to tool the as seen thus is development Sustainable generations. future of needs the meet to system vironmental goods and services) and tradegoods andservices) and gains for countries involved (UNCTAD, 2003). potential for “win-win” outcomes, generating both environmental (bybenefits disseminating environmental environmental (EGS). goodsandservices Trade isfrequentlyto havethese goodsandservices assumed in the to access facilitating by is development sustainable support effectively can trade which in ways the of One Box 6 ofsustainable Trade inenvironmental goodsandservices - sustainable development objectives. finance to used be might that resources nancial fi- mobilizing by developmentsustainable rolein indirect important an play can trade out, points (2014) UNCTAD Moreover,as services. and goods Box 6 takes a closer look at trade in environmental es in population and affluence on CO2 emissions. need to moderate the impact of expected increas- will technologies that showed 2.2.2 Section that globally. This is certainly an important topic, given development sustainable support to help might technologies eco-efficient such in trade of zation Liberali- 2011). (WTO, transfers technology green for channel a as acting thereby countries, all for easier services and goods environmental to cess ac- making (b) and efforts; conservation porting sup- thereby resources, natural of consumption reducing by costs reduce to efforts resulting and competition in increase trade-induced a to use due resource natural of efficiency the creasing in- (a) by development sustainable of pillar tion can also directly affectthe environmental protec- erty by stimulating economic development. Trade pov reduce to helping as viewed is tradeinputs, low-price and high-quality of availability the ing increas- products,and of sale the for portunities promoting production efficiency, offering new op- By protection. environmental and development economic pillars: development sustainable the of two least at affecting by objectives velopment de- sustainable supporting as seen thus Tradeis levels. income higher and rates, growth higher efficiency, trade resource increased increased to leads (2011),openness WTO the to According trade akey enabler ofsustainable development. nity recently renewed its commitment to making tainable Development, the international commu- Sus- for Agenda 2030 the In Conference. Rio+20 Sustain- on able Development in Johannesburg, Summit and the 2012 World 2002 the Janeiro, de Rio in conference UNCED 1992 the including conferences, international several during nized recogbeen also - has developmentsustainable to trade of contribution be supportive.”The mutually must and can development sustainable of promotion the and environment the of tection pro- the for acting and system, trading tilateral mul- non-discriminatory and open an guarding safe- and upholding of aims the that convinced countries“are member its that stipulates ration Paragraph 6 of the WTO’s Doha Ministerial Decla- - The environment, the economy and trade: The importance of sustainable development

Box 6 1 Trade in environmental goods and services The EGS sector only emerged in the 1990s as a distinct sector, but it has since grown and changed rapidly. The module relative newness of the concept makes defining the sector difficult. While there are several national definitions that vary in scope, the OECD and Eurostat took the lead at the international level to define the sector (UNCTAD, 2003). According to OECD/Eurostat (1999), the EGS sector consists of “activities which produce goods and services to measure, prevent, limit, minimize or correct environmental damage to water, air and soil, as well as problems related to waste, noise and ecosystems.” By their nature, EGS are scattered across an array of different economic sectors. Despite the difficulty of defining the sector, there have been attempts at estimating the size – in other words the total value produced – of the EGS market. Using its own definition of the sector, Environ- mental Business International (2012) estimated the global size of the EGS market at US$832.2 billion in 2011, representing roughly 1.2 per cent of global GDP. While developed countries still dominate the market in absolute terms, developing countries from Africa, the Middle East, and Asia show the highest growth rates in that year.

Global exports of environmental goods as classified by the OECD list of environmental goods and services increased by almost 190 per cent, from US$231 billion to US$656 billion, over 2001–2012 (Bucher et al., 2014).1 These figures would be even higher if one took trade in environmental services into account. In 2012, trade in EGS was dominated by trade between developed countries. During 2008–2013, eight of the 10 leading export- ers and seven of the 10 leading importers of EGS were developed countries (Bucher et al., 2014). It is interesting to note, however, that the People's Republic of China is already now the second largest exporter and importer of EGS. Moreover, other developing countries like the Republic of Korea, Mexico, Brazil, Malaysia, and the Rus- sian Federation also play an increasingly important role in the global EGS market. Generally speaking, most analysts expect that developing countries will significantly increase their global export and import shares over the years to come (Bucher et al., 2014). Hamwey (2005) identifies significant export strengths and potential for developing countries in environmentally preferable products, EGS from the manufacturing and chemical sector, and environmental services.

Given the importance of the EGS sector for the environment and its high market growth rate, trade liberalization of the sector is considered to be an important issue. During the 2001 Doha WTO Ministerial Confer- ence, WTO member states codified their agreement to open negotiations on “the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services” in paragraph 31 (iii) of the Doha Ministerial Declaration. The declaration emphasizes that negotiations should enhance the mutual sup- portiveness of trade and the environment in terms of both environmental benefits and trade gains for the parties involved (UNCTAD, 2003). Lamy (2008) argues that agreement on paragraph 31 (iii) would be a direct and immediate contribution of the WTO to fighting climate change.

Nevertheless, no WTO agreement on EGS trade liberalization has been reached to date, and important tariff and non-tariff barriers continue to exist in this sector. Much of the environmental goods negotiation has revolved around finding an acceptable sector definition among WTO members, and coming up with a list of EGS for which tariffs and barriers would be reduced. Several proposals have been submitted, most of them based on list approaches,2 but none have gained a consensus due to conflicting interests on product coverage and negotiation modalities among the negotiating parties (UNCTAD, 2009/2010). Developing countries in particular expressed concerns related to the definitions of EGS, the potential inclusion of dual-use goods, liberalization approaches, environmental regulation, and technology transfer.3

While multilateral negotiations seem stalled, plurilateral negotiations on EGS are taking place. In the Asia Pacific Economic Cooperation (APEC) 2012 Vladivostok Declaration, APEC members announced a reduction in tariffs on 54 environmental goods to a maximum of 5 per cent by 2015. Details of the implementation of these cuts were published in early 2016. Bucher et al. (2014) argue that this particular initiative might provide new impetus for WTO efforts in this area.

1 The OECD list of environmental goods and services covers 164 HS-6 products and includes product categories such as pollution management, cleaner technologies, and products and resource management. For an overview of the OECD list and a comparison with other lists of environmental goods and services, see Steenblik (2005). 2 List approaches try to identify sets of products to be considered environmental goods and services. Identification is mostly based on the Harmonized Commodity Description and Coding Systems (HS). Different lists have so far been put forward, for example by Japan, APEC, OECD, and UNCTAD. According to Ramos (2014), these lists, with the exception of the UNCTAD list, mainly reflect the export interests of developed countries in non-agricultural trade. 3 See Ramos (2014) for a discussion and a list of studies identifying these concerns.

Source: Author.

19 1 module 18–21). 18–21). openness, seeUNCTAD (2010: trademeasurestrade of and For anoverview ofdifferent trade opennessinpractice. indicators ofmeasures of in policy). We two usehere place (measures ofopenness tradeof policymeasures in number and/or importance in practice)the orquantify trademeasures of openness economy (theseare called tradethe of in importance the actual can eitherindicate tradeMeasures of openness trademeasures of openness. tradevolume of flows) and tradeof (i.e. the absolute guish betweenmeasures 15 The environment, the economy and trade: The importance of sustainable development It is important to distin- isimportant It 20 fects of trade on the environment. These voices These environment. the on trade of fects ef negative about concerns raised have groups environmental society civil several services, and goods environmental disseminate to ability its of because development sustainable of enabler important an as many by seen tradeis Although data on trade openness and CO and openness trade on data the at looking by topic the introduces 4.1 Section beonclimatechange.will Given the overall thrust of this material, the focus environment?the forbad or tradegood national inter Is debates: these of heart the at been has that question fundamental the on light shed to insights empirical and tools theoretical provide to aims section this context, this In 2007). ion, Council on Foreign Affairs Chicago and World (The Public Opin- environment the for beneficial is trade that believe majorities large did countries be bad for the to environment. In none of the surveyed trade perceive people of majority a tries the world population found in that several coun - of cent per 56 covering countries in conducted survey 2007 A public.general the among spread wide- also is environment the affects negatively trade that Taylor,idea and The (Copeland2003). environment the on impact negative a fearing liberalization, trade further opposed groups tal environmen- numerous millennium, new the of start the around especiallydecades, recent Over enablertant ofsustainable development. trade isviewedasanimpor that poverty;and (e)showed reduce helping simultaneously while able development as a means of avoiding ecocide too become damaging; (d) introduced effects the concept of sustain- these if happen can what illustrated environment;(c) the on has economy an impact the of size the determine that factors the interdependent;identified and (b) terrelated in- are environment the be- and economy the cause climate the affect can beings human that showed (a) module this of sections previous The Impact 4 tematically examine how increased trade open- trade increased how examine tematically sys- to frameworkconceptual presentsa 4.2 tion strategies. developmentsustainable current rolein important tradeplaysan whyshowedeconomy world and tainable sus- a creating of means a as development system.sustainable economic of able concept Wethe introduced sustain- a of importance the demonstrated thus large,and at societies and systems economic of velopment biggest century’s this de- the environmentalconstraintsin of roleis fundamental environmentalproblem.the global illustrated We it as seriously, change climate take to us reminding societies, past some of lapse col- and decline the in part important an playedbehaviour unsustainable that learned 3,readers Section In of trade on the environment 2 emissions. Sec- emissions. Short - - - summary Afirst ersne 2 pr et f ol GP n 1960, in GDP world of cent per 25 represented imports and exports total 1960. While since ing - ris steeply been have indicators openness trade a percentage of GDP) and CO GDP,of as imports and merchandiseand exports ured here as exports and imports as a percentage we first examine whether trade openness (meas- tradethe environment. on of effect the about results empirical and models theoretical at looking by issue this on evidence reviews therefore and section following 1990s The 2000s. the in loud particularly been have hn nlsn te usin f hte in- whether COincreases openness trade creased of question the analysing When work.the relationships at ing point to obtain a general idea of the nature of start good a is statements, it causal making for allow not does analysis of type this While ness. ol tae pnes CO openness. trade world in CO (decrease) increase an by paralleled is openness trade in (decrease) increase an whether at look ttsis bu CO about statistics a similar manner over time. over manner similar a impact impact – CO environmental particular a on focuses section negative?or Toquestions,these answer help this positive environment?so,impact the If this on is impact an have openness trade increased Does 4.1 ronment. envi- the on openness trade increased of impact several important empirical contributions on the discuss to 4.3 Section in used then is framework theoretical This environment. the affects ness lar environmental impact we are looking at (CO at looking are we environmentalimpact lar - particu the and openness trade that hint first a of world CO evolution the displays 9 Figure of panel left The initial descriptive analysis are this inFigure shown 9. of Results connected. be could emissions) Trade, 2 emissions. If this is the case, we would have glance at

trade 2 2 emissions and the two indicators of the emissions and emissions – and looks at descriptive openness

2 the data msin ad rd open- trade and emissions and 2 msin ad both and emissions 15 2 emissions evolve in In other words,other we In the environment: 2 emissions, - 2

The environment, the economy and trade: The importance of sustainable development 1 they corresponded to 59 per cent in 2014. Mer- (decreased) in the same year as trade openness chandise exports and imports rose from 18 per increased (decreased). This is a second hint that module cent of world GDP in 1960 to almost 49 per cent trade openness and environmental effects could

in 2014. Over the same time period, CO2 emis- be connected. At first glance it thus seems that sions increased by roughly 270 per cent. Both increased trade openness goes hand-in-hand

trade openness indicators and CO2 emissions with increased CO2 emissions. It is important to thus seem to evolve in a similar manner. Annual note, however, that the results from Figure 9 do changes in the three variables are displayed in not allow for making any causal statement on the

the right panel of Figure 9. Growth rates of CO2 relation between trade openness and emissions, emissions are positively correlated with growth as we are only considering correlations. Never- rates of trade openness (correlation coefficients theless, these results provide a clear rationale for equal 0.26 for total exports and imports and a more detailed analysis, as trade openness and

0.32 for merchandise exports and imports). This CO2 emissions seem to be linked, which could po-

means that, on average, CO2 emissions increased tentially reflect a causal relationship.

Figure 9

Trade openness and CO2 emissions, 1960–2014

35 35 6060 3030 CO2 emissions, millions

3030 of kilotons 5050 2020 P P

25 25 10 10 Exports and imports 4040 of GD of GD nt nt (per cent of GDP)

2020 r ce r ce 0 0 Pe Pe 3030 Merchandise exports and 15 15 -10-10 imports (per cent of GDP) 2020 10 10 -20-20 CO2 emissions growth rate 19601960 19701970 19801980 19901990 20002000 20102010 19601960 19701970 19801980 19901990 20002000 20102010

YearYear YearYear Growth rate of exports and imports Source: Author's elaboration based on data from World Bank’s World Development Indicators database. Growth rate of merchandise Given that the results from Figure 9 suggest that The upper left panel shows that there is a positive exports and imports trade openness and CO2 emissions are positively correlation between trade openness (as meas- associated, we use cross-section data – captur- ured by the GDP share of merchandise trade) and ing one point in time (here the year 2011) for sev- CO2 per capita emissions. In other words, coun- eral countries – to identify potential underlying tries that trade more extensively seem to emit reasons for this positive relationship. Following on average more CO2 per person than countries the methodology suggested by Onder (2012), we that are less open to trade. This result is in line look at the relation between trade openness (as with the results we found in Figure 9 . Which fac- measured by merchandise exports and imports tors could potentially explain this positive asso- as a percentage of GDP) and different factors that ciation? The remaining three panels offer several could explain the link we found in the previous possible explanations of this result. analysis. The results are displayed in Figure 10 which contains four different panels.

21 1 module The The environment, the economy and trade: The importance of sustainable development 22 95 per cent confidence95 percent Linear fit interval sition of countries that tradefrequently biased that countriesis of sition tensive. This could mean that the sectoral compo- energy-in- relatively typically are which sectors, industrial in added value their of proportion er high trade openness ratio seem to produce a larg- relatively a with countries that shows panel This sector.industrial the in produced added value of share the and openness trade between relation the analyses which 10 Figure of panel left lower the in found is explanation potential second A by increasing economic output. environment the affectsindirectly trade that ble impact on the environment. Therefore, it is possi- the increase to tends affluence) other greater words, (in production and consumption capita we have seen the in previous sections, higher per As trade. to openness less with countries than person per more produce and consume trade to capita. are moreWe countries that open that see per GDP and openness trade between relation upper right panel of Figure inthe 10, which explores the is provided explanation potential first A panel. PPP: purchasing powerparity. data availability. top panels, sampleincludes195countriesThe the in the lowerleft panel, 184in the lowerright and149in pore, Aruba, andHongKongtrade (China)) withhigh opennessindicatorswere also excluded. Samplesizes differto due totalthe value costs ofproduction). and worldprices between production oil at ofcrude Inaddition,three outliers(Singa- Note: Countries rents withoil ofGDPwerethan 30percent excluded higher rents (oil the difference correspondto reproduces Figure 2from Onder(2012)withmore recent data. Source: Author'selaborationthe basedondatafrom World Bank’s World Development Indicatorsdatabase. figureThe Industry, value added (per cent of GDP) CO2 emissions (metric tonnes per capita) Figure 10 60 80 40 40 20 20 30 10 0 0 05 05 Mer Mer chandise expor chandise expor Coef Coef 01 01 ficient of ficient of ts andimport ts andimport 00 00 co co rr rr elation .202 elation .221 Trade opennessandCO s (percen s (percen 150 150 t GDP) t GDP) 200 200 w iprat idns n hte increased whether on findings important two The firstcursory look at data in4.1 Section reveals environment. the affectsinfluences indirectly thereby and technology somehow trade that hint empirical an be could observationtrade. This to open less are that countries than processes production their open to trade use more polluting technologies in is possible that countries that are relatively more e te eain ewe tae pnes and openness CO trade between relation the ses analy which 10 Figure of panel right lower the in found is explanation potential third Finally,a countries, of indirectly affectsturn the environment.which in composition sectoral the affects trade that hint empirical an as observation this interpret could One emissions. CO2 more duce pro- also which goods,energy-intensive towards averageCO higher trade openness ratios seem to have higher with countries that shows produced).panel This 2 emissions, 2 CO intensity (kg of oil equivalent energy use) GDP per capita (PPP; constant 2011 int. $) emission intensity (CO intensity emission 2 0 0 4 2 5 3 1 50000 100000 150000 05 05 Mer Mer 2 emission intensity.emission words,other In it chandise expor chandise expor 2011 Coef Coef 01 0 ficient of ficient of ts andimport ts andimport 100 2 00 co co emissions per dollar dollar per emissions rr rr elation .106 elation .077 s (percen s (percen 150 150 t GDP) t GDP) 200 200 - The environment, the economy and trade: The importance of sustainable development 1 trade openness increases CO2 emissions. First, 4.2.1 Scale, composition and technique effects trade openness and CO emissions evolved in par- 2 module allel over recent decades, and per capita CO2emis- The current theoretical discussion on trade and sions are higher for countries with greater trade the environment is framed by the concepts intro- openness. Evidence thus seems to indicate that duced by Grossman and Krueger (1993) in their there is at least a positive correlation between now-famous work analysing the environmental trade openness and CO2 emissions. Second, with- impact of the North American Free Trade Agree- out being able to make any causal statement, ment. The authors distinguish three effects that data provide preliminary evidence for at least economic activities such as trade can have on the three different possible explanations for this environment: the scale effect, the composition ef- positive correlation: (a) higher trade openness fect, and the technique effect (Table 2). The scale seems to go hand-in-hand with increased per effect is rather straightforward: if the overall scale capita production; (b) the sectoral composition of economic activity increases, all else being equal, of countries that trade frequently seems to be bi- the environmental impact will increase. Besides ased towards energy-intensive goods, which pro- the overall scale of activities, the production mix duce more CO2 emissions; and (c) countries that of an economy is also important. All else being trade frequently seem to employ more polluting equal, a shift in the composition of an economy in technologies than countries that trade less. The terms of the share of clean and dirty sectors will following section will take a look at theoretical affect the overall environmental impact of that concepts that could explain these preliminary economy. If an economy changes its industry mix empirical results. and starts to produce relatively more dirty goods, the overall environmental impact increases. The 4.2 Environmental impact of trade: opposite will happen if an economy’s production What we can learn from theory mix shifts towards cleaner industries. This effect is called the composition effect. Finally, technol- The analysis in Section 4.1 revealed several rea- ogy also matters – if the scale and composition of sons that might explain why CO2 emissions are the economy are fixed, but production technology different for countries with different degrees of becomes cleaner, then the overall environmental trade openness. The theoretical framework out- impact of the economy decreases, and vice versa. lined in this section aims to explain these results This is called the technique effect. Box 7 shows and serve as a starting point for empirical work how these effects can be derived formally. Each on the environmental impact of trade. of these effects and their relation to trade are analysed individually in the sections that follow.

Box 7 A decomposition of scale, composition and technique effects Scale, composition and technique effects as introduced by Grossman and Krueger (1993) can be formally de-

rived. Let us focus again on CO2 emission. Furthermore, let us make our life easier by assuming that an economy produces only two types of goods, dirty goods and clean goods, and that emissions are only a by-product of the production process of dirty goods (clean goods do not produce any emissions). We can then express

total CO2 emissions of the economy (E) as the product of total economic output (Y) times the share of dirty goods in total output (S) times emissions per unit produced of the dirty good (A):

E = Y* S* A Let us take logarithms and use the properties of the logarithm to obtain:

ln(E) = ln(Y) + ln(S) + ln(A)

And finally, let us totally differentiate the above equation, which yields:

ΔE ΔY ΔS ΔA = + + E Y S A

From the above, we see that the percentage change in emissions is equal to the percentage change in total output plus the percentage change in the share of dirty goods in the economy plus the percentage change in the emissions per unit produced of the dirty good . We see that the scale effect (a change in the overall scale of the economy , the composition effect (a change in the composition of the economy in terms of dirty and clean goods , and the technique effect (a change in emissions per produced unit of the dirty good all affect overall emissions .

Source: Author’s elaboration based on Grossman and Krueger (1993).

23 1 module (2010), Chapter1. trade models, seeUNCTAD Module 2. UNCTAD (2010), Chapter1of topic,this introductionto see trade andgrowth. For an negative relation between positive andsometimesa sometimes showinga so far beenconclusive, not these arguments haveof relationship. tests Empirical existence ofsuchapositive the arguments against growth, onealso finds various trade tionship between and in favour ofapositive rela- theoreticalmany arguments contributions. there are While ofempirical by anarmada models have tested been mics. Numeroustheoretical the key questionsinecono- haslongbeenoneof growth 17 16 The environment, the economy and trade: The importance of sustainable development For anoverview ofdifferent trade link The between and 24 for an example of how GDP growth can affect CO environment.the 2.2.2 on Section (See talimpact to- higher havea turn in will activities economic increased changes,these else quently, nothing if and transportation) in trading countries. of economic activities (production, consumption, stimulates economic growth, and hence the scale is oftenIt increasedtradethat claimed openness 4.2.2 Trade-induced scale effect tive advantage. tive havecomparathey a where - specializesectors in trade international to openness that their countries increase that assume models trade ard Stand- economies. trading of composition toral sec- the also but influences activities economic of scale the only not openness trade Increased 4.2.3 Trade-induced composition effect pirical evidenceis reviewed 4.3. inSection em- this of Some effects. scale trade-induced of have attempted to analyse the existence and size 2003; Frankel and Rose, 2005; Managi (Antweiler pers pa- Krueger,empirical and numerous Grossman of contribution seminal the Since the environment. for consequences negative have to effects Researchers generally trade-inducedexpect scale effect. scale trade-induced the mechanism this called (1993) Krueger and Grossman emissions.) a ipc o fco-nomn efcs s un- is effects factor-endowment of impact tal Taken in isolation,the potential environmennet - countries. different in stringency policy environmental in differences from type, effects,results pollution-haven second The differences). technology abundance and (factor advantage comparative of effects,sources endowment classical from arises type, factor- first effects. The composition duced trade-in- of types two distinguishes frequently Grossman and Krueger, 1993; Managi 2010;Mathys, and Melo (De literature The tage. countries’the sourcesof the comparative advan - theoreticalFromview,of point a on depends this reduce overall environmental impacts. or increase composition sectoral economies’ in question then is whether trade-induced changes The environment. the on impact economy world the the of modify thus patterns and production countries in across change a to lead fore there- may worldwide openness trade Increased sectors. those in advantage comparative it a has if sectors polluting or “dirty” relatively in or sectors, these in advantage comparative a has it if sectors clean relatively in specialize may try coun- The structure. sectoralcountry’s a change 17 , 2001; Copeland and Taylor,and Copeland 2001;al., et Thus, opening up to trade may trade to up Thus,opening et et al., 2009) et et al., 2009) 16 Conse- 2 o rd. s ee tcnlge ae frequently are technologies newer As trade. to up opened have that economies to technologies trade-induced technology spillover concerns effects. Firms may bring new mechanism first The for important developing countries.particularly are mechanisms Both policies.environmental in technology: trade-induced technology transfers, production and changes alter can trade which Krueger (1993) identify two mechanisms through and Grossman overall trade. the of impact affect environmental turn in would This change. also produced unit per generated amount emissions the of or used resources of amount the trade.to changes,technology If that possible is it technology may change after a country opens up production that fact the environment to refers which effect, the technique trade-induced influence so-called the through also can Trade 4.2.4 Trade-inducedtechnique effect this debate.to tributed con - have that studies empirical several at look ment and pollution-haven effects. Section 4.3 will effects and the relative strength of factor-endow depends on the net impact of factor-endowment environment.the negativeforitiveor Everything trade-inducedof pact composition effects is pos- im- overall the whether determining in help not these mechanisms, explaining While can- theory worldwide.impact environmental the of increase an to lead would shift a Such regulation. less is there where tries industry is heavily regulatedto developing coun- these industries from developed countries where of production the shifting to lead can tries. This coun- these in stringent less often are ulations environmentalbecause reg- industries polluting in countries developing of advantage parative effects. Pollution-haven effects pollution-haventend to increase the com- of impact environmental net negative a predicts generally Theory thus ambiguous. is ment environ- world the on factor-endowmenteffects of impact net countries. The these in impact tal environmenthe - decrease trade.to to tends This up opening after sectors labour-intensive in ize special- to tend ratios capital-labour with low rather countries Developing countries. these in environmentalimpact the increase to tends this (Managi pollution-intensive and/or resource- often are industries capital-intensive in technologies production As trade. to up ing specializecapital-intensivein after sectors open- to tend ratios capital-labour high relatively with countries developed that predicts Theory clear. , 2009),al., et - The environment, the economy and trade: The importance of sustainable development 1 assumed to be cleaner than older ones, trade-in- per capita income increases. One of the reasons duced technology transfers are generally expect- for such an increase of per capita income can be module ed to have a positive impact on the environment. opening to trade (see Section 4.2.2). Rising per capita income then increases the demand for The second mechanism is indirect. Environmen- improved environmental quality in the countries tal quality is usually assumed to be a normal concerned. Their citizens put pressure on their good (Antweiler et al., 2001). In economics, a governments to tighten environmental regula- good is referred to as normal when the demand tions, which in the end is beneficial for the en- for that good increases with increased incomes. vironment. Stricter environmental regulations Saying that environmental quality is a normal might thus be an indirect consequence of greater good means that demand for it increases when openness to trade.

Table 2 Trade-induced scale, composition and technique effects Channel Theoretical mechanism Expected net effect Increased trade openness increases the overall scale of eco- All else being equal, the Trade- induced scale effect nomic activities. All other factors fixed, this increases overall effect on the environment production, consumption, and transport. is expected to be negative. Factor-endowment effect: after opening up to trade, economies specialize in sectors in which they have a comparative advantage due to differences in factor endowments or technology. The net effect on the Capital-abundant countries specialize in capital-intensive environment is ambiguous. industries, thus increasing their environmental impact, and Trade-induced labour-abundant countries specialize in labour-intensive indus- composition effect tries, thus reducing their environmental impact. Pollution-haven effect: after opening up to trade, economies All else being equal, the specialize in sectors that do not have strict environmental effect on the environment regulations and outsource production of strictly regulated is expected to be negative. industries to less regulated countries. All else being equal, the Technology transfers: increased trade openness leads to the effect on the environment transfer of newer and cleaner technologies. is expected to be positive. Trade-induced Environmental policy: increased trade openness increases technique effect All else being equal, the per capita income, which in turn increases the demand for effect on the environment environmental quality, thus leading to stricter environmental is expected to be positive. regulations. No clear theoretical The net effect of trade openness on the environment is a com- Net effect of trade on prediction regarding the bination of the trade-induced scale, composition and technique the environment net impact of trade on the effects. environment can be made.

Source: Author's elaboration based on the theoretical framework of Grossman and Krueger (1993) and on the distinction in De Melo and Mathys (2010) between factor-endowment and pollution-haven effects.

4.3 Environmental impact of trade: oxide (SO2), which is the gas responsible for acid

What we can learn from empirical evidence rain. While SO2 is not a greenhouse gas, SO2 and

CO2 emissions are highly correlated, with the Before the seminal work of Grossman and Krue- same energy-intensive industries being the main ger (1993), which outlined the theoretical founda- emitters (De Melo and Mathys, 2010). It is there- tions that allow for systematically analysing the fore meaningful to include SO2 in the analysis. effects of trade openness on the environment, few empirical contributions had been made in Antweiler et al. (2001) analyse the impact of in- the field. Since then, however, empirical research creased trade openness on concentrations of 18 18 to assess the effects of trade on the environment SO2. They estimate scale, composition and tech- Note that while emissions has been growing rapidly. Most of the research nique effects and show for the first time that correspond to the amount has so far focused on local pollutants (De Melo these effects can actually be measured using of a gas released into the atmosphere from a specific and Mathys, 2010). Recently some authors also available data and therefore are not just abstract source and over a specific started to analyse the effects of trade on defor- theoretical concepts. Their sample covers 43 time interval, a concentration estation or water use (see Box 8). In line with countries over the period 1971–1996. The empiri- is the amount of the gas in the focus of this material, this section contin- cal results reveal the existence of a trade-induced the atmosphere per volume ues to concentrate on the empirical evidence composition effect that is lowering SO concen- unit at a specific point in 2 time. on trade openness and CO2 emissions, the most trations, i.e. SO2 concentrations decrease due to researched greenhouse gas to date. Our review, a trade-induced change in the sectoral composi- however, also includes a second gas, sulphur di- tion of the average economy. Moreover, they find

25 1 module The The environment, the economy and trade: The importance of sustainable development 26 crease CO crease SO considered. Managi countries the on depending tially the impact of trade on emissions differs substan- et nrae n noe n otu, hn pol- then output, and income in increase cent if an increase in trade openness generates a 1 per results,their to Accordingincreases). income ita concentrationscap- (SO2 per when decreasefect ef technique a and increases) GDP when crease evidence for a scale effect (SO2 concentrations in- depends on the gas. For SO environmenttradethe increasedof on openness in Table 3. The first finding is that the overall effect findings of some of these papers are summarized The countries. different and gases different for effects composition and technique scale, timate es- to approach empirical similar a used papers Antweiler on Building SO lower to Overall,seems intensitytrade increased weiler Source: Author. haveanalysedKagohashibybeen The effects of increased trade openness on water use (the degree to which water is withdrawn and consumed) countries slowed but deforestation indeveloped countries. that trade-induced changes in the sectoral composition of economies accelerated deforestation in developing indicate results their effect: significant a find (2012) Managi Tsurumiand 1990–2003, over countries 142 for deforestation on openness trade increased of effects the analysing However,in inconclusive. thus are and and Azomahou (2007). These contributions do not find a significant effect of trade openness on deforestation The links between deforestation and trade have been empirically assessed by Frankel and Rose (2005) and Van and more research isneeded. scarce, still is environment the of aspects other on trade of impact the on literature However, empirical the to portant note that trade also affects other aspects of the environment, such as water use and deforestation. While Section 4.3 discusses the empirical evidence on the influence of trade on selected air pollutants, it is im- diffusing water-saving composition. industrial technologies andmodifying in trade of role the by explained be can results their that argue authors use.The water efficient promote to average.seems tradeon cent Thus per 1.5 to 1 roughly by use water reduces openness trade in increase cent per 1 a that suggest results their Overall,effect. technique reducing use water the by offset than more are indicate that trade increased water use through the scale and composition effects. However, these two effects Box 8 2 2 emissions.However,in- to seems trade more n CO and et al.et (2001) have confirmed. been partially . (2009) find that trade decreases trade that find (2009) al. et 2 emissions. The second finding is that that is finding second emissions. The 2 evidence empirical on Selected emissions in OECD countries but but countries OECD in emissions . (2001), several other several(2001), al. et 2 , the results from Ant (2015).al. et coverssample Their countries43 over 1960–2000. results Their the impact - - of beneficial effect on reducing SO2 concentrations. a have to seems openness trade increased that suggest results their Overall, effects. and technique scale of impact joint the to due cent per 1 approximately by fall will concentrations lution effects that canceleachotherout.effects that factor-endowment and pollution-haven of ence exist simultaneous the to Cole and attribute (2003) Eliot which small, rather and gas-specific are production polluting more or cleaner wards to- structures economic of change the to related effects composition of impact another. The one the offset country,can effectsthe two and these gas on Depending effects. technique through increase them to lower and effects scale through emissions seems trade considered: country the and gas the of combination the on depend also effects technique and composition scale, of magnitude and sign the that is finding third the Finally, countries. non-OECD in them increases trade ondeforestation andwater use - The environment, the economy and trade: The importance of sustainable development

Table 3 1 Selected empirical results on trade and air pollution Study Gas Countries Effects Net effect of trade module Scale: concentration increasing Antweiler et al. All countries in Decreases SO SO Technique: concentration decreasing 2 (2001) 2 sample concentrations Composition: concentration decreasing All countries in Combined scale and technique: emissions decreasing SO2 Unclear Cole and Eliot sample Composition: emissions increasing (2003) All countries in Combined scale and technique: emissions increasing Increases CO CO 2 2 sample Composition: emissions increasing emissions

Non-OECD Combined scale and technique: emissions increasing Increases SO2 countries Composition: emissions increasing emissions SO2 OECD Combined scale and technique: emissions decreasing Decreases SO2 Managi et al. countries Composition: emissions increasing emissions (2009) Non-OECD Combined scale and technique: emissions decreasing Increases CO2 countries Composition: emissions increasing emissions CO2 OECD Combined scale and technique: emissions decreasing Decreases CO2 countries Composition: emissions increasing emissions

Source: Author. Note: The “Effects” column reports the observed impact of scale, technique and composition effects on the concentrations or emissions of the gas. Not all papers separated the scale and technique effects – sometimes combined scale and technique effects are reported.

In short, empirical contributions show that impact on the environment, while other times while trade does have an effect on the environ- it seems to have a detrimental effect. As results ment, it is not possible to make a generally valid differ from one case to another, further research statement that this effect is positive or negative. is needed on a case-to-case basis to deepen our Sometimes, more trade seems to have a positive understanding of this important question.

Short summary Section 4 addressed the question of whether trade is harmful or beneficial to the environment, using the example of CO2 emissions. After showing that trade openness and CO2 emissions are correlated, the section discussed three theoretical effects through which trade could affect the environment. Table 2 summarized the expectations with regard to the environmental impact of each of these effects. While theory provides a framework that enables us to conceptualize the effects of trade on the environment, it cannot by itself make a final prediction as to whether trade is harmful or beneficial to the environment. The section therefore reviewed selected empirical work relevant in the context of climate change, concluding that trade seems to sometimes have a positive impact and sometimes a negative impact on the environment.

27 1 module The The environment, the economy and trade: The importance of sustainable development 28 Exercises andquestionsfor discussion 5 Describe 3 Cobalt (i) Fish (h) Solarradiation (g) Wood (f) Petroleum (e) Cattle (d) Power ofwind (c) Coal (b) Power of (a) Download 4 How 2 Why 1 Using 5 a Using (a) c Suppose (c) Plot (b) d Compare anddiscuss (d) Define 6 How 8 Identify key environmental produced goodsandservices inyour country. 7 1970–2014 stock resources? Classify services emissions perworld GDP(T). emissionsat tal constraints face problems. ing countries. effects. can per growth intensity can can are the sustainable the economy provides all four variables over only the trade the general form of you capita examples and the the IPAT identity, in economy classify

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The environment, the economy and trade: The importance of sustainable development 1 ANNEX 1

Some useful databases module Database Description Link These data represent a consistent set of carbon accounts at https://supplychainco2.dge. Davis et al. (2011) dataset on points of extraction (of fuels), production (of emissions), and carnegiescience.edu/data. trade and carbon dioxide consumption (of goods) for 112 nations/regions and 58 sectors, html including trade linkages. The data catalogue covers a wide range of indicators relevant World Bank (2016) Data to the environment, including data on pollution, emissions, http://data.worldbank.org/ Catalog forests, and biodiversity. It also covers a wide range of general indicator economic indicators including data on trade. EDGAR provides data on global anthropogenic emissions of Emissions Database for greenhouse gases and air pollutants at the country level. Data http://edgar.jrc.ec.europa. Global Atmospheric Re- are also available at a high spatial resolution, allowing for eu/ search (EDGAR) detailed spatial analysis. The OECD environmental indicators, modelling and outlooks http://www.oecd.org/ OECD environmental database contains data on a range of environmental topics env/indicators-modelling- indicators covering mostly OECD countries. outlooks/

ANNEX 2

Selected additional reading material Topic Chapters 2–4 and 7 of Common M and Stagl S (2004). Ecological Economics – An Introduction. Cambridge University Press. Cambridge, MA. Chapters 2.1–2.4 of Perman et al. (2011). Natural Resource and Environmental Economics, Fourth Links between the economy Edition. Pearson Education Limited. Essex, UK. and the environment Chapter 1 of Kolstad C (2000). Environmental Economics. Oxford University Press. Oxford, UK. Chapters 1 and 2 of Tietenberg T, and Lewis L (2012). Environmental and Natural Resource Eco- nomics, Ninth Edition. Pearson International Edition. Addison Wesley. Boston. Chapter 2.5 of Perman et al. (2011). Natural Resource and Environmental Economics, Fourth Edi- tion. Pearson Education Limited. Essex, UK. Chapters 5 and 20 of Tietenberg T, and Lewis L (2012). Environmental and Natural Resource Economics, Ninth Edition. Pearson International Edition. Addison Wesley. Boston. Sustainability Chapters 1.4, 4.11, 9.5, and 10 of Common M, and Stagl S (2004). Ecological Economics – An Intro- duction. Cambridge University Press. Cambridge, UK. Strange T, and Bayley A (2008). Sustainable Development, Linking Economy, Society, Environment. OECD Publishing. Paris. Diamond J (2006). Collapse: How Societies Choose to Fail or Survive. Penguin. London. Chapter 10 of Perman et al. (2011). Natural Resource and Environmental Economics, Fourth Edi- tion. Pearson Education Limited. Essex, UK. Trade and the environment Copeland BR, and Taylor MS (2003). Trade and the Environment: Theory and Evidence. Princeton University Press. Princeton, NJ and Oxford, UK.

29 1 module The The environment, the economy and trade: The importance of sustainable development 30 Ecological Economics 49(2): 199–214. Lehtonen M(2004). environmental–socialThe interface ofsustainable development: Capabilities, social capital, institutions. Climate Change, EuropeanThe Parliament. Brussels. Lamy P(2008). Aconsensual international accord on climatechangeisneeded. Paperthe presented at Temporary Committee on Kolstad C(2000)Environmental Economics. Oxford University Press. Oxford, UK. the Intergovernmentalto Panel Subgroup, onClimateChangeEnergyand Industry Response Strategies Working Group, Paris. Kaya Y (1990). ofcarbondioxide emissioncontrol Impact growth: onGNP Interpretation ofproposed scenarios. Paper presented Kagohashi K, Tsurumi T, andManagiS(2015). effectsThe ofinternationaltrade onwater use. 10(7). PLoS ONE scenarios. growth term Economics Department OECD Working Paper No. 1000. Publishing. OECD Paris. Johansson A, Guillemette Y, F, Murtin Turner D, Nicoletti G, delaMaisonneuve C, BagnoliP, G, Bousquet F(2013). andSpinelli Long- on ClimateChange. Geneva. the Intergovernmental Panel onClimateChange[Core Writing Team, Pachauri RK, (eds.)]. andMeyer LA Intergovernmental Panel IPCC (2014). Climate Change2014: Synthesis Report. Contribution of Workingthe Fifth of to Report Assessment Groups I, andIII II tion andDevelopment. Publishing. OECD Paris. IEA/OECD (2015).IEA/OECD CO ing Paper. Centre for Economic andEcological Studies. Hamwey R(2005). Environmental goods: trade for the dynamic Where opportunities developing do countries lie?Cen2eco Work Trade Agreement, GarberP, ed. MITPress. Cambridge, MA. Grossman G, AB(1993). andKrueger Environmental Free American ofaNorth impacts Trade Agreement. In: Mexico-US The Free Statistics 87(1): 85–91. Frankel JA, andRose AK(2005).trade Is the causality. goodorbadforthe environment? out Sorting Review The ofEconomics and http://ebionline.org/ebj-archives/1355-ebj-v25n06-07. Environmental BusinessInternational (2012). Global environmental markets. Environmental BusinessJournal 25(6/7). Available at: Trends for andOpportunities Developing Countries, Cattaneo O, Engman M, Saez S, R, andStern eds. World Bank. Washington, DC. NC(2010).Dihel trade Understanding inenvironmental services: Key issuesandprospects. In: International Trade inServices: New Diamond J(2006). Collapse:to Fail HowSocietiesChoose . orSurvive Penguin. London. Economic Policy Research. London. De MeloJ, andMathys N(2010). Trade andclimatechange: challengesThe ahead. Paper Discussion CEPR No. 8032. Centre for 108(45): 18554–8559. Davis SJ, Peters GP, andCaldeira K(2011). supplychainofCO2The emissions.the National Proceedings Academy of ofSciences Oxford, UK. Copeland BR, and Taylor MS (2003). Tradethe Environment: and andEvidenceTheory . University Princeton Press. Princeton, NJand Common M, andStaglS(2004). Ecological Economics –AnIntroduction. Cambridge University Press. Cambridge, UK. Cohen D(2009). Laprospérité duvice. UneIntroduction (inquiète)àl’économie. Michel. Albin Paris. Regulations. ofEnvironmental Journal Economics andManagement 46(3): 363–383. (2003).Cole RJR the MA Elliott Determining Trade-Environment Composition Effect: RoleThe ofCapital, Labor andEnvironmental MR(2000).Chertow IPATThe equationanditsvariants. Ecology ofIndustrial Journal 4: 13–29. challenges. International Trade Centre Technical Paper. Geneva. Bucher H, Drake-Brockman J, Kasterine A, andSugathanM(2014). Trade inenvironmental goodsandservices: and Opportunities ment 11: 713–19. Brown BJ, HansonME, Liverman DM, RW andMerideth (1987). Global sustainability: Toward definition. Environmental- Manage India: Areview. Aquatic Ecosystem Health&Management 16: 425–32. Behera SK, SinghH, andSagar V (2013).the GangaRiver StatusofGangesRiver basin, dolphin (Platanistagangeticagangetica)in 877–908. Antweiler W, Copeland BR, and Taylor MS (2001).trade Isfree goodforthe environment? Economic American Review 91(4): REFERENCES 2 Emissionsfrom Fuel Combustion 2015. International EnergyAgencyandOrganization for Economic Coopera- - The environment, the economy and trade: The importance of sustainable development

Managi S, Hibiki A, and Tsurumi T (2009). Does trade openness improve environmental quality? Journal of Environmental Eco- 1 nomics and Management 58(3): 346–63. module Nakicenovic N, and Swart R (eds.) (2000). IPCC Special Report on Emissions Scenarios - A Special Report of IPCC Working Group III. Intergovernmental Panel on Climate Change. Cambridge University Press, UK.

OECD (2014). OECD Economic Outlook No. 95 (Edition 2014/1). Organization for Economic Cooperation and Development Eco- nomic Outlook: Statistics and Projections (database). Available at: http://dx.doi.org/10.1787/data-00688-en.

OECD/Eurostat (1999). Environmental Goods and Services Industry Manual for the Collection and Analysis of Data. Organization for Economic Cooperation and Development. Paris.

Olivier JGJ, Janssens-Maenhout G, Muntean M, and Peters JHAW (2015). Trends in global CO2 emissions - 2015 report. PBL Report 1803. PBL Netherlands Environmental Assessment Agency and European Commission Joint Research Centre. Available at http:// edgar.jrc.ec.europa.eu/news_docs/jrc-2015-trends-in-global-co2-emissions-2015-report-98184.pdf.

Onder H (2012). Trade and climate change: An analytical review of key issues. Economic Premise No. 86. World Bank, Washington, DC.

Perman R, Ma Y, Common M, Maddison D, and McGilvray J (2011). Natural Resource and Environmental Economics, Fourth edition, Pearson Education Limited. Essex, UK.

Ramos MP (2014). The impact of trade liberalization of environmental products on welfare, trade, and the environment in Argen- tina. UNCTAD Virtual Institute Project on Trade and Poverty. United Nations. Geneva.

Steenblik R (2005). Environmental goods: A comparison of the APEC and OECD lists. OECD Trade and Environment Working Paper No. 2005-4. Organization for Economic Cooperation and Development. Paris.

Strange T, and Bayley A (2008). Sustainable Development, Linking Economy, Society, Environment. OECD Publishing. Paris.

The Chicago Council and World Public Opinion.org (2007). World public favors globalization and trade but wants to protect environment and jobs. Available at: http://www.worldpublicopinion.org/pipa/pdf/apr07/CCGA+_GlobTrade_article.pdf.

Tietenberg T, and Lewis L (2012). Environmental and Natural Resource Economics, Ninth Edition. Pearson International Edition. Addison Wesley. Boston.

Tsurumi T, and Managi S (2012). The effect of trade openness on deforestation: empirical analysis for 142 countries. Environmental Economics and Policy Studies 16: 305–24.

UNCTAD (2003). Trade and Environment Report 2003. United Nation. Geneva.

UNCTAD (2009/2010). Trade and Environment Report 2009/2010. United Nations. Geneva.

UNCTAD (2010). Virtual Institute Teaching Material on Trade and Poverty, United Nations. New York and Geneva.

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UNCTAD (2015). Key statistics and trends in international trade. United Nations. Geneva.

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Van PN, and Azomahou T (2007). Nonlinearities and heterogeneity in environmental quality: An empirical analysis of deforestation. Journal of Development Economics 84: 291–309.

WCED (1987). Our Common Future. World Commission on Environment and Development. Oxford University Press and United Nations. New York.

Webster D, Freter A, and Golin N (2000). Copan: The Rise and Fall of an Ancient Maya Kingdom. Harcourt Brace Publishers. Fort Worth, TX.

World Bank (2016). Open Data Catalog. World Bank. Washington, DC. Available at: http://datacatalog.worldbank.org/.

WTO (2010). World Trade Report: Trade in Natural Resources. World Trade Organization. Geneva.

WTO (2011). Harnessing Trade for Sustainable Development and a Green Economy. World Trade Organization. Geneva.

Module 2 The climate science behind climate change 2 The climate science behind climate change 1 Introduction future and discusses the anticipated impacts of climate change. module Module 1 showed that human actions can influence the climate because the economy and the To this end, this module draws on the work of environment are interdependent. This module the Intergovernmental Panel on Climate Change focuses specifically on the climate system and (IPCC) Working Group I, which deals with the the climate science behind climate change. By physical science basis of climate change. As reviewing key points, the module enables read- mentioned in Module 1, the IPCC is the leading ers to understand how the climate system works, body collecting, reviewing, and assessing recent why climate change occurs, and how humans state-of-the-art scientific work related to climate induce climate change. The module highlights change. The five IPCC assessment reports and the 19 All these reports are recent empirical evidence pointing towards the different IPCC special reports19 together form the available on the IPCC home- existence of human-induced climate change, most comprehensive and reliable source of scien- page at: http://www.ipcc.ch/ and discusses climate-change-related impacts tific work today on climate change. The module publications_and_data/pu- blications_and_data_reports. that can already be observed today. To conclude, therefore uses some of the terminology intro- shtml#1. the module outlines different scenarios for the duced by the IPCC (see Box 9).

Box 9 The IPCC’s terminology to report findings to the public The Intergovernmental Panel on Climate Change (IPCC) developed specific terminology to report its findings to the public. In the fifth assessment report (IPCC, 2013a), a finding is assessed in terms of the underlying evidence and the agreement among scientists regarding that finding. In addition, the IPCC often assigns a level of confidence to the different findings that is based on evidence and agreement (see Figure 11).

Figure 11 Relationship between agreement, evidence and confidence levels

Confidence High agreement High agreement High agreement scale Limited evidence Medium evidence Robust evidence

Medium agreement Medium agreement Medium agreement Limited evidence Medium evidence Robust evidence

Low agreement Low agreement Low agreement Agreement Limited evidence Medium evidence Robust evidence

Evidence (type, amount, quality, consistency)

Source: Mastrandera et al. (2010: 3). To rate the degree of agreement among scientists regarding the evidence, it uses the terms “low,” “medium,” and “high.” Confidence levels are expressed using the terms “very low,” “low,” “medium,” “high,” and “very high.” If the likelihood of an outcome or a result has been assessed using statistical techniques, the IPCC reports probability values using the following terminology: “virtually certain” (99–100 per cent probability); “very likely” (90–100 per cent probability); “likely” (66–100 per cent probability); “about as likely as not” (33– 66 per cent probability); “unlikely” (0–33 per cent probability); “very unlikely” (0–10 per cent probability); and “exceptionally unlikely” (0–1 per cent probability). Sometimes it also uses the terms “extremely likely” (95–100 per cent probability); “more likely than not” (>50–100 per cent probability); “more unlikely than likely” (0–<50 per cent probability); and “extremely unlikely” (0–5 per cent probability). For more details, see Mastrandrea et al. (2010). Source: Author's elaboration based on Mastrandera et al. (2010).

Section 2 introduces the theoretical basis of the therefore of crucial importance for the climate. climate system and climate change. Section The section stresses that the natural greenhouse 2.1 familiarizes the reader with the concepts of effect plays an integral role in the planet’s en- weather, climate, and climate change, and intro- ergy balance and is generally responsible for the duces the five components of the climate system relatively warm average temperature on the sur- (i.e. atmosphere, hydrosphere, cryosphere, land face. With the module having outlined how the surface, and biosphere). Section 2.2 focuses on climate system works, Section 2.3 then explains the planet’s energy balance, which influences that the climate not only changes in response to all five components of the climate system and is factors within the climate system but also in re-

34 The climate science behind climate change 2 sponse to some factors that are external to the • Explain how the natural greenhouse effect climate system. In fact, some external factors (e.g. operates; module human activities) affect climate change drivers • Define and understand the concept of radia- (e.g. greenhouse gases), which in turn affect the tive forcing; energy balance of the planet. Because the earth’s • Explain how economic activities can alter the energy balance affects all five components of the climate; climate system, external factors can thus affect • List major observed human-induced changes the climate. Section 2.4 introduces two impor- of the climate system; tant concepts that allow for assessing how the • Discuss anticipated future impacts of climate planet’s energy balance changes as a result of change. externally induced variations in climate change drivers: radiative forcing and effective radiative To support the learning process, readers will find forcing. These two important concepts allow for several exercises and discussion questions in Sec- quantifying the extent to which different exter- tion 5 covering the issues introduced in Module nal factors influence the climate. Finally, Section 2. Additional reading material can be found in 2.5 specifically focuses on the different ways in Annex 2. which humans affect the climate, altering atmospheric concentrations of greenhouse gases and aerosols, and influencing properties of the 2 The theoretical basis of the climate land surface. It concludes by assessing the rela- system and climate change20 20 This section draws on the tive strength of these different human-induced work of the IPCC, in particu- perturbations of the climate system, and high- When speaking about climate change, it is im- lar Chapter 1 of the contribution of Working Group I lights the importance of feedback effects. portant to clearly distinguish three distinct but to the third IPCC assessment related concepts: weather, climate, and climate report (Baede et al., 2001), as Section 3 then provides an overview of the main change. Weather can be defined as the changing well as several chapters of changes that have occurred in the climate system state of the atmosphere, which is characterized the fifth assessment report and highlights to what extent human activities by temperature, precipitation, wind, clouds, etc. (especially Boucher et al., 2013, Cubasch et al., 2013, have contributed to these observed changes. To (Baede et al. 2001). Weather fluctuates frequently Masson-Delmotte et al., 2013, this end, the section discusses observed changes as a result of fast-changing weather systems. and Myhre et al., 2013). in the means of temperature, precipitation, ice Weather systems, and hence the weather, can and snow cover, and sea levels. It then shows that only be predicted with some degree of reliabil- not only the mean state of climate variables has ity for a very short period of time (one or two changed, but that the frequency of extreme cli- weeks). They are unpredictable over longer time mate events has also been affected. The section horizons. Climate, on the other hand, is, loosely concludes with a short discussion on the impact speaking, “long-term average weather.” IPCC of these observed changes on human and natu- (2001a: 788) defines climate as “the statistical ral systems. description in terms of mean and variability of relevant quantities [such as temperature, precip- To conclude Module 2, Section 4 looks at the fu- itation, and wind] over a period of time ranging ture of the planet’s climate system. To this end, from months to thousands or millions of years. it introduces different scenarios describing pos- The classical period is 30 years, as defined by the sible pathways of climate change drivers that are World Meteorological Organization.” Climate not used by the IPCC’s climate models to project fu- only varies from location to location (depending ture changes in the climate system. After discuss- on a variety of factors such as distance to the sea, ing these scenarios, Section 4 highlights the most latitude and longitude, the presence of moun- important predicted changes in the main climate tains, etc.) but also over time (e.g. from season variables (temperature, precipitation, snow and to season, year to year, century to century, etc.). ice cover, and sea levels) that are likely to occur Based on this definition, IPCC (2001a: 788) defines until 2100. The section ends by providing selected climate change as “a statistically significant vari- examples of anticipated future risks for humans ation in either the mean state of the climate or in and natural systems that might result from the its variability, persisting for an extended period simulated changes in the climate system. (typically decades or longer).”

At the end of this module, readers should be able Understanding the interactions of the variety of to: factors that influence the climate is complicated. Climate, climate change, and the role of human • Distinguish the five components of the cli- activities in changing the climate can only be mate system; understood if one has an understanding of the • Understand the radiative balance of the planet; whole climate system. The following section

35 2 The climate science behind climate change looks briefly at the components of the planet’s discussed in Module 1. It consists of five main climate system and shows how they interact. components (Baede et al., 2001): the atmosphere, module hydrosphere, cryosphere, land surface, and bio- 2.1 The five components of the climate system sphere (in bold in Figure 12). These five components interact with each other (thin arrows in Fig- The climate system, schematically displayed in ure 12) and are all affected by the planet’s energy Figure 12, is part of the environmental system balance, which will be discussed in Section 2.2.

Figure 12 The climate system

Changes in the atmosphere: Changes in the composition, circulation hydrological cycle

Changes in solar inputs

Clouds Atmosphere

N2, O2, Ar, Volcanic activity H2O, CO2,CH4, N2O, O3, etc. Aerosols Atmosphere-biosphere interaction Atmosphere-ice Precipitation- interaction evaporation Terrestrial radiation Heat Glacier Ice sheet exchange Wind stress Human influences Land- Biosphere atmosphere interaction Sea ice Soil-biosphere interaction Hydrosphere: Land surface ocean Ice-ocean coupling Cryosphere: text Hydrosphere: rivers & lakes sea ice, ice sheets, glaciers

Changes in the ocean: Changes in/on the land surface: circulation, sea level, biogeochemistry orography, land use, vegetation, ecosystems

Source: Baede et al. (2001: 88).

The most variable and rapidly changing part of Mean temperature in the troposphere decreases the climate system is the atmosphere (Baede et with distance from the surface. In the text that al., 2001), which marks the boundary of our envi- follows, we will often refer to the so-called sur- ronmental system as defined in Module 1. The en- face-troposphere system, which encompasses tire atmosphere lies within 500 km from the sur- the planet’s surface and the troposphere. The 21 We exclude here the exos- face of the planet,21 with 99 per cent of its total next layer is called the stratosphere and extends phere and consider that the mass within 50 km from the surface (Common to roughly 50 km above the surface. Most of the atmosphere stops at the top and Stagl, 2004). The atmosphere can be subdi- incoming ultraviolet radiation is absorbed by of the thermosphere. vided (or stratified) into the five layers displayed ozone that is concentrated in the stratosphere. in Figure 13. The troposphere is the lowest layer The boundary between the troposphere and the of the atmosphere and extends up to approxi- stratosphere is called tropopause. The strato- mately 11 km from the planet’s surface. It con- sphere is followed by the mesosphere (50–90 22 Many consider the ther- tains most of the atmosphere’s mass and plays km above the surface) and the thermosphere mosphere as the boundary of a key role in determining the planet’s climate. (90–500 km above the surface).22 the atmosphere. But strictly speaking the thermosphere is followed by the exosphere (500–10,000 km above surface), which is considered by some to mark the actual boundary of the atmosphere and thus the environmental system (discussed in Module 1) with the rest of the universe.

36 The climate science behind climate change

Figure 13 2 Layers of the atmosphere

520 Exosphere module 510 500 490

170 160 Thermosphere 150 140 130 120 110 1oo 9o 8o Mesosphere 7o 6o 5o 4o Stratosphere 3o 2o 1o

Troposphere Altitude (km)

-100 -500 50 100 150 200 500/1500 Temperature °C

Source: National Aeronautics and Space Administration (NASA), Climate Science Investigations, available at: http://www.ces.fau.edu/nasa/module-2/atmosphere/earth.php. Note: The average temperature varies with altitude and is indicated by the red line.

The atmosphere is mainly a mixture of different The hydrosphere consists of all forms of liquid gases but also contains some solid and liquid water and includes oceans, rivers, and lakes. Ap- matter, namely aerosols and clouds. The com- proximately 70 per cent of the total surface of position of the atmosphere has been changing the planet is covered by water. Oceans alone store throughout the history of the planet. Today the roughly 97 per cent of all forms of water (liquid, main bulk of the volume of the earth’s atmos- solid, and gas) available on earth, while rivers and phere is composed of approximately 78.1 per cent lakes store roughly 0.009 per cent (Common and nitrogen (N2), 20.9 per cent oxygen (O2), and 0.93 Stagl, 2004). The basic process that takes place in per cent argon (Ar). Additionally, the atmosphere the hydrosphere is called the hydrological cycle. contains several trace gases such as carbon di- The cycle starts with the water evaporating from oxide (CO2), methane (CH4), nitrous oxide (N2O), the oceans, lakes, and rivers and being released and ozone (O3). These trace gases, which consti- into the atmosphere, which leads to an exchange tute less than 0.1 per cent of the atmosphere’s of heat between the hydrosphere and the atmos- volume, are called greenhouse gases (GHG). Wa- phere. The water then returns from the atmos- ter vapour (H2O) is also a greenhouse gas whose phere to the surface in the form of precipitation, volume in the atmosphere is volatile depending either directly into the oceans or indirectly on the on the hydrosphere’s hydrological cycle. Despite land from where it reaches the oceans through riv- their small share in the total volume of the at- ers. Water that returns from land to oceans then mosphere, greenhouse gases are of crucial im- in turn influences the composition and circulation portance for the earth’s climate. While the three of oceans. Through this cycle, oceans not only ex- main gases (N2, O2, and Ar) do not absorb or re- change water but also heat energy, carbon dioxide, flect the infrared radiation emitted by the planet, and aerosols with the atmosphere. As oceans are greenhouse gases are different – they absorb in- able to gradually store and release large quantities frared radiation coming from the planet’s surface of heat, carbon dioxide, and aerosols over a long and emit this radiation towards space and back time period, they act as the planet’s climate regu- towards the earth’s surface, thereby increasing lator and thus are an important source of long- the temperature at the surface (see Section 2.2 term natural climate variability (Baede et al., 2001). for a detailed discussion). Consequently, greenhouse gases are crucial for our planet’s climate The cryosphere, consisting of solid water, includes (Baede et al., 2001). continental glaciers, snow fields, sea ice, perma-

37 2 The climate science behind climate change frost, and the large ice sheets of Antarctica and The biosphere is composed of all living organ- Greenland. The cryosphere is relevant for the plan- isms (also called biota). While it only represents module et’s climate because of its capacity to store heat, a very thin layer of the planet (roughly 0.4 per its low capacity to transfer heat (in other words, cent of the planet’s radius (Common and Stagl, its low thermal conductivity), its high reflectivity 2004), biota plays a key role in influencing the of incoming solar radiation, and its influence on composition of the atmosphere and thus the ocean circulation and sea levels (Baede et al., 2001). climate of the planet. Plants perform photosynthesis, a process by which they use energy from The land surface, made up of soils and vegetation, solar radiation and specific enzymes to trans- encompasses all parts of the planet that are not form carbon dioxide from the atmosphere and covered by oceans. Land surface matters for the water from the hydrosphere into glucose (a car- climate because it determines how energy from bohydrate) and oxygen (Figure 14). During this solar radiation is returned to the atmosphere. Part process, they extract large amounts of carbon of the energy from the sun is directly returned to from carbon dioxide present in the atmosphere the atmosphere as longwave infrared radiation and store it in the form of glucose, and release and part of the energy is used to evaporate wa- oxygen, a by-product of photosynthesis, into the ter, which then returns as water vapour to the at- atmosphere. The biosphere also has an impact on mosphere. The texture of the land surface, which atmospheric concentrations of other greenhouse depends on the type of soil and/or vegetation cov- gases like methane or nitrous oxide (Baede et al., ering the surface, also influences the atmosphere 2001). Some digestive processes of animal species indirectly, as different textures influence winds in release for instance methane as a by-product. different ways (Baede et al., 2001).

Figure 14 Photosynthesis – the chemical reaction

Solar radiation

6 CO2 + 6 H2OC6H12 O6 + 6 O2

Enzymes

Carbon dioxide Water Glucose Oxygen

Source: Author.

The five components of the climate system inter- miliarizes readers with this term and discusses act in numerous ways, as schematically illustrat- the natural greenhouse effect that is an integral ed by the thin arrows in Figure 12. For instance, part of the balance. water vapour is exchanged between the atmosphere and the hydrosphere, carbon dioxide is con- 2.2 The earth’s energy balance and the natural stantly extracted from the atmosphere by plants greenhouse effect from the biosphere, and ice sheets from the cryosphere influence the hydrosphere’s ocean circu- The planet’s energy balance influences all five lations and levels. These are just a few examples components of the climate system that were in- 23 In this material, we also of the physical, chemical, and biological interac- troduced in Section 2.1.23 Understanding the en- use the term “radiative tions that make the climate system extremely ergy balance and how it can be altered is there- balance” as a synonym for complex. Some of these processes are still only fore of crucial importance for understanding the energy balance. partly known, and there may be processes that mechanisms behind climate change. are still completely unknown (Baede et al., 2001). Solar radiation is the energy source that powers All five components of the system and all pro- the entire climate system. Roughly 50 per cent of cesses happening within the system use energy. solar radiation consists of visible light, with the The balance between energy flowing into the sys- rest consisting mostly of infrared and ultraviolet tem and energy leaving the system is called the light (Baede et al., 2001). New satellite-based data energy balance. Changes in the energy balance allow for accurately quantifying the exchange of have a profound impact on all the components radiative energy between the sun, the earth, and and processes of the system. Given the crucial space. However, it is more difficult to quantify importance of the energy balance, Section 2.2 fa- energy flows within the climate system because

38 The climate science behind climate change 2 those flows cannot be directly measured. Conse- et al. (2013) and used in the fifth IPCC report. Ar- quently, it is not surprising that estimates of the rows represent radiation flows, numbers indicate module global energy balance differ considerably (Wild, best estimates of the magnitude of these flows, 2012). IPCC (2013a) updated its energy balance and numbers in parentheses provide the uncer- diagram in the fifth assessment report build- tainty range of these magnitudes, representing ing on the newly available estimates of Wild et present-day climate conditions at the beginning al. (2013),24 which use satellite and ground-based of the 21st century. Accounting for day and night 24 In the third and fourth radiation network data combined with models as well as for different yearly seasons, an aver- assessment reports, the IPCC from the fifth IPCC assessment report. age amount of energy equivalent to 340 watts used the energy balance dia- -2 gram of Kiehl and Trenberth per square meter (Wm ) enters the earth’s at- (1997). Figure 15 provides a schematic illustration of mosphere, and hence the environmental system, the planet’s energy balance as outlined by Wild each second.

Figure 15 The global mean energy balance of the earth

Source: Wild et al. (2013: 3108). Note: TOA: top of the atmosphere. Wm-2: watts per square meter.

Of these 340 Wm-2, roughly 76 Wm-2 are directly In order to have a stable climate, there needs to be a reflected back to space by clouds, atmospheric balance between incoming solar radiation and out- gases, and aerosols. Another 24 Wm-2 reach the going radiation emitted by the earth. Thus, the 240 earth’s surface and are directly reflected back Wm-2 of incoming radiation absorbed by the plan- to space by the surface (due to surface reflec- et’s surface and atmosphere should be returned tivity, technically referred to as surface albedo). back to space. If this does not happen, the radiative As white light-coloured surfaces reflect more balance of the planet is not in equilibrium. If signifi- light compared to dark-coloured surfaces, most cantly more radiation were to enter the planet than of these 24 Wm-2 are reflected back to space by leave, the planet would become too hot for life; if snow fields, glaciers, ice sheets, and deserts. Of significantly more radiation were to leave than en- the remaining 240 Wm-2, roughly 79 Wm-2 are ab- ter, the planet would become too cold for life. Note sorbed by the atmosphere. This leaves 161 Wm-2 that our planet’s energy balance is currently not in that warm the planet’s land surface and oceans a complete equilibrium: Wild et al. (2013) as well as (see the lower left-hand side of Figure 15). The other recent studies (Hansen et al., 2011; Murphy et planet’s land surface and oceans subsequently al., 2009; Trenberth et al., 2009) find a small posi- return this energy towards the atmosphere and tive imbalance of the earth’s radiative balance. In space as sensible heat, water vapour, and long- fact, instead of 240 Wm-2, only 239 Wm-2 leave the wave infrared radiation. planet (see the upper right-hand side of Figure 15).

39 2 The climate science behind climate change The earth returns the incoming solar radiation as our attention towards climate change. Section 25 In the text that follows longwave infrared radiation,25 which is the heat 2.3 provides an overview and a classification of module we use the terms “longwave energy you can feel, for instance, emanating out factors that can alter the climate system. radiation,” “infrared radia- from a fire. The quantity and wavelengths of en- tion,” and “longwave infrared radiation” synonymously. ergy radiated by physical objects are specific to 2.3 Internally and externally induced the temperature of the object. Hotter objects ra- climate change diate more longwave infrared radiation (in terms of magnitude and energy) than colder objects. In Sections 2.1 and 2.2 showed that the earth’s cli- order to radiate 239 Wm-2 in longwave infrared mate is shaped by factors that are internal to radiation, the radiating surface should have an the climate system (i.e. processes within and be- average temperature of roughly -19°C (Baede et tween components of the climate system, such al., 2001). However, the average temperature of as interactions between the atmosphere and the earth’s surface is not -19°C but 14°C. At this oceans). It is important to understand that in temperature, the surface alone radiates on aver- addition to these internal factors, some external age 397 Wm-2 (Figure 15), which is a considerable factors are also able to shape the climate. Why is higher amount than 239 Wm-2. So how is the this so? planet able to “only” radiate the 239 Wm-2 required to (almost) maintain its radiative balance Section 2.2 showed that the climate system is in and have at the same time a relatively high aver- its equilibrium if the net incoming solar radia- age temperature on the surface? tion is balanced by the outgoing longwave radiation. Such an equilibrium is marked by a stable As discussed in Section 2.1, the atmosphere con- climate (e.g. stable mean temperature, mean tains several trace gases such as water vapour precipitation, etc.). If the radiative balance of the

(H2O), carbon dioxide (CO2), methane (CH4), ni- planet changes, the climate is likely to change as

trous oxide (N2O), and ozone (O3). These gases are well because through various interactions and able to absorb longwave infrared radiation from feedback mechanisms a change in the radiative the surface of the planet and from the atmos- balance affects virtually all components of the 26 In other words, these phere itself.26 Greenhouse gases then emit in- climate system. For example, a change of the ra- greenhouse gases make the frared radiation in all directions. This means that diative balance can affect means or variances of atmosphere opaque (i.e. they emit radiation towards space but also back climate variables but also other statistics such impenetrable) to a lot of the longwave radiation emitted towards the surface (see the right-hand side of as the occurrence of extreme events (Baede et from the planet’s surface, Figure 15). The downward-directed flux, currently al., 2001; see Box 10 for a definition of extreme but not to the incoming estimated at 342 Wm-2, heats up the lower lay- events). Hence, factors that are external to the shortwave radiation, which ers of the atmosphere and the surface, and thus climate system but somehow influence the ra- explains why much of this maintains the relatively high surface tempera- diative balance of the planet can also shape the incoming radiation can directly reach the surface. ture of 14°C. Hence, greenhouse gases act like a climate. External factors can be further subdi- “blanket” that traps heat in the lower layer of the vided into natural external factors and human- 27 Note that clouds also atmosphere.27 This effect, known as the natural induced (i.e. anthropogenic) external factors. The act as such a “blanket.” At greenhouse effect, results in a net transfer of in- most obvious example of a natural external fac- the same time, due to their frared radiation from warm areas near the sur- tor is solar activity whose variations result in a brightness, they reflect incoming solar radiation. As face to higher levels of the atmosphere (Baede et changing amount of incoming solar radiation. 28 -2 a net impact, clouds tend to al., 2001). The main part of the 239 Wm of out- Volcanic activity is another example: volcanic have a slight cooling effect on going longwave radiation that are needed to bal- eruptions emit aerosol particles into the atmos- the climate system (Baede et ance the incoming solar radiation is subsequent- phere, which can influence the amount of incom- al., 2001). ly radiated back towards space from relatively ing solar radiation reflected back towards space. 28 With the exception of a high altitudes and not directly from the surface. Among the human-induced external factors, hu- small share of infrared radia- These areas in the higher level of the troposphere man industrial activity influences greenhouse tion that is directly radiated are approximately five km above the surface at gas concentrations in the atmosphere and there- from the surface through the so-called atmospheric mid-latitudes and have an average temperature by affects the amount of longwave radiation window towards space. of roughly -19°C (see the upper right-hand part that is being radiated from earth back towards of Figure 15). Thus, the natural greenhouse effect space. In short, external factors (e.g. solar activ- is an integral part of the planet’s energy balance ity, volcanic activities, or human activities) have system that is responsible for the relatively warm an influence on so-called climate change drivers average temperature on the planet’s surface. (e.g. solar radiation, aerosol particles, greenhouse 29 Drivers of climate change gases),29 which in turn affect the radiative bal- are substances and processes Having covered the components of the climate ance and thereby shape the climate (see Figure 18 that alter the planet’s energy system as well as the radiative balance that infor a schematic illustration of externally induced balance. fluences all these components, we can now turn climate changes).

40 The climate science behind climate change

Box 10 2 Extreme events Climate change does not only affect the means of climate variables such as temperature or precipitation, module but can also affect the likelihood of the occurrence of extreme weather and climate events (Cubasch et al., 2013). Examples of such extreme events are droughts, cyclones, or heat waves. The Intergovernmental Panel on Climate Change (IPCC) defines an extreme weather event as an event that is “rare at a particular place and/ or time of year. Definitions of ‘rare’ vary, but an extreme weather event would normally be as rare as or rarer than the 10th or 90th percentile of a probability density function estimated from observations” (Cubasch et al., 2013: 134). Extreme climate events can be defined as extreme weather events that persist for some time (Cubasch et al., 2013).

Cubasch et al. (2013) show that statistical reasoning can illustrate that increases or decreases of the frequency of extreme weather events (e.g. an increase of extremely hot days) can result from small changes in the distribution of climate variables (e.g. an increase in the mean temperature). For example, Figure 16 displays the probability density function of temperature. Note that temperature is almost normally distributed (other climate variables such as precipitation are not normally distributed but have skewed distributions). Now suppose that climate change increases the mean temperature. As a result, the probability density function of temperature shifts to the right (i.e. average temperature increases) as illustrated by the solid curve in Figure 16. This shift of the average temperature affects the frequency of extreme events. On the one hand, one observes more hot extremes; on the other, one observes fewer cold extremes. Changes in the variance, skewness, or shape of distributions can also affect the frequency of extreme events (see Cubasch et al., 2013: 134–35, for a more detailed discussion).

Figure 16 Extreme events - schematic presentation

Temperature

(a) Increase in mean

Fewer cold extremes More hot extremes

Cold Average Hot

30 Internally induced climate Source: Author's elaboration based on Cubasch et al. (2013:134). change means that factors internal to the climate system affect the mean or the The climate of our planet is thus shaped by fac- the Pacific ocean, and affects different climate variability of the climate, tors that are internal to the climate system and variables such as precipitation and temperature while externally induced by factors that are external to the climate sys- in many parts of the world. As this teaching ma- climate change means tem (Baede et al., 2001). This implies that climate terial focuses on human-induced (i.e. externally that factors external to the change, which is defined as a persistent variation induced) climate change, we will not address climate system affect the 31 mean or the variability of the in either the mean state of the climate or in its internally induced climate variability further, climate. variability (see the introduction to Section 2), can and limit ourselves to a discussion of externally be induced internally or externally.30 The El Niño- induced climate change. To do so, Section 2.4 will 31 See the IPCC reports listed Southern Oscillation (ENSO), described in Box 11, is introduce two concepts – radiative forcing and ef- in Annex 2 for additional rea- an example of an internally induced climate vari- fective radiative forcing – that allow for measur- dings on internally induced climate variability. ability (Baede et al., 2001). The ENSO is the result ing the influence of natural and human-induced of an interaction between the atmosphere and external factors on climate change.32 32 Note that these concepts can a priori also be used to measure the influence of most internal factors on climate change.

41 The climate science behind climate change

2 Box 11 The El Niño-Southern Oscillation – an example of an internal interaction among components of the climate system affecting the means and variability of different climate variables module El Niño-Southern Oscillation (ENSO) events are naturally occurring phenomena that result from an interaction between the atmosphere and the hydrosphere. According to the Intergovernmental Panel on Climate Change (IPCC), “El Niño involves warming of tropical Pacific surface waters from near the International Date Line to the west coast of South America, weakening the usually strong sea surface temperature (SST) gradient across the equatorial Pacific, with associated changes in ocean circulation. Its closely linked atmospheric counterpart, the Southern Oscillation (SO), involves changes in trade winds, tropical circulation and precipitation” (Trenberth et al., 2007: 287). Historically, the ENSO alternates between two states: El Niño and La Niña, each of which has specific regional impacts on climate variables such as temperature or precipitation (Figure 17). For example, surface temperature is above average during El Niño events and below average during La Niña events in the eastern tropical Pacific region. El Niño events occur every 3 to 7 years and alternate with their counterpart La Niña (Trenberthet al., 2007).1

Figure 17 Correlations of surface temperature, precipitation and mean sea level pressure with the Southern Oscillation Index

3 2 Darwin southern oscillation index 1 0 d deviations -1 -2 Standar -3 1860 1890 1920 1950 1980 2010 Year Source: Trenberth et al. (2007). Note: Correlations with the Southern Oscillation Index (SOI), based on standardized Tahiti minus Darwin sea level air pressure, for annual (May to April) means of sea level air pressure (top left), surface temperature (top right) for 1958 to 2004, and precipitation for 1979 to 2003 (bottom left). In the SOI graph (bottom right), red (blue) values indicate El Niño (La Niña) conditions. The graph shows the long-term periodic fluctuation between these conditions since 1850.

The ENSO influences regional climate patterns in several parts of the globe and has a global impact on climate variables such as surface temperature and precipitation. Figure 17 illustrates these effects based on annual mean correlations between the climate variables and the Southern Oscillation Index (SOI). The SOI (bottom right panel) uses observed atmospheric pressure at sea level to infer the presence of El Niño and La Niña events. It is calculated as the standardized air pressure in Tahiti (Eastern Pacific) minus the standardized air pressure in Darwin, Australia (Western Pacific). Positive values (higher pressure in Tahiti) indicate a La Niña event; negative values (higher pressure in Darwin) indicate an El Niño event. The bottom left panel of Figure 17 shows the correlation between SOI and precipitation: one observes, for example, a strong positive correlation among the variables over the Western Pacific, indicating that this region experiences above (below) average precipitation during La Niña (El Niño) events. The upper right panel displays the correlation between SOI and surface temperature. One observes, for example, that there is a strong negative correlation between the two variables over the eastern tropical Pacific region, indicating that in this region, surface temperature is above (below) average during El Niño (La Niña) events. Thus, as shown in Figure 17, internal interactions such as the El Niño-Southern Oscillation can have significant effects on the climate.

Source: Author's elaboration based on Trenberth et al. (2007). 1 An intuitive explanation of the El Niño-Southern Oscillation can be found in geoscientist Keith Meldahl’s video (available at https://www.youtube.com/watch?v=GTgz6ie2eSY). A more extensive explanation of the phenomenon is provided by a Yale University open course given by Ronald Smith, a professor of geoscience, geophysics and mechanical engineering, available at https://www.youtube.com/watch?v=bK-n0CeFWtk.

42 The climate science behind climate change 2 2.4 Measuring the importance of factors While the radiative forcing concept is the most widely used measure to assess and compare the

driving climate change: radiative forcing module and effective radiative forcing size of the radiative imbalance created by externally induced variations in climate change drivers, it has In theory, there are many ways to assess how some weaknesses. The main one is that the concept strongly different external factors change the keeps all surface and tropospheric properties fixed climate. One could, for instance, try to directly and does not allow them to respond to the changes measure the effect of a change in a single cli- induced by the variations in climate change driv- mate change driver (e.g. greenhouse gases) that ers. In the fifth assessment report, the IPCC there- has been induced by an external factor (e.g. hu- fore introduced a new, complementary concept man industrial activity) on different climate called “effective radiative forcing.” Radiative forc- variables (e.g. temperature and precipitation). ing and effective radiative forcing are very similar, However, identifying and isolating such effects with the exception that effective radiative forcing is extremely difficult. Climate scientists there- allows some surface and tropospheric properties fore rely on intermediate measures that quan- to respond to perturbations in the short term. Ef- tify the influence of external factors on climate fective radiative forcing is defined as “the change change indirectly. The basic idea behind these in [the] net top of atmosphere downward radiative measures is rather intuitive. First, climate scien- flux after allowing for atmospheric temperatures, tists measure how strongly the radiative balance water vapour and clouds to adjust, but with sur- is affected by an externally induced variation in face temperature or a portion of surface conditions a climate change driver. Then they estimate how unchanged… Hence effective radiative forcing in- 33 Climate change drivers are this change of the radiative balance affects the cludes both the effects of the forcing agent itself subsequently also called “for- climate (Figure 18). To do so, they use a measure and the rapid adjustments to that agent (as does cing agents,” while externally induced variations in climate called “radiative forcing.” radiative forcing, though stratospheric tempera- change drivers are also called ture is the only adjustment for the latter)” (Myhre “external forcings” or some- Radiative forcing is the most commonly used in- et al., 2013: 665). Due to the inclusion of short-term times simply “forcings.” For dicator that allows for capturing how externally adjustments of some surface and tropospheric the sake of simplicity, we do induced changes in climate change drivers affect properties, the effective radiative forcing concept is not adopt this terminology in this teaching material and the radiative balance and subsequently change believed to be a better indicator of potential tem- continue to use the terms the climate (Myhre et al. 2013). The term “forcing” perature responses (Myhre et al., 2013). “climate change driver” and indicates that the radiative balance of the earth “externally induced variations is forced away from its equilibrium state by an Radiative forcing (and effective radiative forc- in climate change drivers.” externally induced variation in a climate change ing) can be negative or positive. Positive radiative However, the terms “external 33 forcings,” “forcings,” and driver (Perman et al., 2011). Intuitively, radiative forcing implies that incoming radiation is larger “forcing agents” do appear in forcing measures the radiative imbalance that than outgoing radiation, leading to an energy direct citations from the IPCC. occurs from an externally induced change in a increase in the environmental system (i.e. a posi- climate change driver. IPCC (2001a: 795) defines tive energy imbalance). To rebalance the system, 34 The tropopause is the radiative forcing as “the change in the net vertical temperatures in the surface-troposphere system boundary between the irradiance (expressed in Watts per square metre: have to increase. Negative radiative forcing im- troposphere and the -2 34 stratosphere (see Figure 13). Wm ) at the tropopause due to… a change in plies that incoming radiation is smaller than out- For practical reasons, the the external forcing of the climate system, such going radiation (i.e. a negative imbalance), lead- tropopause is defined as the as, for example, a change in the concentration of ing to an energy decrease in the environmental top of the atmosphere (see carbon dioxide or the output of the Sun.” system. To rebalance the system, temperatures in Ramaswamy et al., 2001, for a the surface-troposphere system have to decrease. detailed discussion).

Figure 18 Externally induced climate changes

Natural Direct and indirect external factors changes in climate change drivers (e.g. solar activity, (e.g. greenhouse gases, aerosols, volcanic activity) solar irradiance)

Radiative forcing

Human-induced Climate perturbations external factors and responses Feedback (e.g. temperature, precipitation, (e.g. industrial activity) effects extreme weather events)

Source: Author's elaboration based on Forster et al. (2007: 134). Note: Non-initial radiative forcing effects have been omitted from the figure as they are not addressed by this teaching material. Feedback effects are discussed in Section 2.5.

43 2 The climate science behind climate change Before we focus entirely on human influences changes in climate change drivers influence the on the climate in Section 2.5, let us briefly il- planet’s radiative balance and hence the climate module lustrate the radiative forcing concept by listing system. Human activities also change the land some examples of radiative forcing induced by surface of the planet, which can effect, for in- certain natural external factors. First, let us con- stance, surface reflectivity (albedo), influencing sider solar activity. Solar activity, and hence solar the radiative balance and thus also the climate output, is not constant but fluctuates over time system (IPCC 2001b, 2007, 2013a). The sections at various time scales, including centennial and that follow first discuss these human-induced millennial scales (Myhre et al., 2013). Solar output changes in climate change drivers separately, has increased gradually during the industrial era then assess their respective impact on the radia- (from 1750 up until today), which has led to an tive balance, and finally take a look at feedback increase in incoming solar radiation and thereby effects that can amplify or reduce the impacts of caused a small amount of positive radiative forc- the different climate change drivers. ing. This has had a small warming effect on the surface-troposphere system (Forster et al., 2007). 2.5.1 Human-induced greenhouse gas emissions Another natural external factor, the astronomical and the enhanced greenhouse effect alignment of the sun and the earth, also varies and induces cyclical changes in radiative forcing. The main greenhouse gases emitted by human

However, these changes are only substantial over activities are carbon dioxide (CO2), methane (CH4),

very long time horizons, and partially explain, for nitrous oxide (N2O), and halocarbons (Forster et instance, different climatic periods such as ice al., 2007). Carbon dioxide, methane, nitrous oxide, ages (Myhre et al., 2013). Volcanic eruptions are and many halocarbons are called “well-mixed another natural external factor that can, over a greenhouse gases” because they mix sufficiently short period of time lasting from several months in the troposphere for reliable concentration up to a year, increase the concentration of sul- measurements to be made from only a few re- phate aerosol particles in the stratosphere that mote observations (Myhre et al., 2013). block parts of incoming solar radiation, induc- ing short-term negative radiative forcing, which Anthropogenic carbon dioxide emissions tends to have a cooling effect on the surface- mainly result from human use of fossil fuels in troposphere system (Forster et al., 2007). sectors such as transportation, energy, and cement production. Anthropogenic methane is While such natural external factors are important, mostly emitted during agricultural activities they have played a relatively small role during the and natural gas distribution, and from landfills. industrial era. In its fifth assessment report, the Anthropogenic nitrous oxide emissions stem IPCC states that “there is a very high confidence mostly from burning of fossil fuels and the use that industrial-era natural forcing is a small frac- of fertilizers in agricultural soil. Anthropogenic tion of the anthropogenic forcing except for brief halocarbons, which include chlorofluorocarbons periods following large volcanic eruptions. In (see also Box 14 in Module 3), are emitted by di- particular, robust evidence from satellite obser- verse industrial activities and have in the past vations of the solar irradiance and volcanic aero- also been released by refrigeration processes. sols demonstrates a near-zero (-0.1 to +0.1) Wm-2 In addition to the four main greenhouse gases, change in the natural forcing compared to the human activities also emit other pollutants anthropogenic effective radiative forcing increase such as carbon monoxide (CO), volatile organic

of 1.0 (0.7 to 1.3) Wm-2 from 1980 to 2011. The natu- compounds, nitrogen oxides (NOx), and sulphur

ral forcing over the last 15 years has likely offset a dioxide (SO2). While these gases are negligible substantial fraction (at least 30 per cent) of the greenhouse gases, they indirectly influence con- anthropogenic forcing” (Myhre et al., 2013: 662). centrations of other greenhouse gases such as methane or ozone through chemical reactions 2.5 Human-induced climate change (Cubasch et al., 2013).

After outlining basic mechanisms that influence So how strongly have humans influenced atmos- the climate system and introducing concepts pheric concentrations of greenhouse gases? that allow for measuring climate change, we are now equipped with the necessary tools to ana- Instrumental measurements provide accurate lyse human-induced climate change. atmospheric GHG concentrations back to 1950, while indirect measures are used for dates prior Human activities cause changes in the amounts to 1950: ice core data allow for analysing air bub- of greenhouse gases, aerosols, and clouds in bles enclosed in ice and thus provide an indirect the earth’s atmosphere. These human-induced record of past atmospheric concentrations of

44 The climate science behind climate change 2 well-mixed greenhouse gases (Masson-Delmotte methane, and nitrous oxide concentrations were et al., 2013). Figure 19 combines data based on in- fairly stable for more than a thousand years be- module strumental measurements and ice core data to fore the industrial revolution (starting around show that while atmospheric carbon dioxide, 1750), they have increased rapidly since then.

Figure 19 Atmospheric carbon dioxide, methane and nitrous oxide concentrations from year 0 to 2005

400 2000

1800 Carbon dioxide (CO2)

1600 350 Methane (CH4) O (ppb) 2 1400 N (ppb) 2 1200 Nitrous oxide (N2O) CH (ppm), 2 300 1000 CO

600

250 800 0 500 1000 1500 2000 Year

Source: Forster et al. (2007: 135). Note: Concentration units are parts per million (ppm) or parts per billion (ppb), indicating the number of molecules of the greenhouse gas per million or billion air molecules, respectively, in an atmospheric sample.

Ice core data also allow us to look further back in entific community has reached a consensus: hu- history and track atmospheric GHG concentra- mans have substantially altered the composition tions dating several hundreds of thousands of of the atmosphere and continue to do so. Since years. The fifth IPCC assessment report provides the industrial revolution, anthropogenic GHG information covering the past 800,000 years emissions have substantially increased GHG con- (IPCC, 2013a). Data indicate that pre-industrial ice centrations in the atmosphere (IPCC 2001b, 2007, core GHG concentrations stayed within natural 2013a). The rate of this increase is unprecedented limits. For carbon dioxide, maximum concentra- over the last 800,000 years, and the concentrations of 300 parts per million (ppm) and mini- tions are currently higher than all concentra- mum concentrations of 180 ppm have been found. tions recorded in ice cores over those years (IPCC, For methane, data indicate maximum concentra- 2013a). So how does this human-induced change tions of 800 parts per billion (ppb) and minimum of the atmosphere affect the climate? concentrations of 350 ppb. And for nitrous oxide, ice core data show maximum concentrations of The answer is relatively straightforward: the 300 ppb and minimum concentrations of 200 anthropogenic increase in GHG concentrations ppb (Masson-Delmotte et al., 2013). The fifth IPCC amplifies the natural greenhouse effect (see Sec- assessment report reaches the conclusion that “it tion 2.2). Increased GHG concentrations lead to is a fact that present-day (2011) concentrations of an increased rate of absorption and subsequent

CO2 (390.5 ppm), CH4 (1803 ppb) and N2O (324 ppm) emissions of infrared radiation coming from the exceed the range of concentrations recorded in surface. In other words, increased GHG concen- the ice core records during the past 800 ka.35 With trations increase the atmosphere’s opacity to 35 ka is a unit of time indica- very high confidence, the rate of change of the longwave radiation, but more so at lower alti- ting a thousand years. observed anthropogenic WMGHG [well-mixed tudes where air density and GHG concentrations 36 For instance, one can greenhouse gases] rise and its RF [radiative forc- are higher than at higher altitudes where they analyse the changing ing] is unprecedented with respect to the highest are both lower. Thus the share of upward flux isotopic composition of atmospheric CO2. By doing resolution ice core record back to 22 ka for CO2, CH4 longwave radiation leaving the atmosphere from so, it can be shown that the and N2O, accounting for the smoothing due to ice higher, relative to lower altitudes, increases. As a observed increase in the core enclosure processes. There is medium confi- result of the increase in GHG concentrations, the atmospheric CO2 concen- dence that the rate of change of the observed an- altitudes from where earth’s radiation is emit- tration is of anthropogenic thropogenic WMGHG rise is also unprecedented ted towards space thus become higher. At these origin, because the changing isotopic composition of with respect to the lower resolution records of the higher altitudes, the troposphere is colder (Figure atmospheric CO2 betrays the past 800 ka” (Masson-Delmotte et al., 2013: 391). 13) and therefore, less energy is emitted towards fossil origin of the increase space, causing a positive radiative forcing (Baede (Baede et al., 2001). In short, given the data and the methods to de- et al., 2001). This effect is called the enhanced termine the origin of GHG emissions,36 the sci- greenhouse effect.

45 2 The climate science behind climate change 2.5.2 Human-induced changes in aerosols ganic matter, black carbon, mineral compounds (e.g. desert dust) and primary biological aerosol module In addition to increasing concentrations of particles (Boucher et al., 2013). Humans emit aer- greenhouse gases, human activities also increase osols through diverse industrial, energy-related, the amount of aerosols in the atmosphere (IPCC and land-use activities (Baede et al., 2001). Unlike 2001b, 2007, and 2013a). Atmospheric aerosols greenhouse gases, aerosols remain in the atmos- are generated either by emissions of primary phere only for a short time as they are washed particulate matter or by formation of second- out by rain. Figure 20 provides an overview of ary particulate matter from gaseous precursors. key properties of the main aerosols in the tropo- These consist mainly of inorganic compounds sphere, including their main sources and their (e.g. sulphate, nitrate, ammonium, sea salt), or- most important climate-relevant properties.

Figure 20 Key properties of main aerosols in the troposphere Aerosol Tropospheric Key climate- Size distribution Main sources Main sinks species lifetime relevant properties

Sulphate Primary: Aitken, Primary: marine and Wet deposition ~ 1 week Light scattering. accumulation and volcanic emissions Dry deposition Very hygroscopic. coarse modes Secaondary: oxidation Enhances absorp-

Secondary: Nucleation, of SO2 and other S gases tion when depos- Aitken, and accumula- from natural and anthro- ited as a coating on tion modes pogenic sources black carbon. Cloud condensation nudei (CCN) active. Nitrate Accumulation and Oxidation of NO2 Wet deposition ~ 1 week Light scattering. coarse modes Dry deposition Hygroscopic. CCN active

Black carbon Freshly emitted: Combustion of fossil fuels, Wet deposition 1 week Large mass absorp- <100 nm biofuels and biomass Dry deposition to 10 days tion efficiency in Aged: accumulation the shortwave. CCN mode active when coated. May be ice nudei (IN) active.

Organic POA: Aitken and Combustion of fossil fuel, Wet deposition ~ 1 week Light scattering. aerosol accumulation modes. biofuel and biomass. Dry deposition Enhances absoption SOA: nucleation, Aitken Continetal and marine when desposited as and mostly accumula- ecosystems. Some an- a coatind on black tion modes. Ages OA: thropogenic and biogenic carbon: CCN active accumulstion mode non-combustion sources (depending on ag- ing time and size).

… of which Freshly emitted: Combustion of biofuels Wet deposition ~ 1 week Medium mass brown carbon 100–400 nm and biomass. Natural Dry deposition absorption Aged: accumulation humic-like substances efficiency in mode from the biosphere the UV and visible. Light scattering.

… of which Mostly coarse mode Terrestrial ecosystems Sedimentation 1 day to May be IN active. terrestrial PBAP Wet deposition 1 week May from giant CCN Dry deposition depending on size

Mineral dust Coarse and super- Wind erosion, soil resus- Sedimentation 1 day to IN active: Light coarse ,modes, with a pension. Some agricultur- Wet deposition 1 week scattering and small accumulation al practices and induytrial Dry deposition depending absorption. mode activities (cement) on size Grennhouse effect.

Sea Spray Coarse and Breaking of air bubbles Sedimentation 1 day to Light scattering. Very accumulation modes induces e.g., by wave Wet deposition 1 week hygroscopic. CCN breaking. Wind erosion. Dry deposition depending active. Can include on size primary organic compounds in smaller size range

… of which Preferentially Aitken Emitted with sea spray in Sedimentation ~ 1 week CCN active. marine POA and accumulation biologically active oceanic Wet deposition modes regions Dry deposition

Source: Boucher et al. (2013: 597). Note: CNN: cloud condensation nuclei; IN: ice nuclei; OA: organic aerosols; POA: primary organic aerosols; PBAP: primary biological aerosol particles; SOA: secondary organic aerosols; UV: ultraviolet.

46 The climate science behind climate change 2 The effects of increased amounts of aerosols on ra- es in biological properties can also have impor- diative forcing and hence the climate are still not tant consequences, especially in terms of GHG module fully known (Baede et al., 2001). As the fifth IPCC emissions. If humans convert forests into culti- assessment report states, aerosols and clouds vable land, they cut or burn the existing forests. are still contributing the largest uncertainty to They thereby destroy carbon sinks, which reduces estimates of the changing energy balance of the carbon storage, releases carbon dioxide into the planet (Boucher et al., 2013). Two main channels atmosphere, and changes surface albedo (Cu- of effect have been identified. First, some aerosols basch et al., 2013). The combined effect of these (Figure 20) absorb and scatter incoming solar ra- physical and biological changes is complex and diation, and to some extent also longwave radia- difficult to assess. tion from the surface. They thus directly affect the radiative balance of the planet by sending parts 2.5.4 Human-induced radiative forcing of the incoming radiation back into space (hence one speaks of the “direct effect”). This direct ef- Sections 2.5.1 to 2.5.3 explained different ways in fect causes a negative radiative forcing (Baede which humans influence climate change drivers, et al., 2001; Boucher et al., 2013). Second, aerosols and thereby affect the radiative balance of the interact with clouds. According to Boucher et al. earth and thus change the climate. This leads to (2013), some aerosols (Figure 20) act as cloud con- the question of the importance of the different ef- densation nuclei (CCN) and ice nuclei (IN), around fects as well as the overall effect humans have on which cloud droplets and ice crystals form. Aero- the climate. The previously introduced radiative sols thus play an important role in cloud forma- forcing and effective radiative forcing concepts tion and are often described as “cloud seeds.” By are very useful to this end. IPCC (1996, 2001, 2007, interacting with clouds, aerosols indirectly influ- 2013a) estimated mean radiative forcing of each ence cloud albedo and the lifetimes of clouds (this of the climate change drivers that are affected by effect is often referred to as the “indirect effect”). humans. As knowledge about the climate system This has an impact on the reflection of incoming and climate change is constantly growing, these shortwave radiation as well as the absorption of numbers have been revised several times. Figure outgoing longwave radiation by the atmosphere A1 in Annex 1 provides an overview of the esti- and thus on the planet’s energy balance. mates of the different assessment reports.

2.5.3 Human-induced land-use change Figure 21 displays the IPCC (2013a) estimates of radiative forcing (hatched) and effective radia- Humans not only affect the climate by emit- tive forcing (solid) of different climate change ting GHG emissions and aerosols, but also by drivers over the 1750–2011 period. Uncertainties changing the surface characteristics of land. are displayed by dotted and solid lines that in- This so-called “land-use change” can result from dicate 5 to 95 per cent confidence intervals. They various human activities including agriculture, vary widely depending on the climate change irrigation, deforestation, urbanization, and traf- driver under consideration. The largest positive fic, and it influences physical and/or biologi- radiative forcings are due to carbon dioxide and cal properties of the land surface (Baede et al., other well-mixed greenhouse gases. Together, 2001). Hurtt et al. (2006) estimate that between their human-induced concentration increases 42 and 68 per cent of the total land surface was are responsible for an estimated radiative forc- affected by human activities over the 1700– ing of 2.83 Wm-2. Human-induced increases of 2000 period. tropospheric ozone (where ozone acts as a greenhouse gas) caused an effective radiative forcing By changing the land surface, humans directly of 0.4 Wm-2. Ozone increases in the stratosphere and indirectly alter the planet’s energy balance, (where they block parts of incoming solar radia- water cycles, carbon cycles, and heat fluxes (Cu- tion) caused a negative radiative forcing of -0.1 basch et al., 2013; Myhre et al., 2013). Changes in Wm-2. Changes in surface albedo caused by land- physical properties of the land surface can influ- use change are estimated to cause negative ef- ence the reflectivity of the surface (land albedo) fective radiative forcing (-0.15 Wm-2), while black and hence affect the amount of incoming solar carbon particles on snow and ice cause positive radiation reflected towards space, thereby direct- effective radiative forcing (0.04 Wm-2). The greatly influencing the energy balance of the planet est uncertainty is associated with aerosols. While (Baede et al., 2001). Irrigation and other water- both aerosol-radiation and aerosol-cloud inter- intensive activities can affect the water cycle and actions are estimated to cause negative radiative thus indirectly affect the energy balance. Chang- forcing, confidence intervals are very large.

47 The climate science behind climate change

2 Figure 21 Radiative forcing of the climate between 1750 and 2011

Forcing agent module

CO2 Well-mixed greenhouse gases Halocarbons

Other WMGHG CH4 N2O

Ozone Stratospheric Tropospheric

Stratospheric water vapour from CH4 opogenic Surface albedo Land use Black carbon on snow thr

An Contrails Contrail-induced cirrus Aerosol-radiation interaction

Aerosol-cloud interaction

Total anthropogenic al Solar irradiance Natur -1 0123 Radiative forcing (Wm-2)

Source: Myhre et al. (2013: 697). Note: This figure is a bar chart for radiative forcing (hatched) and effective radiative forcing (solid) for the period 1750–2011. Uncertainties (5 to 95 per cent confidence range) are given for radiative forcing (dotted lines) and effective radiative forcing (solid lines). WMGHG: well-mixed greenhouse gases.

According to IPCC findings, total anthropogenic However, this relationship is complicated because radiative forcing is virtually certain to be positive of the existence of so-called feedback effects that and is estimated to be 2.3 Wm-2. The probability can either amplify or diminish the effect that of negative anthropogenic radiative forcing is specific radiative forcings have on variables such estimated to be smaller than 0.1 per cent and as temperature or precipitation (IPCC 2001, 2007, thus exceptionally unlikely (Myhre et al., 2013). 2013a). Feedback effects that amplify the effect of This confirms that human activities contribute driver-induced radiative forcing are called “posi- to increase the level of solar energy stored in the tive feedbacks,” while those that reduce the ef- climate system, which results in the warming of fect of driver-induced radiative forcing are called the lower atmosphere and the earth’s surface. “negative feedbacks” (Le Treut et al., 2007). Due Compared to the human influence, natural fac- to these internal feedback mechanisms, climate tors had only a low influence on the planet’s en- variables like temperature will in general not re- ergy balance and thus on climate change (Figure act in a linear way to changes in climate change 37 The example in the 21). The IPCC (Myhre et al., 2013: 661) therefore drivers (IPCC 2001, 2007, 2013a).37 While a detailed next paragraph illustrates concludes that “it is unequivocal that anthropo- discussion of all known feedback mechanisms is this non-linearity. genic increases in the well-mixed greenhouse out of the scope of this teaching material, Figure gases [WMGHG] have substantially enhanced 22 provides some examples that have been listed the greenhouse effect, and the resulting forcing in the first chapter of the fifth IPCC report (Cu- continues to increase. Aerosols partially offset basch et al., 2013). the forcing of the WMGHGs and dominate the uncertainty associated with the total anthropo- Figure 22 schematically displays some key feed- genic driving of climate change.” back mechanisms related to increases in carbon dioxide concentrations that, as we have seen, 2.5.5 Feedback effects and non-linearity cause positive radiative forcing and hence tend to warm the surface-troposphere system, all else While we have seen that anthropogenic radia- being equal. Some of these feedback mecha- tive forcing has been positive and has increased nisms are positive (i.e. they additionally warm during the industrial era, hence warming the the system), some are negative (i.e. they cool the climate system, we have not yet discussed what system), and some can be positive or negative. specific impacts this radiative forcing has had For example, the so-called water-vapour feed- on the climate system (see Section 3 for a dis- back is a positive feedback: as the planet gets cussion of observed impacts, and Section 4 for warmer due to the stronger greenhouse effect, a discussion of anticipated impacts). A priori we more water evaporates. This leads to an increase know that positive (negative) radiative forcing of water vapour in the atmosphere, where it acts increases (decreases) the temperature of the cli- as a strong greenhouse gas, further enhancing mate system. the greenhouse effect. Snow and ice albedo are

48 The climate science behind climate change 2 at the root of another positive feedback mecha- to additional warming. If the average tempera- nism: increasing temperatures cause additional ture of the planet increases, the planet starts to module snow and ice to melt, which changes the size of radiate more infrared radiation, sending more the land surface. White reflecting surfaces are energy back towards the atmosphere and ulti- transformed into darker, absorbing surfaces. mately space. This infrared radiation mechanism This lowers the planet’s reflectivity of incoming is an example of a negative feedback mechanism, solar radiation and thus increases the amount which is however almost negligible for a small of energy the planet’s surface absorbs, leading temperature change of the order of 1-4°C.

Figure 22 Positive and negative feedback mechanisms

Source: Cubasch et al. (2013:128). Note: Climate feedbacks related to increasing CO2 and rising temperature include negative feedbacks (-), positive feedbacks (+) and positive or negative feedbacks (±). The smaller box highlights the large difference in timescales for the various feedbacks. GHG: greenhouse gas.

Short summary Section 2 reviewed basic elements of climate science. It showed that the climate system has five components: atmosphere, hydrosphere, cryosphere, land surface, and biosphere. These components interact in complex ways. All of them depend on the planet’s energy balance (or radiative balance), i.e. the difference between the energy that flows into the climate system and the energy that flows out of the climate system. For a stable climate, incoming energy should equal outgoing energy. Section 2 explained that climate can change due to variations in factors that are either internal or external to the climate system. External factors such as human activities can affect the climate by influencing climate change drivers such as atmospheric greenhouse gas concentrations. Externally induced changes in climate change drivers then change the energy balance of the planet and thus affect the climate. The radiative forcing concept introduced in Section 2 measures how strongly external factors influence the radiative balance. Positive radiative forcing indicates that more energy is flowing into the system than out of the system, leading to higher temperatures. Negative radiative forcing indicates that less energy is flowing into the system than out of the system, leading to lower temperatures. Section 2 then showed that human activities influence several climate change drivers (atmospheric greenhouse gases, aerosol concentrations, reflectivity of the planet’s surface) and have thereby caused overall positive radiative forcing since the start of the industrial era, which is heating up the planet. Section 2 concluded by highlighting the importance of feedback mechanisms that can amplify or diminish the effects that positive or negative radiative forcing has on different climate variables such as temperature or precipitation.

49 2 The climate science behind climate change 3 Observed changes in 18) – namely, observed changes in mean temperature, precipitation, ice cover, sea levels, and occur- module the climate system rence of extreme events. The section concludes Section 2 introduced the climate system and ex- with a short overview of the impacts of these ob- plained how it can be affected by human activi- served changes on human and natural systems. ties. This section provides a short summary of human-induced changes of the climate system that 3.1 Observed changes in temperature have been observed and assessed by the scientific community. To do so, we focus on observed chang- Climate change has resulted in an increase in the es as reported in the fifth IPCC assessment report. annual average global surface temperature. Data from several independent datasets concur that IPCC reports observed changes in the climate based the combined mean land and ocean surface tem- on research undertaken using a variety of different peratures increased by 0.85°C over the 1880–2012 instrumental measurements. These measurements period. The magnitude of this increase lies with are either on-site measurements, which measure 90 per cent probability within the range of 0.65°C variables such as temperature or precipitation di- to 1.06°C. Over the 1951–2012 period, this increase rectly on site, or off-site measurements. Off-site is estimated to have been 0.72°C, lying with 90 measurements (also called “remote sensing”) gath- per cent probability within the range of 0.49°C to 38 Satellites are examples er data from so-called remote sensing platforms,38 0.89°C (Hartmann et al., 2013). The longest avail- of remote sensing platforms. which measure climate variables from a certain able dataset with data sufficiently detailed to al- distance (i.e. “off-site”). Instrumental data are com- low for calculating regional trends shows that al- plemented with paleoclimate reconstructions (e.g. most the entire planet experienced an increase of the ice core data used to analyse carbon dioxide average surface temperature over the 1901–2012 concentrations mentioned in Section 2.5), which al- period, as illustrated by Figure 23. It is important low for extending the covered period considerably. to note that while the long-term warming trend is highly robust, short-term temperature trends Based on an extensive review of available re- vary due to natural variability and are thus sensi- search, IPCC (2013b: 4) finds that the “warming of tive to the start and end year of the period under the climate system is unequivocal, and since the observation. This leads to a high inter-annual and 1950s, many of the observed changes are unprec- decadal variation in short-term warming trends edented over decades to millennia. The atmos- (Hartmann et al., 2013). As an example, the IPCC phere and ocean have warmed, the amounts of states that the rate of warming from 1998 to 2012 snow and ice have diminished, sea level has ris- was slower than the overall rate from 1951 to 2012. en, and the concentrations of greenhouse gases The IPCC explains this lower rate by the fact that have increased.” In the text that follows, we take a the 1998–2012 period started with a strong El Niño closer look at the most important climate pertur- event, which led to a relatively high mean temper- bations and responses (see the scheme in Figure ature in the first year of the measurement period.

Figure 23 Observed surface temperature changes from 1901 to 2012

Source: IPCC (2013b: 6) based on Hartmann et al. (2013).

50 The climate science behind climate change 2 Mean temperature increases can be observed induced changes only account for -0.1°C to 0.1°C. not only at the planet’s surface, but also in Human activities have also very likely substan- module oceans and in the troposphere. The IPCC states tially contributed to the observed warming of that it is virtually certain that the average tem- upper ocean levels and the troposphere (Bindoff perature in the upper ocean (0 to 700 meters et al., 2013). below the surface) increased over the 1971–2012 period, and it is likely that the temperature also 3.2 Observed changes in precipitation increased during the 1870–1971 period (Rhein et al., 2013). Ocean temperature also likely in- Climate change also affects precipitation lev- creased in lower ocean segments during the els. While the fourth IPCC assessment report 1975–2009 period (700 to 2,000 meters below concluded that global precipitation increased the surface) and the 1992–2005 period (3,000 north of 30°N between 1900 and 2005 and has meters below the surface to the bottom of the decreased in the tropics since 1971, the fifth as- ocean). Rhein et al. (2013) estimate that oceans sessment report relativizes these findings (Hart- have absorbed by far the most of the climate mann et al., 2013). It states that even if all availa- system’s energy increase (i.e. 93 per cent of the ble long-term datasets point towards an increase energy accumulated during 1971–2010). It is in global mean precipitation over the 1901–2008 also virtually certain that the troposphere has period, the order of magnitude of this increase warmed since the mid-20th century (Hartmann varies widely depending on the data source. The et al., 2013). IPCC thus attributes only a low confidence level to evidence indicating global precipitation in- The IPCC states that it is extremely likely that creases over land surfaces prior to 1950 and a human-induced changes in the climate sys- medium confidence level to evidence indicating tem have been the dominant cause of these precipitation increases after 1950. observed temperature increases. More specifically, it states that it is extremely likely that Changes in precipitation seem to differ widely by more than 50 per cent of the increase in mean region. Figure 24 displays precipitation increases surface temperature is attributable to human- in middle and higher latitudes in the northern induced increases in GHG concentrations. Hu- and southern hemisphere. Hartmann et al. (2013) man-induced variations in atmospheric GHG have medium confidence in the evidence sug- concentrations alone likely increased average gesting that precipitation increased in mid-lati- surface temperature by 0.5°C to 1.3°C between tudes of the northern hemisphere for the period 1951 and 2010. The joint effect of other human- before 1950, and high confidence for the period induced variations in climate change drivers after 1950. For all other regions, however, confi- (e.g. aerosols) on mean surface temperature is dence in the evidence of precipitation increases likely to be within -0.6°C to 0.1°C, while naturally is low due to data quality.

Figure 24 Observed change in annual precipitation over the land surface

Source: IPCC (2013b: 8) based on Hartmann et al. (2013). Note: mm yr-1: millimeters per year.

51 2 The climate science behind climate change Despite this uncertainty, the IPCC has medium These observed changes in the cryosphere are confidence that human actions have contributed also at least partly human-driven. The IPCC esti- module to these observed changes in mean precipitation mates that it is (a) very likely that human actions since 1950. The IPCC also has medium confidence have contributed to the sea ice loss in the Arc- that since 1973, human activities have affected tic since 1979; (b) likely that human actions have atmospheric humidity, which is another impor- contributed to the ice surface melting of Green- tant variable of the hydrological cycle (Bindoff et land since 1993; (c) likely that human actions al., 2013). have contributed to the retreat of glaciers since the 1960s; and (d) likely that human actions have 3.3 Observed changes in ice and snow cover contributed to the snow cover reductions in the northern hemisphere (Bindoff et al., 2013). Ice and snow cover are also affected by climate change. The IPCC reports a very likely decrease 3.4 Observed changes in sea levels of 3.5 to 4.1 per cent per decade in the extent of annual Arctic sea ice over the 1979–2012 period Global sea levels also respond to variation in climate (in fact, the extent decreased in every season change drivers. The IPCC has high confidence in find- and in every decade after 1979 – see panel b in ings suggesting that the rate of sea level rise since Figure 25). There is also high confidence that per- the 1850s is higher than the mean increase over the ennial and multi-year Arctic sea ice shrank over last 2,000 years. As panel c of Figure 25 shows, global the same period and that the average winter sea sea levels increased by almost 0.2 meters over the ice thickness decreased between 1980 and 2012. 1901 to 2010 period. Most of these increases since Both the Greenland and Antarctic ice sheets have the 1970s are attributable to the aforementioned re- also been losing mass at an accelerated speed ductions in glaciers and to the thermal expansion of (Vaughan et al., 2013). Finally, there is very high oceans, which are due to the mean temperature in- confidence that the average snow cover in the creases in oceans (Rhein et al., 2013). Hence, the IPCC northern hemisphere has decreased since the concludes that it is very likely that humans have also 1950s (see panel a in Figure 25). substantially contributed to the observed increase of sea levels since the 1970s (Bindoff et al., 2013).

Figure 25 Selected observed changes in snow cover, ice extent and sea level

(a) Northern hemisphere spring snow cover (b) Artic summer sea ice extent 45 14

12 ) ) 2 2 40 10

8 (million km (million km 35

30 4 1900 1920 1940 1960 1980 2000 1900 1920 1940 1960 1980 2000 Year Year

10 (mm) 8

4 1900 1920 1940 1960 1980 2000 Year

Source: IPCC (2013b: 10).

52 The climate science behind climate change 2 3.5 Observed changes in extreme events definition of extreme events), such as droughts, floods, heat waves, cyclones, or wildfires. Table 4 module Besides affecting mean states of variables summarizes the IPCC’s evidence of changes in such as temperature, precipitation, snow cover, the occurrence of these types of extreme events, ice cover, and sea levels, variations in climate and provides an overview of its assessment of change drivers have also altered the probability the role of humans in driving these observed of occurrence of extreme events (see Box 10 for a changes.

Table 4 Changes in the probability of occurrence of extreme events Assessment of whether changes Assessment of a human contribution Extreme event and direction of trend occurred (typically since 1950 unless to observed changes otherwise indicated) Warmer and/or fewer cold days and Very likely Very likely nights over most land areas. Warmer and/or more frequent hot days Very likely Very likely and nights over most land areas Warm spells/heat waves. Frequency Medium confidence on a global scale. and/or duration of increases over most Likely in large parts of Europe, Asia, and Likely land areas. Australia. Heavy precipitation events. Increase in Likely more land areas with increases the frequency, intensity, and/or amount Medium confidence than decreases. of heavy precipitation Increases in intensity and/or duration Low confidence on a global scale. Likely Low confidence of drought. changes in some regions. Low confidence in long-term (centen- Increases in intense tropical cyclone nial) changes. Low confidence activity. Virtually certain in North Atlantic since 1970 Increased incidence and/or magnitude Likely (since 1970) Likely of extreme high sea level

Source: Author's elaboration based on IPCC (2013b: 7)

3.6 Impacts on natural and human systems 2014). The IPCC has medium confidence that the observed changes in precipitation and snow and Sections 3.1–3.5 showed that human-induced ice cover have affected hydrological systems and variations in climate change drivers such as at- the quantity and quality of water resources. There mospheric greenhouse gas or aerosol concentra- is high confidence that climate change has- af tions have already affected the climate system to fected various terrestrial, freshwater, and marine a considerable extent. These observed changes species. Some of these species have changed their in temperature, precipitation, ice and snow, sea geographical range, seasonal activities, and mi- levels, and occurrence of extreme events have gration routes in response to a changing climate in turn had several impacts on natural and hu- (Field et al., 2014). The population sizes of species man systems on a global scale (see Figure 26 for have also been affected by climate change: the a schematic overview). IPCC reports, for instance, that climate change has increased tree mortality in some regions and con- The IPCC’s evidence is the strongest for climate tributed to the extinction of some animal species change impacts on natural systems (Field et al., in Central America (Field et al., 2014).

53 The climate science behind climate change

2 Figure 26 Observed impacts attributed to climate change module

Source: Field et al. (2014: 42).

While evidence is the strongest for natural sys- dium confidence in findings suggesting that tems, some impacts on humans that are attrib- heat-related mortality has increased and cold- utable to a changing climate have also been related mortality has decreased regionally as a reported. Overall, crop yields have been nega- result of mean temperature increases. Medium tively affected. The IPCC has high confidence in confidence is also attributed to findings indicat- evidence suggesting that negative impacts on ing that the distribution of some waterborne crop yields have been more frequent than posi- illnesses has changed due to climate change tive impacts on crop yields (Field et al., 2014). In (Field et al., 2014). particular, wheat and maize yields seem to have been reduced as a result of a changing climate Evidence suggests that climate change has al- (medium confidence). While economic losses ready negatively affected human and natural due to extreme weather events have increased systems. Furthermore, the IPCC expects that “the on a global scale, the IPCC has only low confi- likelihood of severe, pervasive and irreversible im- dence in evidence suggesting that these ob- pacts on people and ecosystems” will increase if served economic losses are directly attributable humans continue to emit large quantities of GHG to climate change (Field et al., 2014). Evidence of emissions and thereby change the climate system negative health impacts attributable to climate (Field et al., 2014: 62). Section 4 briefly discusses change is spare but growing. The IPCC has me- these possible future impacts of climate change.

Short summary Section 3 reviewed changes in the climate system that have been observed and reported by the IPCC. It highlighted that, in response to human activities, mean temperature increased, precipitation patterns changed, ice and snow cover diminished, and sea levels rose. The section also pointed out that the frequency of some extreme events such as the number of hot days increased as a result of human activities. The section concluded by reviewing the key impacts of these observed changes on human and natural systems.

54 The climate science behind climate change 2 4 Anticipated changes in the climate energy sources, and other factors, and contains corresponding values of estimated future green- system and potential impacts of module climate change house gas and aerosol emission trajectories and concentrations until 2100. The IPCC provides four Section 3 outlined the changes in the climate sys- main scenarios, which are called RCP2.6, RCP4.5, tem that have been observed over past decades RCP6.0, and RCP8.5. The numbers indicate the and explained that the main part of these chang- projected radiative forcing by the end of the 21st es is attributable to human actions. To inform century (van Vuuren et al., 2011), e.g. RCP8.5 pro- policymakers about possible future changes in jects radiative forcing of 8.5Wm-2 by 2100. the climate system and to assess potential future impacts on humankind and natural systems, the While a detailed discussion of all the assump- IPCC relies on model predictions. This section in- tions behind the RCPs is out of the scope of this troduces readers briefly to the different scenar- teaching material, we will provide a short over- ios used by climate scientists to predict future view of the main characteristics of each scenario. changes in the climate system, outlines the most RCP2.6 assumes that drastic climate policy inter- important anticipated changes, and lists key ex- ventions manage to reduce GHG emissions such pected impacts on human and natural systems. that they peak before 2020, leading in 2100 to a slight reduction in today’s emission levels and In the fifth assessment report, IPCC reviews and atmospheric GHG concentrations that result assesses the results of numerous studies that in radiative forcing of 2.6 Wm-2 (Wayne, 2013). use climate models to simulate future changes RCP2.6 can thus be viewed as the IPCC’s best-case within the climate system. Climate models are scenario. Directly opposed to RCP2.6 is RCP8.5, mathematical models that describe key aspects which can be viewed as the IPCC’s worst-case and processes of the climate system. To simulate scenario. RCP8.5 assumes a world with no addi- changes in the climate system, these models need tional climate change policies and high popula- information on how climate change drivers such tion growth (Wayne, 2013). In this scenario, green- as atmospheric greenhouse gas and aerosol con- house gas emissions continue to grow over the centrations will evolve over the coming decades. entire century and result in radiative forcing of As this information cannot yet be observed, re- 8.5 Wm-2. RCP4.5 and RCP6.0 are located between searchers have to rely on plausible scenarios of the these two “extreme” scenarios. In both of them, future. This means that they have to rely on infor- GHG emissions would peak during the century mation generated using plausible assumptions (however, considerably later than in RCP2.6), on how human activities will evolve and what leading to radiative forcing of 4.5 Wm-2 and 6.0 consequences they will have on climate change Wm-2 by 2100, respectively. The solid lines start- drivers. To facilitate worldwide climate research, ing from 2012 in Figure 27 illustrate the projected the IPCC provides such scenarios, which are called pathways of carbon dioxide emissions for all four Representative Concentration Pathways (RCPs). scenarios. Note that IPCC (2014) estimates that if humans were to continue to live as they are Each RCP is based on different assumptions about today, they would end up in a scenario between future economic activities, population growth, RCP6.0 and RCP8.5.

Figure 27 Carbon dioxide emission trajectories according to the four representative concentration pathways

Annual anthropogenic CO2 emissions 200 Historical emissions /yr) 2

O RCP scenarios: 100

RCP8.5

0 RCP6.0

Annual emissions (GtC RCP4.5

-100 1950 2000 2050 2100 RCP2.6 Year

Source: IPCC (2014: 9). Note: GTCO2/yr: Gigatonnes of carbon dioxide per year; RCP: representative concentration pathways.

55 2 The climate science behind climate change Numerous studies have used these four RCP sce- depending on the scenario (IPCC, 2014). Compared narios in their climate models to predict future to the mean of pre-industrial temperature levels module changes in the climate system. Based on these (1861–1880), RCP8.5 is estimated to lead to an in- studies, the IPCC anticipates major changes crease of more than 4°C, RCP6.0 to an increase within the climate system that we summarize of roughly 3°C, RCP4.5 to an increase of roughly 40 For the sake of clarity, the below separately for different climate variables 2.5°C, and RCP2.6 to an increase below 2°C.40 As spread of these estimates (temperature, precipitation, snow and ice cover, explained in Modules 1 and 4 of this teaching has been omitted. However, and sea level). material, a mean temperature increase below the total spread (using all models and scenarios) of 2°C is the main target of the Paris Agreement. total human-induced war- Simulations based on all four scenarios predict This implies that “limiting total human-induced ming and carbon dioxide-in- an increase of mean temperature over the 21st warming (accounting for both CO2 and other hu- duced warming is displayed century, as indicated by Figure 28. While the mag- man influences on climate) to less than 2°C rela- in Figure 28. nitudes of the rise in global mean surface tem- tive to the period 1861–1880 with a probability of perature are comparable for all four scenarios >66 per cent would require total CO2 emissions over the 2016–2035 period, mean temperature from all anthropogenic sources since 1870 to be estimates differ widely for the 2035–2100 period, limited to about 2900 Gt” (IPCC, 2014: 63).

Figure 28 Predicted increases in mean surface temperature

Cumulative total anthropogenic CO2 emissions from 1870 (GtCO2) 1000 2000 3000 4000 5000 6000 7000 8000 5

RCP8.5 2090s

4 Total human-induced warming

RCP6.0 2090s

to 1861 – 1880 (˚C) 3

RCP4.5 2090s lative

2 RCP2.6 2090s change re CO2 -induced warming

tu re 1 2000s

1990s

mpe ra 1940s 1970s Te

1880s 0 0 500 1000 1500 2000 2500

Cumulative total anthropogenic CO2 emissions from 1870 (GtC)

Source: IPCC (2014: 63). Note: Dots indicate decadal averages, with selected decades labelled. The two overlapping dark-orange and grey surfaces indicate the spread of total human-induced as well as carbon-dioxide-induced warming obtained by different models and scenarios. GTCO2: Gigatonnes of carbon dioxide; GtC: Gigatonnes of carbon.

Unlike temperature, no clear global trend is iden- volume (with expected decreases of 15 to 55 per tifiable for precipitation. Some scenarios (RCP8.5) cent in RCP2.6 up to 35 to 85 per cent in RCP8.5, project an increase in annual mean precipitation excluding glaciers in the Arctic and Greenland, for high latitude regions, for the equatorial Pacif- and Antarctic ice sheets) (IPCC, 2014). ic region, and for some mid-latitude regions, but a decrease in other mid-latitude and subtropical Finally, all RCP scenario-based simulations pre- regions (IPCC, 2014). The IPCC also expects an in- dict ongoing increases in sea level over the entire crease in extreme precipitation events in some 21st century. IPCC (2014) estimates that by 2081– regions of the globe. 2100, sea levels will have risen from 0.26 to 0.55 meters (RCP2.6) up to 0.45 to 0.82 meters (RCP8.5) All simulations predict decreases in Arctic sea ice compared to their 1986–2005 levels. (RCP8.5-based simulations even predict a nearly ice-free Arctic ocean in the summer season be- All these anticipated changes in the climate sys- fore the 2050s), near-surface permafrost (with tem will have impacts on human and natural expected decreases of 37 per cent in RCP2.6 up systems. Generally speaking, IPCC (2014: 64) ex- to 81 per cent in RCP8.5), and decreasing glacier pects that climate change “will amplify existing

56 The climate science behind climate change 2 risks and create new risks for natural and human (c) increased risk of loss of rural livelihoods and systems. Risks are unevenly distributed and are income, especially affecting poor segments of module generally greater for disadvantaged people and the population; (d) increased risk to human communities in countries at all levels of devel- health and of disrupting livelihoods due to ex- opment. Increasing magnitudes of warming treme events and sea level rise; and (e) increased increase the likelihood of severe, pervasive, and systemic risk as the anticipated increase in the irreversible impacts for people, species, and eco- frequency of extreme weather events could lead systems. Continued high emissions would lead to breakdowns of infrastructure networks (IPCC, to mostly negative impacts for biodiversity, eco- 2014). Other anticipated risks vary locally, as system services, and economic development, and shown in Figure 29. IPCC (2014: 73) emphasizes would amplify risks for livelihoods and for food that many “aspects of climate change and its as- and human security.” sociated impacts will continue for centuries, even if anthropogenic emissions of greenhouse gases Some of these risks are global, including (a) in- are stopped. The risks of abrupt or irreversible creased risk of ecosystem and biodiversity losses; changes increase as the magnitude of the warm- (b) increased risk of food and water insecurity; ing increases.”

Figure 29 Key anticipated risks per region

Source: IPCC (2014: 14).

Short summary Section 4 introduced readers to different scenarios used by the IPCC to predict future changes in the climate system. The section highlighted that it is likely that future changes in the climate system (such as increases in temperature) will occur as a result of human activities. It then concluded by showing that these anticipated changes in the climate system will have important negative impacts on human and natural systems.

57 2 The climate science behind climate change 5 Exercises and questions for discussion module 1 What is the difference between weather and climate?

2 Name and define the five components of the climate system. Discuss two interactions among selected components.

3 Discuss the global energy balance of the planet by using Figure 15 as a basis for your discussion. Why is the global energy balance of crucial importance for the planet’s climate system?

4 Why is the average surface temperature 14°C and not -19°C? Define the natural greenhouse effect.

5 List two internal factors that can affect the climate.

6 List four external factors that can change the climate and explain how they can do so.

7 Define radiative forcing. Why is this concept a useful tool to measure the influence of external factors on the planet’s climate?

8 Discuss the different ways in which human activities can affect the climate of the planet.

9 What human-induced changes in climate variables can already be observed today? Discuss changes that affect your country.

10 What is the role of scenarios in the IPCC’s simulation of future climate change impacts?

11 List five anticipated impacts of climate change. Discuss which changes will be most important for your country.

58 The climate science behind climate change 2 ANNEX 1 module Figure A1 Estimates of global mean radiative forcing provided by the different IPCC assessment reports Global mean radiative forcing (Wm-2) ERF (Wm-2) SAR TAR AR4 AR5 Comment AR5 (1750–1993) (1750–1998) (1750–2005) (1750–2011) Well-mixed Change due greehouse gases 2.45 2.43 2.63 2.83 2.83 to increase in (CO , CH , N O, (2.08 to 2.82) (2.19 to 2.67) (2.37 to 2.89) (2.54 to 3.12) (2.26 to 3.40) 2 4 2 concentrations and halocarbons) Tropospheric +0.40 +0.35 +0.35 +0.40 Slightly modified ozone (0.20 to 0.60) (0.20 to 0.50) (0.25 to 0.65) (0.20 to 0.60) estimate Stratospheric -0.1 -0.15 -0.05 -0.05 Estimate ozone (-0.2 to -0.05) (-0.25 to -0.05) (-0.15 to +0.05) (-0.15 to +0.05) unchanged Stratospheric +0.07 +0.07 Estimate water vapour Not estimated +0.01 to +0.03 (+0.02 to +0.12) (+0.02 to +0.12) unchanged from CH4 Aerosol- Re-evaluated -0.50 -0.35 -0.45 radiation Not estimated Not estimated to be smaller in (-0.90 to +0.10) (-0.85 to +0.15) (-0.95 to + 0.05) interactions magnitude

Replaced by ERF -0.70 Aerosol-cloud 0 to -1.5 0 to -2.0 and re-evaluated -0.45 (-1.80 to -o.30) Not estimated interactions (sulphate only) (all aerosols) to be smaller in (-1.2 to 0.0) (all aerosols) magnitude

Re-evaluated Surface albedo -0.20 -0.20 -0.15 to be slightly Not estimated (land use) (-0.40 to 0.0) (-0.40 to 0.0) (-0.25 to -0.05) smaller in magnitude

Surface albedo +0.04 (black carbon +0.10 Re-evaluated Not estimated Not estimated (+0.02 to aerosol on snow (0.0 to +0.20) to be weaker +0.09) and ice)

+0.02 (+0.006 +0.01 (+0.003 +0.01 (+0.005 Contrails Not estimated No major change to +0.07) to +0.03) to +0.03)

Combined contrails 0.05 Not estimated 0 to +0.04 Not estimated Not estimated and contrail- (0.02 to 0.15) induced cirrus

Stronger positive Total due to changes Not estimated Not estimated 1.6 (0.6 to 2.4) Not estimated 2.3 (1.1 to 3.3) anthropologic in various forcing agents

+0.30 +0.30 +0.12 +0.05 Re-evaluated Solar irradiance (+0.10 to +0.50) (+0.10 to +0.50) (+0.06 to +0.30) (0.0 to +0.10) to be weaker

Source: Myhre et al. (2013: 696). Note: ERF: Effective radiative forcing; SAR: Second IPCC Assessment Report; TAR: Third IPCC Assessment Report; AR4: Fourth IPCC Assessment Report; AR5: Fifth IPCC Assessment Report.

ANNEX 2

IPCC assessment reports URL Fifth Assessment Report (AR5) https://www.ipcc.ch/report/ar5/

Fourth Assessment Report (AR4) https://www.ipcc.ch/report/ar4/

Third Assessment Report (TAR) https://www.ipcc.ch/ipccreports/tar/

Second Assessment Report (SAR) https://www.ipcc.ch/pdf/climate-changes-1995/ipcc-2nd-assessment/2nd-assessment-en.pdf

First Assessment Report (FAR) https://www.ipcc.ch/publications_and_data/publications_ipcc_first_assessment_1990_wg1.shtml https://www.ipcc.ch/publications_and_data/publications_ipcc_first_assessment_1990_wg2.shtml https://www.ipcc.ch/publications_and_data/publications_ipcc_first_assessment_1990_wg3.shtml

59 The climate science behind climate change

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Le Treut H, Somerville R, Cubasch U, Ding Y, Mauritzen C, Mokssit A, Peterson T, and Prather M (2007). Historical overview of climate change. In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Solomon S, Qin D, Manning M, Chen Z, Marquis M, Averyt KB, Tignor M, and Miller HL, eds. Cambridge University Press. Cambridge, UK and New York.

Masson-Delmotte V, Schulz M, Abe-Ouchi A, Beer J, Ganopolskia , González Rouco JF, Jansen E, Lambeck K, Luterbacher J, Naish T, Osborn T, Otto-Bliesner B, Quinn T, Ramesh R, Rojas M, Shao X, and Timmermann A (2013). Information from paleoclimate archives. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Inter- governmental Panel on Climate Change, Stocker TF, Qin D, Plattner GK, Tignor M, Allen SK, Boschung J, Nauels A, Xia Y, Bex V, and Midgley PM, eds. Cambridge University Press. Cambridge, UK and New York.

Mastrandrea MD, Field CB, Stocker TF, Edenhofer O, Ebi KL, Frame DJ, Held H, Kriegler E, Mach KJ, Matschoss PR, Plattner GK, Yohe GW, and Zwiers FW (2010). Guidance note for lead authors of the IPCC Fifth Assessment Report on Consistent Treatment of Un- certainties. Intergovernmental Panel on Climate Change. Geneva.

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Myhre G, Shindell D, Bréon FM, Collins W, Fuglestvedt J, Huang J, Koch D, Lamarque JF, Lee D, Mendoza B, Nakajima T, Robock A, Stephens G, Takemura T, and Zhang H (2013). Anthropogenic and natural radiative forcing. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Stocker TF, Qin D, Plattner GK, Tignor M, Allen SK, Boschung J, Nauels A, Xia Y, Bex V, and Midgley PM, eds. Cambridge University Press. Cambridge, UK and New York.

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Module 3 The economics of climate change 3

module The The economics of climate change 64 fail to generate a Pareto-optimal situation. This This situation. Pareto-optimal a generate to fail two factors,the these combination to of markets emit greenhouse gases into the atmosphere. Due over- consequently and decisions, their making when account into externalities negative take not do agents Economic system. economic the they cause are externalto any accounting within be- externalities and welfare social from detract they because Negative 3.2). Section (see nalities them. Second, GHG emissions are negative exter ket economies because countries tend to overuse mar in “efficiently”be exploited cannot sources gases greenhouseinto the atmosphere at any time. Open-access re of - amount any release can thereforecountryany use, and its constraints on source (see Section 3.1). As such, there are no legal - pri vate goods,the atmosphere is an open-access re being - commodities all of assumption the to contrary First, met. not are assumptions two because occurring failure market a such of result - the is change climate that shows 3 Section mal. iscalled a iswhat This failure.”“market opti- socially not are that outcomes generate and fied; if these assumptions are not met, satis- markets fail are assumptions certain that provided up holds view.only of result However,theoretical this efficient way and thus optimallyfrom a social point competitive markets allocate resources in a Pareto- fully theory, in that, shows efficiently.It allocated are resources whether evaluate to used efficiency Pareto of concept the and economies market ing - describ model theoretical standard the troduces in- It allocations. optimal and markets on theory economic of concepts basic the reviews 2 Section this question. to answer module aim problems like climate change exist? Sections 2 and 3 this of environmental severe that possible it is how efficiently, resources allocate markets If change. climate as such environment the on effects negative important to leads behaviour ficient, way. the At same time, however, economic ef i.e. optimal, that an in resources allocate markets stipulates theory economic Neoclassical those solutionsare known. well though even problems these to solutions implement to ficult climate change, and clarifies why can be so it dif transboundaryenvironmental problems, as such of occurrence the explains theory economic how tribute to change the climate. This module shows con- activities human how showed and change climate behind science climate the explained 2 Module interdependent. are environment the and economy the because climate the influence can activities economic that showed 1 Module Introduction 1 - - - - Additional reading material can be found in Annex 1. 3. Module in introduced issues the covering 5 tion Sec- in questions discussion and exercises several find will readers process, learning the support To • be to considered is change climate why • Discuss • • • • At the end of this module, readers should be able to: waysto fostertify cooperation amongcountries. iden- to us allow that models theory game from The section concludes by drawing several lessons optimal.socially not is that outcome an to leads This emissions. reducing to contribute not and that countries have strong incentives to free-ride is action collective of failure the of cause main the that shows It countries. among interaction strategic analyse to used are that concepts ory the- game introduces section difficulty, the this illustrate To good. public global a with dealing when achieve to difficult extremely is operation co- However,such needed. is cooperation tional interna- change, climate of threat the eliminate to actions take single-handedly can country no As 3.1). Section (see benefits non-excludable and non-rival has that good” “public global a mitiga- is tion change climate that shows It change. of governments and societies to mitigate climate gates how economic theory explains the inability investi- 4 Section issue. the solve to decades for struggling been has community international the change, climate mitigate could terventions in- policy how time some for known been has it change.climate mitigate to needed Even though Since markets have failed, policy interventions are failure market biggest inhumanhistory. gives to rise climate change, considered to be the deed the case, then why do markets sometimes sometimes markets do why then case, the deed that marketsallocate resources efficiently. stipulates in is this If theory economic Neoclassical andPareto efficiency 2 climate changemitigationpolicies. implement to struggling been internationalhas community the that fact the explain mists econo- how analyse to tools theory game Use failure market the biggest inhumanhistory; ative externalities; Explain why greenhouse gas emissions are neg- an open-accessresource; Explain why the atmosphere is considered to be failures;market define and hold not the does theorem welfare first which under conditions the Understand State the implications of the first welfare theorem; competitiveThe markets model -

The economics of climate change 3 fail to do so, producing highly inefficient out- modelled. Economists have developed a standard comes leading to environmental problems such model of a competitive market economy,41 which 41 Going into the details of module as climate change? To answer this question we we will now briefly introduce and which will the microeconomic foun- first have to understand why economic theory serve as a starting point to understand how eco- dations of the competitive market model is beyond concludes that markets produce efficient out- nomic theory explains the occurrence of climate the scope of this material. comes, in particular, understand (a) how econo- change. Interested readers may refer mists conceptualize market economies, and (b) to standard microeconomic how economists evaluate the efficiency of market In this standard model, the economy is assumed textbooks such as Varian economies. This section clarifies these two points to be composed of economic agents (firms and (2010). Additional readings can also be found in Annex 1. and shows that, given certain conditions, eco- households) acting purely in their own self- nomic theory predicts that markets indeed pro- interest – i.e. trying to optimize their behaviour duce efficient outcomes. Section 3 subsequently to achieve the outcome that is best for them. In shows that in the context of climate change, other words, firms try to maximize their profits some of these conditions are violated, and there- while households try to maximize their utility fore markets fail to achieve efficient outcomes. (i.e. consume a mix of goods and services that makes them as satisfied as they can be on a giv- 2.1 A simple model of market economies en budget). The model assumes that there are many different markets, one for each commodity. Economic processes are inherently complex and Each competitive market connects demand (how difficult to understand. Economists thus rely on much households are willing to pay for the com- theoretical models of the economy to improve modity) and supply (how much firms want to be their understanding of these processes. Eco- paid to produce the commodity), thereby deter- nomic models are theoretical constructs that mining how much of the specific commodity is aim to represent different aspects of economic produced. In such a competitive market, the price processes in a simplified way. They therefore rely of a commodity adjusts until demand equals on assumptions that might not necessarily hold supply. This is called equilibrium. Put differently, a in reality. Nevertheless, the models are very use- market is in equilibrium if the sum of the quanti- ful tools because they shed light on complex eco- ties of commodities that households want to buy nomic mechanisms and their relationships with at current prices equals the quantities of com- the environment. Market economies, currently modities that firms want to produce at current the dominant form of economic organization prices (see Box 12 for a graphical illustration of an (Cohen, 2009), have been extensively studied and equilibrium in a single competitive market).

Box 12 Equilibrium in a single competitive market Figure 30 displays a single competitive market for a normal good and shows the demand and supply curve for this particular good. The demand curve relates the quantity demanded by consumers to the market price. It is downward sloping, meaning that the cheaper the good, the more of it consumers are willing to buy. The supply curve relates the quantity supplied to the price and is upward sloping, meaning that the higher the price firms can charge, the more they are willing to supply. The market is in equilibrium at price P* and corresponding quantity Q*, as this is the only point where demand equals supply. Note that given the supply and demand curves, this is the only equilibrium in this particular market. For any other price, supply does l l not equal demand. To see this, look for instance at price P : at this price, consumers demand Q d, but producers l are only willing to supply Q s. This situation is clearly not an equilibrium, as the quantity demanded is higher than the quantity supplied.

Figure 30 Equilibrium in a single competitive market

Price Supply

Pl Demand

l l Q s Q* Q d Quantity

Source: Author.

65 3

module Arrow (1951). was first formally proved by endowment, that theorem a transfersthe initial wealth of afterby amarket lump-sum canbeachieved equilibrium any Pareto-efficientthat welfaretheorem, stating foundations the second of the (1944) also outlined welfarefirst theorem. Lerner ly) provethe the existenceof to(graphical economist - first 43 42 The economics of climate change optimality. economic efficiency or Pareto sometimes also referred to as Lerner (1934, 1944)wasthe Pareto efficiency is 66 commonly used tool is called Pareto efficiency,Pareto called is tool used evalucommonly- most to The resources. of used allocations different ate are tools conceptual Various efficiency 2.2 Pareto section.the next duced in – intro- efficiency Pareto – efficiency specific of concept very a and model market competitive the using by question this answer to tried have Economists costly. is improperly them locating know,to however, al - and scarce areresources as important is This resources. these allocating in are economies those efficient how about silent remains resources, it allocate economies market how understand to us allows model the While only a single commodity market, is in equilibrium. economy, market not whole and the state, this in is called a competitive equilibrium. Put differently, prices of set corresponding the and commodities are in equilibrium, then the markets resulting allocation of commodity individual all con- and straints, budget their given utility their maximize consumers all profits, their maximize firms all If resourcesto bePareto-optimal. issaid made and no more are available, the allocation of it? been have improvements do Pareto such all When not why situation, a “Pareto-improve” could you if i.e. person, another of situation the deteriorating without person one least at of tion situa- the improve could you if all, Aftersirable. de- not priori a are Pareto-inefficient allocations location iscalled aPareto-efficient allocation. al - an off worse person another making without off better persons more or one make to way no is off is called a Pareto-inefficient allocation. there If worse person another making without off better persons more or one make to way a find can one Vilfredo Pareto. An allocation of economist resources Italian in which century 19th the after named rc ta smoe ol b wlig o a fr n xr ui (hc wud e pie lgty below slightly price a be would (which unit extra an for pay to willing be would someone that price Why is the resulting equilibrium production amount considered to be Pareto-efficient? Suppose that in- quantity equilibrium that the producing Suppose of Pareto-efficient? stead be to considered amount production equilibrium resulting the is Why to supplyanextraP* unit. amount an pay to sumers topaid producethe good. In an equilibrium, demand and supply are of balancedthe con willingness that so - taking into account how much consumers to arepay willing for the good and how much suppliers have to be competitive market. As we have already seen, competitive markets the totaldetermine quantity produced by a in good normal a of curves demand and supply displaysmarket. 31 Figuresingle a in output production of example Pareto-efficient,considered the be using can equilibria market why at look intuitive an take us Let would be willing to produce an additional unit and sell it at a price slightly above P above slightly price a at it sell and unit additional an produce to willing be would Box 13 A Pareto-efficient for an extra unit is equal to the willingness of suppliers to be paid the amount amount the paid be to suppliers of willingness the to equal is unit extra an for P* level ofproduction inasinglemarket , suppliers would produce less, say,less, produce would suppliers Q*, 42

ple ofproduction inasinglemarket. exam - the through this illustrates 13 Box else. one some- harming without improved be can position constitutes a social optimum from which nobody’s interest will achieve an allocation of resources that self- own their in purely acting agents economic of composedmarkets that economics.implies in It results theoretical central most the of one is and The Wealth of Nations in 1776 of an “invisible hand,” in Smith’sconjecture Adam formalizes thus orem Pareto-efficient allocations. are equilibria markets’ competitive satisfied, are fare theorem states that, as long as some conditions wel- case.first the The theory,indeed is nomic this resources allocate efficiently. eco- neoclassical to According model, market competitive the by elled mod- as economies, market whether evaluating for allows efficiency Paretolimitations, its Despite andPareto efficiency 2.3 biguously improvesthe welfare ofasociety. unam- that way a in changed be can allocations (Mas-Colell not or fully waste- resources allocating is society a whether equality. determine or only tice can criterion The jus- optimize that allocations identify to us low al- not does efficiency Pareto Thus,disgusting.” perfectly be still and optimal Pareto be can omy intocutting the pleasuresthe rich... of [A]n econ- without off better made be cannot starvers the as long starvation,as near are others and luxury in rolling are people some when efficient “even an economythat by writing plicit may be Pareto- ex point this made 22) (1970: Sen Amartya able. to evaluate which of the two allocations is prefer unable is criterion Pareto-efficient, the are tions efficient, - alloca is limits. two location its has If it al- an not or whether evaluating for benchmark While the Pareto-efficiencycriterion is useful as a Competitive market ., 1995) and whether and 1995) al., et equilibria Q 43 l . Then some producer some Then . The first welfare the- welfare first The S l , but well below the below well but , P d l ). ). - -

The economics of climate change 3 Box 13 A Pareto-efficient level of production in a single market module This would clearly be a win-win scenario, as by producing and exchanging that additional unit, at least these two persons would be better off. The same holds for all quantities below Q*. Thus as long as less than Q* is produced, at least one person could be made better off by increasing total production. Would producing a quantity greater then Q* also be a Pareto improvement? The answer is no. As the price any supplier asks for an extra unit produced would be higher than any consumer’s willingness to pay for that unit, nobody would buy this extra unit, and thus no person would be better off. At the same time, the supplier producing the extra unit that cannot be sold would be even worse off. Therefore, only the market equilibrium allocation Q* with the corresponding price P* can be considered to be a Pareto-efficient allocation. This is an intuitive illustration of the claim that competitive markets determine a Pareto-efficient amount of output.

Figure 31 A Pareto-efficient level of output in a single competitive market

Price Supply

l P d

l P s Demand

l Q s Q* Quantity

Source: Author's elaboration based on a similar discussion in Varian (2010: 310–12).

The first welfare theorem depends, however, on are no externalities; and (f) all commodities are a series of assumptions that Perman et al. (2011: private goods.44, 45 In reality, these assumptions 44 In addition to the assump- 103) call “institutional arrangements.” These ar- are often violated (Sandler, 2004). Consequently, tions highlighted in this rangements have to be satisfied or the first wel- markets fail to achieve Pareto-efficient alloca- section, there is an additional technical assumption on fare theorem does not hold and competitive mar- tions and economists speak of market failures, consumer preferences called kets do not produce socially optimal situations. which can potentially have devastating conse- local nonsatiation of prefe- These assumptions require that (a) markets exist quences and lead to situations that are not so- rences, which also has to be for all goods and services; (b) these markets are cially optimal. As we will see in Section 3, climate satisfied for the first welfare perfectly competitive (no agent can influence the change is the result of such a market failure. theorem to hold (Mas-Colell et al., 1995: 549–50). price); (c) all agents have full information on cur- Some have even argued that climate change rent and future prices; (d) private property rights is the biggest market failure in human history 45 Note that, strictly spea- exist for all resources and commodities; (e) there (Stern, 2007). king, assumptions (e) and (f) are already implied by Short summary assumption (d). If enforceable private property rights for all Section 2 reviewed basic elements of economic theory that are needed to understand how economic theory resources and commodities explains climate change. The section started by introducing the standard model of a competitive economy do exist, then all benefits and discussed the concept of market equilibrium. It then briefly introduced the Pareto-efficiency criterion and/or costs accrue to the agent holding the property used to evaluate different allocations of resources. Finally, it showed that markets allocate resources in a right for the commodity or Pareto-efficient way provided that certain conditions are satisfied, but fail to do so if these conditions are not resource. This implies that met. These so-called market failures are at the heart of economists’ explanations of the occurrence of climate there would not be any change and are analysed in greater detail in the following sections. externalities and only private goods. However, we follow Perman et al. (2011) and list these assumptions separately for the sake of clarity, as we will discuss assumptions (e) and (f) extensively in sections 3.1 and 3.2.

67 3

module produced. or aprivate goodispublicly is privately produced and/ apublicgood that possible public orprivate agents). is It way agoodisproduced (by and excludability, the to not ofrivalry property publicness bute “public” the refersto - the attri that understand 48 47 46 The economics of climate change “rivalry.” bility” asanequivalent of term the 2012) use “divisi - (e.g. Tietenberg andLewis, types of these goods. of types the differentan overview on It is important to to isimportant It SeeSanders(2004)for Note that some scholars somescholars that Note 68 3.1 failure. ofamajormarket the result to be ered consid- is change climate why show and detail in violations both discuss we 3.2, and 3.1 Sections In the atmosphere that exacerbates climate change. in accumulation GHG growing to leading gases, greenhouse over-emit agents economic and fail, markets up, hold not does theorem welfare first the violated,are assumptions two these Because to aPareto-inefficient outcome. example of a negative externality that again leads As we will see in Section 3.2, GHG emissions are an externality.any of absence the concerns (e), tion former. The second violated assumption, assump- the Pareto-efficiently handle cannot markets and goods, private “normal” from different very are resources open-access see, will we As violated. is assumption this 3.1), Section (see resource access open- an is atmosphere the since - pri goods.vateBut be to have goods all that is (f), assumption assumptions, these of first The theorem. welfare first the of assumptions the viola- underlying two to of tion due is finding empirical this that maintain Economists 2014a).(IPCC, change mate cli- induced human- such of existence the wards to- points evidence empirical current However, occur.human-induced climatechangewouldnot world, theoretical ideal this In welfare.else’s one some- harming improvedwelfare be without can duce a socially optimal situation in which no one’s Pareto-efficient way,a proin i.e. - resources locate self-interestal- own their in economic purely acting agents of composed markets theory, nomic eco- ofneoclassical theorem welfare first the to according that, showed module this of 2 Section 3 (Sandler,Perman 2004; excludability and rivalry consumption: their benefits of the characterize that criteria two ing us- public or private as classified be can Goods this fact.the consequences of understand us help then will section good.private The a not repository,GHG is a as function its mosphere,in at the that show will goods.private section This non- involve systems market if fail to tend but goods,private with deal they if allocations timal Pareto-op- achieve markets that us tells Theory failure inhumanhistory f osmto ae xldbe hn n can one when excludable are consumption of else’sBenefits consumption.somebody of pense ex the at is consumption individual’s one that meaning individual, one by consumed be only can good a of areconsumptionrivalunit a when Climate atmosphere: The change: Anopen-access resource

The , 2011). al., et greatest 46 Benefits of Benefits

market - - ent types of goods, of types ent differ these all discuss not will we purpose, our of goods called common-pool resources. They are class larger a of part are resources Open-access the atmosphere belongs.which to – resources open-access – type particular one degrees of publicness (Perman publicness of degrees different with words, other in or excludability, differentwith goods of rivalryety degreesof and two extreme cases, the literature identifies a - vari public goods are thus very different. Within these pure and private pure governing economics The benefits ofnational defence are also non-rival. the Thus,defence. of level same the consuming citizen another of possibility the slightest the in diminish not does she or he level,defence vided pro- the consumes citizen a If non-excludable. level). Hence,the benefits of national defence are defence provided the of benefits the consuming from words, other (in military the by protected being from excluded be can country the within is provided by the military, no citizen who is living defence of level certain a defence.Once national good: public pure a of example classical a with this illustrate us Let unit. same individual the consuming another of possibility the affecting without good the of unit particular a consume can individual an that means gifted.Non-rivalry titlements can be neither identified nor traded or fromgood,the consuming consumptionand en- excluded be can nobody that means cludability public arenon-rivalgoods non-excludable.and Non-ex pure of benefits The (1954). Samuelson Paul economist American the by 1954 in scribed pure are goods de- first were goods of types goods.public These private pure of opposite The life,in ourdaily therefore is apure private good. consume we goods most to similar Bread, able. are exclud- loaf the consuming of benefits the words,other bread;in of loaf particular a eating from excluded be can loaf the consume to right the owning not individual any that means This law.by punishable is and stealing considered is else everything but gifted, or traded be can loaf the right to consume it. The right to consume the has thus and unit specific a owns who identify can one and units separable in comes bread as time,excludable,completely breadis consuming same the rival.At completely are bread of loaf a anybodyby else. Thus, of benefits the consuming eaten be cannot and destroyed is loaf bread,the privategood: bread. of loaf a individualeats an If pure particular a at look us concept, the let trate completely rival andexcludable benefits. - illus To having as defined are goods private the Pure good. consuming from person another prohibit 48 but rather concentrate on concentrate rather but ., 2011). al., et 47 For - - The economics of climate change 3 defined by Tietenberg and Lewis (2012: 629) as nomic agents make their decisions to exploit the “common-pool resources with unrestricted ac- atmosphere’s GHG repository function solely on module cess.” Because scholars are still struggling to un- the basis of their own benefits and costs. By do- ambiguously define common-pool resources, we ing so, they ignore the negative impact their GHG will follow Ostrom (2008: 11) who defines them as emissions have on others. This leads to a situa- “sufficiently large that it is difficult, but not im- tion in which no agent has an incentive to reduce possible, to define recognized users and exclude its GHG dumping activities and to conserve the other users altogether. Further, each person’s use atmosphere’s capacity to absorb greenhouse of such resources subtracts benefits that others gases. might enjoy.” Thus, the benefits of consuming common-pool resources are rival (which distin- 3.2 Greenhouse gas emissions: A negative guishes them from pure public goods) but ex- externality problem cludable only with difficulties. If no individual or group owns a common-pool resource or is able Section 3.1 showed that market economies over- to exercise full control over such a resource, the use the GHG repository function of the atmos- resource is called an open-access resource. Exam- phere because they cannot efficiently manage ples of such open-access resources are fisheries, open-access resources. In addition to the open- forests, or the atmosphere. access problem, there is a second related factor contributing to the overuse of the atmosphere’s To be specific, the atmosphere is an open-access GHG repository function: emitting greenhouse resource with respect to its function as a reposi- gases is a negative externality problem. This is tory of GHG emissions. Everybody can use the an additional reason why markets fail and hence atmosphere to dump their GHG emissions free climate change occurs. of charge, and it is difficult (although not impossible) to restrain this usage. Thus, the benefits of An externality exists if actions by one economic using the atmosphere’s function as a GHG repos- agent unintentionally affect other agents. To be itory are only partly excludable. Moreover, if firms more precise, according to Perman et al. (2011: and individuals use the atmosphere as a GHG re- 121), an externality occurs if “the production or pository, other firms and individuals cannot do consumption decisions of one agent have an im- the same without causing serious negative envi- pact on the utility or profit of another agent in ronmental consequences like climate change. In an unintended way, and when no compensation/ that sense, the benefits of using the atmosphere payment is made by the generator of the impact as a GHG repository are rival. to the affected party.” A priori, externalities can be positive or negative.50 Whereas positive ex- 49 Actually, as noted by Considering that the atmosphere is an open- ternalities have a positive unintended effect on Common and Stagl (2004), access resource and not a pure private good, other agents, negative externalities have a nega- the expression “tragedy of the commons” – introduced economic theory tells us that it cannot be effi- tive unintended effect on others. Vaccinations in a famous article by Garrett ciently exploited by a market economy. If market are examples of positive externalities. They pro- Hardin in 1968 – is mislea- economies exploit open-access resources such as tect the vaccinated person as intended, but also ding because the problem is the atmosphere, they tend to overuse these re- have a positive unintended external effect, low- not related to common pro- sources. The resulting market failure then leads ering the probability that other non-vaccinated perty rights, but to the open access to the common pro- to outcomes that are not socially optimal. The persons catch the disease. GHG emissions are a perty. Thus, as Common and main reason for this overuse is the open access to typical example of negative externalities. While Stagl suggest, the tragedy the resource. As no individual or group is able to they are the by-product of an intended produc- should have been labeled “the control who is dumping greenhouse gases into tion process, they have a negative unintended ef- open-access tragedy.” the atmosphere, economic actors adopt a “use it fect on others by contributing to climate change. 50 Note that there are various or lose it” mentality and use the GHG repository ways to classify externa- function of the atmosphere on a “first come, first Markets fail in the presence of externalities be- lities. Besides classifying externalities into positive and serve” basis, thereby collectively overusing the re- cause agents do not take these effects into ac- negative, one can also classify source (Tietenberg and Lewis, 2012) by dumping count when making their decisions. The reason them by the economic acti- massive amounts of greenhouse gases into the why they do not take them into account is that, vity in which they originate atmosphere. This problem is widely known as the by definition, these effects are unintended and (production or consumption) “tragedy of the commons,”49 and is at the heart hence, there is no monetary reward or penalty to and by the economic activity that they affect (production of economists’ explanation of the occurrence of the agent generating the externality. Thus, in the or consumption). See Perman climate change. case of positive externalities, generating the pos- et al. (2011) for an overview itive effect, in itself, is not sufficiently encouraged on classifications of different As we will see in Section 3.2, the overuse induced as there is no reward for doing so. In the case of externalities. by the open-access problem is made worse by negative externalities the opposite happens: as what economists call negative externalities: eco- there is no monetary punishment for generating

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module 53 52 The economics of climate change (SMB). benefits perceived bysociety (PMB) the marginal and benefits perceived byafirm the marginal wedge between externalities woulddrive a Stagl (2004: 327–29). inCommondiscussion and externality closelyfollows the of anegative production 51 future generations. to or the planet viduals on to otherindi- either accrue these costs of the bulk but the costs ofclimatechange, bearssomeof the firm that followingThe example To beprecise, ispossible it Consumption-based 70 n bnft it acut inrn theaddi- ignoring account, into benefits and costs personal their take only agents economic emissions,GHG involving decision consumption erations. Thus, when making a production and/or by all people across the planet, and by future gen- rather but gases, greenhouse emits production whose goods or of firms consumers emitting the by borne not are generations.costs future These and thus indirectly imposes costs on present and greenhouse gases into the of atmosphere causes climate quantitieschange large Emitting ties). - activi other of variety wide very a through and cattle, raising by energy, produce to fuels fossil products of production processes (e.g. by burning by- as gases greenhouseproduce beings Human the caseofGHGemissions.happens in what exactly is this see, will we As effect. ternal ex negative the exacerbating thereby ternality, ex negative the of much too produce markets Consequently, them. generating from couraged dis- sufficiently not are agents effects, negative firm’s firm’s the with PMCs the willequate the manager profits, firm’s the much the firm will produce. In order to maximize how decide to firm’s managers the by used are also costs These output. production total its of unit last the producing for incurs firm the costs the speaking, loosely indicates, curve This costs. labeled PMC curve second a displays also 32 Figure Source: Author'selaboration basedonCommon andStagl(2004: 327). as this is the only point where point only the is this as the quantity produce will firm the Thus, curve). demand the efficient and thus not optimal from society’sfrom ofview.point optimal the case? this Why is not thus and efficient Pareto- not is allocation this that is problem The Figure 32 , which stands for the firm’s private marginal Price P P SO M Q M , the selling price each at unit Greenhouse gas emissions: PMB s (representeds by PMC equals Anegative problem production externality Q PMB SO P M - - . , = as the external marginal cost and is given by marginal cost and private marginal cost is known al costs (PMC ( good the producing of costs Therefore,marginal social account.the into taken be to have that good the productionof the with costs associated additional are society,these the of view of point involving greenhouse gases. decisions production of case the of illustration this, Figurefor 32 clarify graphicalat a look us let optimal.Tosocially is what than more emit they tional costs they impose on others. Consequently, benefits equal social marginal benefits (SMB). marginal private consumption- thus and externalities, no related are there that here assume produced.charge per unit For simplicity, we shall sponds, loosely speaking, to the price the firm can fits (PMB). A firm’sprivate marginal benefitcorre - representsalsofirm’s the private bene- marginal buy.to want curve people demand the that Note good the of more the price, the lower the usual, As good. the for demand consumers’represents curve demand The good. the of price the axis y The x axis displays the quantity produced and the emits that process.production its during gases greenhouse firm specific a of view of point the Figure 32 displays a market for a given good from of climate change) are, however, not borne by by the firm, the society. the of by rest but borne not however, are, change) climate of (i.e.costs greenhousegases the emitting with ed contributes to climate thus change. The costs and associat process production the during gases greenhouse earlier, emits mentioned firm As the SMC SMC s) arethe than firm’shigher private margin- - PMC Q M SMC . In our example, the external margin- s). The difference the between social Demand (=PMB=SMB) 51 PMC Quantity 53 From the EMC 52 -

The economics of climate change 3 al costs correspond to the climate change-related ample can be generalized and extended to also costs occurring as a result of greenhouse gases include negative consumption externalities, such module emitted during the production of the good. The as the pollution created by using cars. Pareto-efficient point of production would thus not be the production level the firm chooses, In conclusion, as GHG emissions are negative ex- but the pair QSO and PSO, where social marginal ternalities and the atmosphere can be used as benefits equal social marginal costs. We thus see an open-access resource to dump them, markets in Figure 32 that the firm produces too much of fail to achieve Pareto-optimal situations. Instead the good (QM instead of QSO) and sells the good of optimally allocating resources, market econo- at a price that is too low (PM instead of PSO) be- mies dump unprecedented quantities of GHG cause it ignores the climate change-related costs emissions into the planet’s atmosphere, and are it imposes on others. The existence of the nega- thereby changing the climate of the earth. This tive production externality therefore leads to a massive market failure represents a danger for market failure due to which the firm emits too present and future generations and as such has much greenhouse gases into the atmosphere been identified by Stern (2007) as the biggest compared to a Pareto-efficient situation. This ex- market failure in the history of humankind.

Short summary Sections 2 and 3 showed that while markets theoretically achieve Pareto-efficient outcomes, they fail to do so if some conditions are not satisfied. The occurrence of climate change is an example of such a failure, identified by some influential authors as the biggest market failure in human history. As shown in Section 3, this failure has two causes. First, the atmosphere’s function as a GHG repository is an open-access resource and is therefore overused by economic actors because, unlike pure private goods, open-access resources cannot be efficiently dealt with by market economies. Second, greenhouse gas emissions are negative externalities. Economic actors do not directly bear the climate change-related costs associated with the emissions that they can dump free of charge into the atmosphere; consequently, they emit too much greenhouse gases. Together, these two reasons explain why markets fail and, hence, why climate change occurs.

4 Why is it so hard to solve the climate tion 4 will show how economic theory explains change problem? the fact that the international community has been struggling for decades to solve the climate As shown in Section 3, climate change occurs change problem despite the fact that the appar- because markets fail and do not achieve Pareto- ently simple solution has long been known. As optimal allocations. As we have seen, rational we will see, much of the problem is related to the economic agents, pursuing their own self-inter- fact that solving global environmental problems est in an uncoordinated way, overexploit the at- like climate change requires cooperation among mosphere’s GHG repository function and ignore countries, which is not necessarily easy to achieve. the costs they impose on others. Consequently, they emit too much greenhouse gases into the 4.1 Mitigating climate change: A global atmosphere and cause climate change. There- public good fore, to solve the problem one cannot simply rely on a market system, as it is precisely this system Mitigating climate changes requires reducing that fails and which is at the root of the problem. anthropogenic GHG emissions (IPCC, 2014b). Economists conceptualize climate change miti- Climate change can only be fixed by a policy in- gation as a good that can be supplied and con- tervention that corrects the market failure. A pri- sumed. To supply the good, efforts have to be ori, the solution is simple: if humans emitted less taken to reduce GHG emissions. Consumption greenhouse gas into the atmosphere, they could of the good is passive: everybody can reap the stop or at least considerably slow climate change. benefits of climate change mitigation by living If each country’s politicians decided to cut GHG in a world that is not affected by the potentially emissions, climate change could be mitigated or catastrophic effects of a changing climate (IPCC, even avoided altogether. Thus, where is the prob- 2014a). However, climate change mitigation is not lem? Why is humankind still struggling to imple- a “normal” good, i.e. it is not a pure private good ment this solution on a global scale? Since Man- like most of the commodities we consume in our cur Olson’s now-famous work in 1965, The Logic of daily lives.54 From an economist’s point of view, 54 See Section 3.1 for a defini- Collective Action, economists have been working climate change mitigation is a so-called global tion of pure private goods. on a theory to explain this puzzling situation. Sec- public good (Ferroni et al., 2002; IPCC, 2001; Per-

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module 55 56 The economics of climate change 28 of Varian (2010). drawsthis section onChapter in theory notions ofgame on game theory.on game provides additional readings change mitigation. Annex1 for the analysis ofclimate concepts andnotionsneeded only coversthe essential Note that this short review this short that Note presentationThe ofbasic 72 privategoods. Policymakers thereforein- to need deal type they of cannot with good non- because this supply efficiently cannot markets 3, Section in shown As challenge. a is mitigation change climate as such goods public global Supplying Perman al., et 2011; Sandler, 2004). gation a gation “globalgood”public (Ferroni miti- change climate labelled has literature the globe, the on countries all by consumed be can GHGreduction a country’s of benefits the that Moreover,goods. public pure given be to con - sidered are reductions GHG non-excludable, and non-rival both are benefits the benefits. As these enjoying nations other of possibility the affect not does reductions GHG of benefits the suming other con- Thus,reduction. this from benefits obtain countries the slightest the in reduce not does emissions GHG its reducing from obtains a country benefit The non-rival. also are gation miti- change climate of benefits the Moreover, thereforearemitigation non-excludable.change climate of benefits itself. The to only reductions GHG its of benefits the limit to impossible is it emissions, its cuts that country the For duction. re- a such from gain countries all scenario. Thus climate change compared to a business-as-usual slows thereby and atmosphere the in centration con- GHG global the lowers directly emissions country’sGHG a Cutting worldwide. humans all to available instantly are benefits emissions,the GHG its reduce to decides country a If good. lic pub- a be to considered thus is and properties Climate change mitigation has exactly these two unit. in qualitythat orquantity of degradation any without individuals of number any by consumed be can good public a of unit a magic, like that, stating magic, to goods public global of property this compares (2004) Sandler unit.same the groupindividualor er consuming anoth- of possibility affectingthe groupwithout consumedbe individualcan an good by the or of unit particular a that rybody.means Non-rivalry plied, their benefits are instantly available to eve- good,the consuming arei.e.sup- goods the once fromexcluded be can nobody that means ability non-exclud- explained, we As benefits. non-rival and non-excludable having those as them fined de- and goods public introducedpure 3.1 Section several areto overcome. hard problemsthat and involves is difficult quantities sufficient in goods public global follow,supplying that tions sec- the in see will we problem.As change mate cli- the solve to community international the of the at of heart economists’ explanation for the inability is mitigation change climate of nature man , 2011; Sandler, 2004). The public-good The Sandler,2004). 2011; al., et et al., et 2002; game 4.2 Basic to mitigateclimatechange. trying tries ed the with strategic interactions between coun- associat problems the analysing systematically for allows that theory,tool theoreticalgame a of introduces Section 4.2 basic theoretical elements ing itsemissions. reduc- be actually will country no day the of end the at that possible quite is it reasoning, same calls “free-riding.”the makecountrycan every As literature the that behaviour a is result. This the from benefits, benefit the receiving from cluded ex be cannot they then,as and good the supply to countries other for wait just might countries emissions,GHG reducing by good the supplying plication for the supply of such a good: instead of climate change mitigation has a devastating im- of non-excludability show,the will (Sandler,we As 2004). change cannot country single a that outcome inefficient an in result countries vidual indi- by decisions rational when occur that ures fail- action collective in result often problems of problem” action lective (Sandler, 2004). type This a called is “col what goods - public (global) plying thereof lack – of other countries. This makes sup- that country’s actions, but also on the actions – or on depend only not do country one for benefits and costs the that fact the from come goods lic pub- global supplying with associated problems the of see,many will we change.As climate mitigate to order in collaborate to need therefore Countries 2001). (IPCC, change climate mitigate and atmosphere world’s the change of composition the itself by can country single no as lem, prob - the solve single-handedly can country No goods. public global supply to struggle nations also But failure. market this correct and tervene strategic interactions amongcountries. analysing for allow that concepts and notions theory game basic introduce will we mitigation, the analysis of climate change fore with we start mitigation.problemschange climate as such Be- action collective in involved issues the analyse to useful particularly is it behaviour, economic and negotiations political study to used Widely 2010). among (Varian, countries interaction or groups, strategic individuals, of form any ing study for allows that apparatus theoretical a is important concepts like free-riding. Game theory differentgrasp and stake at problem the of ture na- the understand to readers enable will tools these Using tools. theory game basic introduce lic good of climate change mitigation, we have to globalthe pub- whysupply to countries struggle words, other in or emissions, GHG their reduce In orderto understand why countries to struggle notionsandconceptstheory 56 55 - - - The economics of climate change 3 Strategic interactions involve at least two indi- Suppose you have two players (player A and player viduals or groups called “players.” A priori, any B) playing a game. Each player has a sheet of paper module strategic interaction can involve many players and has to write one out of two words on his or and each player can have a large set of different her sheet. Player A can either write “Top” or “Bot- strategies. An example of a strategic interac- tom.” Simultaneously, player B can choose to write tion would be climate change mitigation nego- “Left” or “Right.” Player A does not see what player tiations among different countries (the players), B is writing and vice versa. Each player will obtain a with each country pursuing its own strategy. A payoff that depends not only on his or her actions, country’s strategy could be, for instance, to re- but also on the actions of the other player. And each duce GHG emissions or to not reduce GHG emis- player has been informed about the potential pay- sions. A formal representation of such strategic offs he or she could get before playing the game. In interactions is called a “game.” Games are the the game theory terminology, the players’ options game theorist’s tool to formally capture situa- to play the game are called “strategies.” Thus in tions in which individuals or groups interact in this game, each player has two strategies: player a context where their welfare not only depends A’s strategies are “Top” and “Bottom,” and player B’s on their own actions, but also on the actions of strategies are “Left” and “Right”.57 After both play- 57 Actually, this is not com- others (Mas-Colell et al., 1995). To introduce the ers have written down their word, the sheets of pletely accurate. Formally, basic game theory notions and concepts we limit paper are examined and the players receive their strategies are defined to be a “complete contingent ourselves for now to strategic interactions with payoffs. These payoffs are listed in a payoff matrix. plan, or decision rule, that only two players. This kind of game can be repre- The payoff matrix of this simple game is displayed specifies how the player sented in what is called a “payoff matrix.” To illus- in Figure 33. It shows the payoffs to each player for will act in every possible trate how to represent a game in a payoff matrix, each combination of strategies, and it is known to distinguishable circumstance we use an example by Varian (2011: 522). each player before they start to play the game. in which she might be called upon to move” (Mas-Colell et al., 1995: 228). However, as Figure 33 the game we are currently Payoff matrix of a two-player game with a dominant strategy equilibrium looking at consists of only one move (writing down the word) and the players Player B have to write down the word simultaneously, and because we exclude the possibility of Left Right mixed strategies, the choices “Top” and “Bottom” are the two strategies of player A, Top 2,3 1,2 while the choices “Left” or “Right” are the two strategies Player A of player B. Bottom 4,2 2,1

Source: Author's elaboration based on Varian (2010: 523).

As an example, if player A plays the strategy “Top” ing payoffs of playing “Top” (2 and 1). Player B has and player B plays the strategy “Right,” we ex- a strong incentive to always play “Left,” as the amine the upper right field of the payoff matrix payoffs from playing “Left” (3 and 2) are always that contains the payoffs for this combination of higher than the corresponding payoffs of playing strategies. If the players play in this way, player “Right” (2 and 1). Thus, we expect that in equilibri- A will receive a payoff of 1 (the first entry in the um we end up in the lower left box of the matrix, upper right box), while player B will receive a pay- as player A will always play “Bottom” and player B off of 2 (the second entry in the upper right box). will always play “Left.” Similarly, if player A plays “Bottom” and player B plays “Left,” we see in the lower left box of the We have been able to quickly find the solution matrix that player A will receive a payoff of 4 to this game because each player has what is 58 Note that this kind of while player B receives a payoff of 2. called a “dominant strategy,” which is a player’s strategy is called “strictly best strategy regardless of what the other player dominant” as opposed to 58 “weakly dominant,” but for Having understood how one reads a payoff ma- plays (Mas-Colell et al., 1995). Here, player A’s the sake of simplicity we will trix, we can now ask ourselves what happens if “Bottom” strategy dominates his or her “Top” not discuss this difference these two players actually play this game. Player strategy, as the player will get a higher payoff as it is not needed to A has a strong incentive to always play “Bottom,” playing “Bottom” no matter what player B choos- understand our main point. because the payoffs from playing “Bottom” (4 and es. On the other hand, player B’s dominant strat- For more information see the additional readings listed in 2) are always higher compared to the correspond- egy is playing “Left” because no matter what Annex 1.

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module 61 60 59 The economics of climate change equilibrium in this game in equilibrium ”Right” isasecond Nash reasoning, similar “Bottom”/ change mitigation. to analyse climate them need material aswe donot teaching strategiesthis in discuss mixed further not will topic).this on discussion We in Mas-Colell al., et 1995, for a very popular(seeChapter8 games, the concept making for a fairly broad range of exist Nashequilibria that into account, onecanshow takesone mixed strategies assigned (Varian, 2010). If the probabilitiesaccording to the choices choices andplay their probabilitiesto each of strategiesthey assign When players play mixed or “randomized strategies.” speak of “mixed strategies” they doso, theorists game randomizetheir choices. If probability, players canalso option with100percent this an optionandplaying for all. Insteadofchoosing choosing anoptiononceand sofar at of andwhichconsist the oneswehaveare looked strategies.” Pure strategies considers onlyso-called “pure ifone a Nashequilibrium have not some gamesmight Another problemthat is the gameinFigure 34. by equilibrium, asillustrated than one Nash has more agame that ispossible it that movie “A BeautifulMind.” Howard’s 2001biographical Nash was popularized inRon One of the problems Oneof is workof theory game The Asyou canverify, using 74

Source: Author'selaboration basedon Varian (2010:524). is revealed, neither individual wants to change his person’s choice other the when that, such choice person’seach about expectations of as pair “aed be.will thus A be Nash can interpretequilibrium choice player’s other the what about idea some they make their move, but each player might have before play will player other the what knows ers equilibrium. er B can choose is “Left.” Thus, “Top”/”Left” is a Nash time, if player A plays “Top,” the best strategy play gy player A can choose is to play “Top.” At the same equilibrium: if player B plays Nash “Left,” a the best strate- such be “Top”/”Left” would 34, Figure In strategy equilibrium. dominant a is equilibrium Nash each not but equilibrium,Nash a also is strategy equilibrium dominant each equilibria: strategy dominant than concepts solution weaker are equilibria Nash sense, that player.In other the by played er can choose, given the strategy that is actually strategy choice is the best strategy that the play other words, in a Nash equilibrium, each player’s In 2010).(Varian, player other optimal the of given strategies optimal be strategy player’s a player,other that requiresthe only concept this of choices possible all for optimal be strategy often. Let us look at a game with the same rules rules same the with game a at look us often. Let happen not do but find, to simple are equilibria strategy dominant out, points (2010) Varian As equilibrium.” strategy “dominant a called therefore is rium - equilib resulting “Right.”plays The she or he if payoffhigher a get will she or plays,he A player laureate. Prize Nobel John and economist American by an Nash, 1951 in introduced was equilibrium, Nash the concepts,called these of One actions. inter strategic analysing for allow that cepts con- alternative developed therefore theorists frequently have do not dominant strategies. Game players interactions, strategic real-life In Figure 34 59 59 nta o rqiig ht player’s a that requiring of Instead 60 Of course, neither of the two play two the course,of Of neither Player A Payoff ofa matrix Bottom Top two-player game with - - - - - global publicgoodofclimatechangemitigation. the supply to trying countries among teraction we use game theory tools to model a strategic in- change. climate Toso mitigate do to community international the of failure decade-long the of analysis the towardsattention our turn Wenow perspective change mitigation: 4.3 Climate climate change sofar. mitigate to community the international of failure the for reasons the highlighting and wrong goes interaction, what tegic showing strathis - introducedabove,analyse tools will we theory game the change.Using climate mitigate dinated effort bydifferent countriesto isneeded coor countries,a among interactionas strategic a involves mitigation change Climate problem. change climate global the solve and emissions to analyse why countries to struggle reduce GHG theory,of game tools wenowhave the necessary concepts and notions basic the covered Having to analyse strategic interactions. has severalproblems,has equilibrium Nash the of concept the While lose. only could player opportunity,the the as had she or he if strategy her or his change unilaterally to From this Nash equilibrium no player would want “Top”/”Left.” equilibrium Nash the in ends game the and “Left”choose will B “Top,”choose player to A player expects B player if “Top,”choose and will A player “Left,”choose to B player expects A behavior” (Varian, 2010: 525). For instance, if player fore also strategy nodominant equilibrium. (or for player A, as you can easily verify) and there- B player for strategy dominant no is there Thus choose “Right.”to wants B player “Bottom,”then chooses A player if “Left,”choose but to wants B player “Top,”chooses then A player If strategies. ure 34. As one can see, this game has no dominant Fig- in displayed different structure payoffa but Left 0,0 4,2 two Nashequilibria Player B 61 it is a very useful concept concept useful very a is it Right 0,0 2,4 Agame theory - The economics of climate change 3 4.3.1 Climate change mitigation in a world of the atmosphere alone and mitigate climate composed of two countries change single-handedly (IPCC, 2001). The benefits module of a single country reducing GHG emissions will We start our investigation of this strategic in- therefore be relatively small compared to the teraction by making a simplifying assumption. costs the country incurs in doing so. Hence, the We suppose that the world is composed of two cost of financing the GHG reduction for a single identical countries that try to mitigate climate country (12) has been chosen to be bigger than change: country A and country B. Each individual the benefit (10) the country obtains from single- country can play two strategies: it can choose to handedly reducing its emissions. either reduce its GHG emissions by 20 per cent, or not to reduce its GHG emissions at all. As mentioned in Section 4.1, climate change mitigation is a global public good, meaning that If the country chooses not to reduce its emis- the benefits of abating are non-rival and non- 62 In game theory, this sions, it does not bear any costs but also does excludable. This implies that if country A chooses game structure is called a not receive any benefit. If the country chooses to to abate – paying the cost of 12 and receiving the “prisoner’s dilemma” and is probably the best-known reduce its emissions, it has to pay a cost of 12 in benefit of 10 – country B also receives a benefit application of game theory. order to finance the GHG reduction. At the same of 10 without doing anything whatsoever. This is This game was introduced time, the emission reduction yields a benefit of a crucial point one has to understand. Country B by Merrill Flood and Melvin 10 for the country, as it reduces the negative ef- receives a benefit from the emission reductions Dresher in 1952. Albert Tucker fects of climate change. While these cost and made by country A, because country A’s emission used a fictive interaction between two prisoners as an benefit numbers have been chosen arbitrar- reductions lower global concentrations of atmos- illustrating anecdote, which ily, they reflect an important property of climate pheric emissions. Country A’s efforts thereby slow gave the game its name change mitigation. As the climate is the product climate change, which positively affects country (Poundstone, 1992). Varian of the behaviour of all nations on the planet, A and country B. This leads to the payoff matrix (2010: 527) outlines Tucker’s no single country can change the composition displayed in Figure 35.62 original story as follows: “[T]wo prisoners who were partners in a crime were Figure 35 being questioned in separate Reducing greenhouse gas emissions in a world composed of two countries rooms. Each prisoner had a choice of confessing to the crime, and thereby implica- Country B ting the other, or denying that he had participated in the crime. If only one prisoner Not reduce Reduce confessed, then he would go free, and the authorities would throw the book at Not reduce 0,0 10,-2 the other prisoner, requiring him to spend 6 months in Country A prison. If both prisoners Reduce -2,10 8,8 denied being involved, then both would be held for 1 month on a technicality, and Source: Author. if both prisoners confessed they would both be held for As can be seen in Figure 35, if both countries de- Clearly, from the point of view of the whole plan- 3 months.” This game has a cide not to reduce their emissions, nothing will et, the best outcome of the game would be that similar payoff matrix as in happen: country A and country B both obtain a both countries reduce their emissions and there- Figure 35, leading both ratio- payoff of 0 as there are neither mitigation costs by contribute to mitigating climate change. This nal prisoners to confess, while they would have been better nor mitigation benefits associated with inaction. would yield an overall benefit of 16 (8+8), which is off denying the crime. If country A decides to reduce its emissions while the highest possible payoff for the whole planet country B decides not to reduce, country A ob- in the game.63 Thus, “Reduce”/”Reduce” is a so- 63 The other options yield tains a payoff of -2 (the benefits it produces (10) called “social optimum.” But in this game, the so- planetary payoffs of 0 minus its costs of doing so (12)) while country B cial optimum is not the likely outcome. Or stated (0+0), 8 (-2+10), and 8 (10-2), respectively. receives a payoff of 10. Similarly, if country B de- differently, “Reduce”/”Reduce” is not a Nash equi- cides to reduce while country A decides not to re- librium because the best choice country A could duce, country B receives a payoff of -2 and country make given that country B reduces its emissions A receives a payoff of 10. Finally, if both countries is not to reduce its emissions. In that case, coun- decide to reduce, each country obtains a payoff try A would receive a payoff of 10, which is greater of 8 (country A receives the benefit produced by than the payoff of 8 the country would obtain itself (10) plus the benefit produced by country by also reducing its emissions. The exact same B (10) and pays its reduction costs (12); the same reasoning applies for country B. This free-riding goes for country B). behaviour is the main problem associated with

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module 64 The economics of climate change et al.(2011).et (2004)andPermanin Sandler country prisoner’s dilemma the presentation the n of draws section This on 76 nta o cnrbtn t mtgtn climate mitigating to contributing of Instead position”18).(Sandler, inferior2004: an in left is ality may make choices from the which collective ration- of tenets the by abide who countries] [or rationality.collectivefor cient is, That individuals action failures: collective “individual rationality is not suffi- all underlying problem the lustrates - il perfectly it simple, very is game the Although thereby mitigateclimatechange.emissions and their reduce to decided simultaneously countries the whole planet would clearly be better off if both sions, as both prefer to free-ride. At the same time, thus predicts that no country will reduce its emis- would obtain a payoff of -2 instead of 0. The game it equilibrium, Nash the in choice its alter erally opportunity.the givenunilat to countrywere a If if unilaterally choice its alter to incentive an has B country nor A country neither equilibrium, this At game. the of equilibrium Nash the also time same the at and equilibrium strategy dominant emissions. Hence “Not reduce”/”Not reduce” is the its reduce not does it if payoff higher a obtains B country A, country of choices both for B: country for true holds same B. The country of choice the matter reducing,no not by off better be will A try emissions:coun- its reduce to not is game this in A’scountry strategy that dominant see easily can One game? the of outcome likely the is what So byitself. doinganything tions without ac- these from benefits and action take country if the country free-rides, that is, if it lets the other could hope countryfor in the whole game (10) is obtained a payoff best the Actually, mitigation. the provision of public goods like climate change Source: Author'selaboration basedonFigure (2004)and 2.2inSandler Table 9.1inPerman al.(2011). et payoff is 0.the Nash equilibrium in planetary aggregated the action, take to centive duces its emissions. Given that nobody has an in- re- nobody that is game the of equilibrium Nash the same holds for all other countries, the unique contribute.countriesAs other many how matter exceed the payoffs in the bottom row by row bottom the payoffsin the exceed row upper the in payoffs the because free-ride country emissions, their reducecountries n-1 if see,even can one As per cent emissions by20 reduce GHG not Country idoes 20 percent emissions by reduce GHG Country idoes Table 5 s oiat taey s to is strategy dominant i’s greenhouseReducing gas emissionsinaworld ofncountries b 0 0 i -c i Number of greenhouse-gas-reducing countries other than country i country than other countries greenhouse-gas-reducing of Number 2b b c 1 i -c i i -b i i ,no - emissions, leading to a maximized planetary planetary of n maximized payoff a to leading emissions, their limit countries all when occurs game the of outcome optimal socially The outcome. timal op- socially a not clearly is equilibrium Nash The b duces its emissions, country payoffs rider for country i other i i try payoffs of this game from the perspective of coun - each of the other the of each contributes, country ireceives 2b c reducing its GHG emissions by 20 per cent equals countrygiven fora that further pose emissions.GHG reduce Sup- to not or cent per 20 tween two strategies: to reduce GHG emissions by n of total a of consists planet Tothe so,do suppose incorporate any numberofcountries. to problem action collective the generalize and the in world, we relaxthis restrictive assumption countries two than more considerably are there that Given countries. two of composed world a So far we have analysed a strategic interaction in the free-rider payoffs are higher for all countries all for higher payoffsare free-rider the composed ofncountries 4.3.2 Climate change mitigation inaworld change bemitigated.thus not will climate free-ride; to incentives strong have countries emissions, reducing by change try try contributes,coun- country other no if emissions: country for payoffs the )b (n-1 obtain will it because free-ride to incentive an has always i other allEven if solution.stable a not is optimum social this that country able benefit of benefit able the country produces a non-rival and non-exclud- while the columns indicate the actions of the the of actions the indicate columns the while i i . By reducing its greenhouse gases by 20 per cent, identical countries. Each country can choose be- , if two other countries reduce their emissions, their reduce countries other two if , i . The rows show the two strategies of country strategiesof two .the rowsshow The obtains a payoff of payoff a obtains 3b 2b countries. free-n-1 the rowdisplays top The 2 i -c i i i obtains 2 b i -nc b i countriescontribute, n-1 country

i i (whereas . Again, we want to emphasize to want we Again, . , which is greater than greater is ,which 2b nations. the Tablen-1 displays 5 i , etc. The bottom row shows row bottom etc., The (…) (…) (…) i b when it does reduce its its reduce does it when :countryother one reif - i -c c i i , if one other country other one if , >b i receives of a benefit i 64 ), benefiting it and ), and it benefiting i -c

i , etc. i , the cost of of ,cost the (n-1)b nb n-1 nb i -c i i i -c i .As The economics of climate change 3 no matter how many other countries contribute, tion efforts. Mitigation costs and opportunities the world ends up in the unique Nash equilib- also differ between countries. Finally, there is the module rium with nobody reducing its emissions.65 issue of international and intergenerational jus- 65 To illustrate these results tice affecting negotiations about the financing with numbers, assume that Hence, the modified game structure does not of climate change mitigation (see the discussion the costs and benefits are the same as in the two-country result in a different prediction. Even in a world on the principle of common but differentiated example (ci = 12 and bi = 10) composed of many countries, rational countries responsibilities in Module 4). All these factors and assume further that the would still free-ride and not contribute to miti- further complicate the collective action problem world is composed of the gating climate change. While the game theory and influence the likely outcome (or prognoses) 194 United Nations member approach reveals the essential nature of the of strategic interactions.66 countries (n = 194). Then, the planetary payoff in the problem (free-riding), things are even more com- social optimum would equal plicated in reality. Countries are not identical as In addition to factors related to the global public 1942*10-194*12=374,032, we assumed in the games above: they vary in good nature of climate change mitigation and with each individual terms of size, wealth and technology. Costs and their game theory implications, there are other country obtaining a payoff benefits of mitigation also differ widely among factors that can influence the outcome of collec- of 194*10-12=1,928. But the socially optimal outcome is countries and are only imperfectly known (Com- tive action. Box 14 illustrates this issue by show- not an equilibrium, because mon and Stagl, 2004; Perman et al., 2011; Sandler, ing the vastly different outcomes of two, at first nation i (and thus also all 2004; Stern, 2007). Countries are not equally af- sight similar, collective action problems – mitiga- other nations) would have fected by the consequences of climate change, tion of ozone-shield depletion and mitigation of an incentive to free-ride (the thus they would not equally benefit from mitiga- climate change. country’s payoff would be greater if it free-rides and all the other n-1 countries contri- Box 14 bute: (194-1)*10=1,930>1,928). Different collective action outcomes for identical collective action problems Thus the world ends up in Sandler (2004) highlights that seemingly identical collective action problems like the provision of a global the unique Nash equilibrium public good can have vastly different collective action outcomes. To illustrate his point, he compares the col- with a planetary payoff of 0, which is clearly less than the lective action outcome of two pollution problems. One the one hand, the international community has been social optimum. rather efficient in mitigating stratospheric ozone shield depletion caused by chlorofluorocarbons (CFCs) and bromide-based substances. On the other hand, it is still struggling with mitigating climate change caused by 66 More complicated game the accumulation of greenhouse gases in the atmosphere. Mitigating CFCs and mitigating greenhouse gases structures can incorporate some of these additional are both global public goods. Moreover, both problems are pollution problems and their solution requires factors. See Annex 1 for international cooperation to reduce emissions. In the CFC case, humankind succeeded, while efforts to reduce additional reading material GHG emissions have not been successful to date. Sandler explains this difference in the outcomes of collec- on this issue. tive action by the differences listed in Table 6. All these factors make finding a collective action solution more difficult in the case of climate change as compared to ozone-shield depletion.

Table 6 Factors affecting outcomes of collective actions Ozone-shield depletion Climate change

Emissions concentrated in relatively few countries Emissions are added by virtually every country

Every country loses from a thinning ozone layer There are winners and losers from global warming There are substantial commercial gains from CFC substi- Uncertainty about substantial commercial gains from GHG tutes substitutes Uncertainty in terms of process and consequences has Uncertainty remains in terms of process and consequences been resolved Dominant strategy for some key polluters is to curb emis- Dominant strategy for most key polluters is not to curb

sions, since bi-ci>0 pollutants, since bi-ci<0 Leadership by key polluters Lack of leadership by key polluters

Intertemporal reversibility within 50 years No intertemporal reversibility within 50 years Decision makers were more informed about benefits than Decision makers were more informed about costs than costs benefits Relatively few economic activities add to ozone-shield Many economic activities add to global warming depletion

Source: Table 10.4 in Sandler (2004), updated by the author.

Consequently, as Sandler (2004: 213) states, “the contrast between global collective action and inaction hinges on factors that go beyond the non-rivalry and non-excludability of these global public good’s benefits…. Knowl- edge of just the properties of a public good is not always sufficient to provide a prognosis for collective action.”

Source: Author's elaboration based on Sandler (2004)

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module good problem (Sandler, 2004). system isitselfapure public 68 67 The economics of climate change et al.et (2011) for anoverview. Putting in place a penalty Puttinginplaceapenalty SeeChapter9.3inPerman 78 acting acting ,(0-p whereas ties.theory,In than any penalty larger containpenaloff,- to need would agreement the pay its maximize to free-ride subsequently and treaty a such to on sign strongto incentivea has reduce their emissions. However, as each country all they that agree to have would countries The 2012). Lewis, and Tietenberg 2004;Sandler, 2011; Perman 2004; Stagl, and (Common tries a binding international agreement between coun- through reached be could outcome an Such mal situation. opti- socially a to automatically positive leading payoff, the of because single-handedly sions emis- reduce to incentiveshave would countries incentive-compatible:individual be would mum opti- social the positive, were alone acting from payoffsdifferently, the Stated optimum.if social the to corresponds equilibrium Nash the where situation a to lead would emissions. This reduce country would have an incentive to act alone and each positive, were they If matter. alone acting outcome might be changed. Clearly, payoffs from game this how insightson providesalso certain theory outcome, this explaining to addition In failure.collective action massive a in results emissions. This their reduce not and free-ride to incentives strong have thus countries behaving Rationally emissions. their than the payoff they would obtain from reducing payoff countries obtain from free-riding is higher the change, climate mitigating of nature good public between global the to due that, interaction showed countries strategic the modelling games two question. The this to answer oretical time. Sections 4.1, and provided4.3.1 4.3.2 the the- long a for known been has solution simple ently climate change problem, even though the appar the solve to fordecades struggling been has nity commu - international the that fact the explains Section 4 by started asking how economic theory models theory game 4.3.3 Climate change mitigation: Lessons from alty system is not straightforward, history not the is as system alty pen- a such optimum.However,place in putting Nash equilibrium would correspond to the social alone (b job.the do penalty,this With payoff the acting of i -c i ) would be larger than the payoff of not p>c i -b i is the penalty) and the c i -b i would t al., et - - ehnss o noc cooperation. enforce to mechanisms alternative of number a suggests theory game Besides self-enforcing international agreements, countries (Finus,participating 2003). importantly,enforcedbe treatythe can the by (c) treaty,the of and, design most the on consensus countries,all participating reachthe parties a (b) for benefits net positive yield treaty the (a) that requires cooperation effective that show ments agree - environmental international of Reviews 1994). (Barret, needed most is cooperation the when and high are stakes the when achieve to hardest seems cooperation effective illustrates, mitigation change climate as Moreover, large. is countries affected of number the when little achieve anyway,and take to intended countries actions codify largely to efficiency: seem treaties their regarding views pessimistic rather offers consequently agreements environmental tional Perman a self-enforcingway. in literaturetheoretical(see The designed be thus should and countries of actions voluntary on rely therefore agreements environmental International level. global the on exists enforcer such no states,sovereign of sists contoday’s- al. ,world 2011).As et (Perman pay to countries force to power the with party third a could only be forced to pay penalties if there were enforcement of such a penalty system. Countries oue 4). Module (see shown has negotiations change climate of ule 4, the Paris Agreement has been partially partially these mechanisms. on built been has Agreement Paris the 4, ule different options emerge. As will be seen in Mod- of variety a communicate, countries if and zon, - hori time undefined an over repeatedly played is game same the If once. only played games” “one-shot are above introduced we games two The are repeated. are games cooperation when pessimistic for less prospects the that cates indi- Moreover, theory game. the of nature the change thus and countries for payoffs the alter might issues, policy change climate and ment tions,those achieved such as by linking develop- reduc- emission of co-benefits the Furthermore, countries. cooperating of number the increase are could countries payments side other Transfersdoing.and other what of regardless emissions reduce to commitments credible make to able are countries if fostered be can eration et al.,et 2011, for review) a on short interna- 67 At least equally difficult would be would difficult equally least At 68 Coop- The economics of climate change

Short summary 3 How does economic theory explain why the international community has been struggling for decades to solve the climate change problem, even though the apparently simple solution has been known for a long module time? To answer this question, Section 4 showed that climate change mitigation is a global public good with non-rival and non-excludable benefits. As no country is able to change the composition of the atmosphere single-handedly, international cooperation is needed. The section introduced game theory concepts that were subsequently used to analyse the strategic interaction between countries. Two games illustrated the main cause of the collective action failure: that countries have strong incentives to free-ride and not contribute to emission reductions because the benefits of mitigating climate change are non-rival and non-excludable. This leads to an outcome that is not socially optimal. The section concluded by drawing several lessons from game theory models that would allow for fostering cooperation between countries.

5 Exercises and questions for discussion

1 Define Pareto efficiency and discuss the advantages and disadvantages of the concept.

2 Describe the first welfare theorem. Why is this theorem a fundamental result in economics? What assumptions underlying the first welfare theorem are violated in the case of climate change?

3 What criteria are used to classify goods as private and public goods? List two examples of a private and a public good and discuss why these goods are considered private/public by using the criteria you defined above.

4 What are open-access goods? Why is the atmosphere considered to be an open-access good? What happens if markets deal with open-access goods such as the atmosphere?

5 Define externalities and provide an example of a positive and a negative externality. How could governments solve a negative externality problem? Illustrate your reasoning using the example of GHG emissions.

6 Consider a coal plant that releases CO2 emissions into the atmosphere while producing units of energy. Suppose that the private marginal cost of the plant is given by PMC = 50+0.25*Q, where PMC is the private marginal cost in US dollars per unit produced and Q is units of energy produced. Because the firm releases

CO2 emissions into the atmosphere, it imposes an external cost on society that equals US$2 per unit of energy produced. Suppose further that the private marginal benefit (PMC) – which equals the social marginal benefit (SMC) – per unit of energy produced is given by PMB = SMB = 100-0.25*Q.

(a) Derive the social marginal cost (SMC) function in US dollars per unit produced. (b) Draw a diagram illustrating the private marginal cost function, the social marginal cost function, and the private marginal benefit function. (c) Find the profit-maximizing energy output of the coal plant and the corresponding price per unit of energy produced. (d) Find the socially optimal energy output and the corresponding price. (e) Compare the private equilibrium with the socially optimal outcome and discuss underlying externality issues.

7 Suppose player A and player B play a game with the following payoff matrix:

Player B

Left Right

Top 1,1 -1,-1 Player A Bottom -1,-1 1,1

(a) Define dominant strategies. Does player A have a dominant strategy? Does player B have a dominant strategy? (b) How many pure-strategy Nash equilibria can you find in the game? (c) Can you find a real-world example that could be described by such a payoff matrix?

8 How does economic theory explain why the international community has been struggling for decades to solve the climate change problem? To analyse this question, suppose that the world is composed of two countries and discuss the payoff matrix of the mitigation game. What is the likely outcome of this game? Explain the lessons that can be learned from this simple game.

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module The The economics of climate change 80 ANNEX 1 Environmental economics theory Game and externalities Public goods model the competitive of market Microeconomic foundations Topic Press. Cambridge, MA. Common MandStaglS(2004). Ecological Economics –AnIntroduction. Cambridge University Kolstad (2000). CD Environmental Economics . Oxford University Press. New York. Education Limited. Essex, UK. Perman al. et (2011). Natural Resource andEnvironmental Economics. Fourth Edition. Pearson Pearson International Edition. Addison Wesley. Boston. Tietenberg T, andLewis L(2012). Environmental andNatural Resource Economics, Ninth Edition. of America. Washington, DC. Straffin P(2004). Game andStrategyTheory , Fifth Edition. MathematicalThe Association in Economics. Prentice Hall. River, UpperSaddle NJ. Chapter 13ofPindyck R, andRubinfeld D(2012). Microeconomics, Eighth Edition. Pearson Series Ninth Edition. W.W. &Company. Norton New York. Chapter 28of Varian (2010). HR Intermediate Microeconomics: Approach AModern , New York. ofMas-Colell al. et (1995).Chapters 7–9 Microeconomic .Theory Oxford University Press. Edition. Pearson Education Limited. Essex, UK. Chapter 4ofPerman al. Ret (2011). Natural Resource andEnvironmental Economics, Fourth in Economics. Prentice Hall. River, UpperSaddle NJ. Chapter 18ofPindyck R, andRubinfeld D(2012). Microeconomics, Eighth Edition. Pearson Series Chapter 11ofMas-Colell al. et (1995). Microeconomic .Theory Oxford University Press. New York. Ninth Edition. W.W. &Company. Norton New York. Chapters 34and36of Varian (2010). HR Intermediate Microeconomics: Approach AModern , New York. ofSandler T (2004). GlobalCollective. Action Chapters 2–4 Cambridge University Press. Pearson inEconomics. Series Prentice Hall. River, UpperSaddle NJ. and16ofPindyck R, andRubinfeldChapters 1–9 D(2012). Microeconomics, Eighth Edition. Press. New York. 10, ofMas-Colell al. et Chapters 1–5, (1995). and15–20 Microeconomic Theory. Oxford University Approacha Modern , Ninth Edition. W. W. &Company. Norton New York. of Varian (2010). HR and31–33 Intermediate 18–23, Microeconomics 14–16, Chapters 1–9, additional reading material Selected The economics of climate change

REFERENCES 3

Arrow K (1951). An extension of the basic theorems of welfare economics. In: Proceedings of the Second Berkeley Symposium module of Mathematical Statistics and Probability, Neyman J, ed. University of California Press. Berkeley and Los Angeles.

Barrett S (1994). Self-enforcing international environmental agreements. Oxford Economic Papers 46: 874–94.

Cohen D (2009). La prospérité du vice. Une Introduction (inquiète) à l’économie. Albin Michel. Paris.

Common M, and Stagl S (2004). Ecological Economics – An Introduction. Cambridge University Press. Cambridge, UK.

Ferroni M, Mody A, Morrissey O, Willem te Velde D, Hewitt A, Barrett S, and Sandler T (2002). International public goods: incentives, measurement, and financing. World Bank. Washington, DC.

Finus M (2003). Stability and design of international environmental agreements: The case of transboundary pollution. In: The International Yearbook of Environmental and Resource Economics 2003/2004: A Survey of Current Issues, Folmer H and Tietenberg T, eds. Cheltenham: Edward Elgar: 82–158.

IPCC (2001). Climate Change 2001: Mitigation of Climate Change. Contribution of Working Group III to the Intergovernmental Panel on Climate Change Third Assessment Report (TAR). Cambridge University Press. Cambridge, UK and New York.

IPCC (2014a). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Pachauri RK, and Meyer LA, eds. Cambridge University Press. Cambridge, UK and New York.

IPCC (2014b) Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Edenhofer O, Pichs-Madruga R, Sokona Y, Farahani E, Kadner S, Seyboth K, Adler A, Baum I, Brunner S, Eickemeier P, Kriemann K, Savolainen J, Schlömer S, von Stechow C, Zwickel T, and Minx JC, eds. Cambridge University Press. Cambridge, UK, and New York.

Kolstad CD (2000). Environmental Economics. Oxford University Press. New York.

Lerner AP (1934). The concept of monopoly and the measurement of monopoly power. Review of Economic Studies 1: 157–75.

Lerner AP (1944). The Economics of Control. Principles of Welfare Economics. Macmillan. New York.

Mas-Colell A, Whinston MD, and Green JR (1995). Microeconomic Theory. Oxford University Press. New York.

Nash J (1951). Non-cooperative games. The Annals of Mathematics 54(2): 286–95.

Olson M (1965). The Logic of Collective Action: Public Goods and the Theory of Groups. Harvard University Press. Cambridge, MA.

Ostrom E (2008). The challenge of common-pool resources. Environment 50: 9–20.

Perman R, Ma Y, Common M, Maddison D, and McGilvray J (2011). Natural Resource and Environmental Economics, Fourth Edition. Pearson Education Limited. Essex, UK.

Pindyck R, and Rubinfeld D (2012). Microeconomics, Eighth Edition. Pearson Series in Economics. Prentice Hall. Upper Saddle River, NJ.

Poundstone W (1992). Prisoner’s Dilemma. Doubleday. New York.

Samuelson PA (1954). The pure theory of public expenditure. Review of Economics and Statistics 36: 387–89.

Sandler T (2004). Global Collective Action. Cambridge University Press. New York.

Sen A (1970). Collective Choice and Social Welfare. Holden Day. San Francisco.

Stern N (2007). The Economics of Climate Change. The Stern Review. Cambridge University Press. New York.

Straffin P (2004). Game Theory and Strategy, Fifth Edition. The Mathematical Association of America. Washington, DC.

Tietenberg T, and Lewis L (2012). Environmental and Natural Resource Economics, Ninth Edition. Pearson International Edition. Addison Wesley. Boston.

Varian HR (2010). Intermediate Microeconomics: A Modern Approach, Ninth Edition. W.W. Norton & Company. New York.

Module 4 The politics of climate change – towards a low-carbon world 4 The politics of climate change – towards a low-carbon world 1 Introduction ject to the collective action problem explained in Module 3, carbon geoengineering and solar geo- module Modules 1 and 2 outlined the links between the engineering are not: they could be implemented environment and the economy, explained how by only a few nations. However, these technolo- human activities change the climate, and dis- gies are not yet fully developed, their implemen- cussed the observed and anticipated impacts of tation may entail considerable environmental climate change. Module 3 showed that climate risks, and carbon geoengineering is currently change is the result of a large market failure that expected to be very expensive. can only be corrected by policy interventions at the global level. Such a correction is not easy to In parallel with policies aimed at limiting climate achieve, however, because the world is composed change, which are discussed in Section 2, socie- of sovereign countries. These countries need to ties also need to undertake actions to adapt hu- coordinate their efforts to transform their econo- man and natural systems so that they are better mies into low-carbon economies and thus limit prepared for the anticipated impacts of climate greenhouse gas (GHG) emissions. However, as change. These policies are described in Section shown in Module 3, such coordination represents 3. Adaptation needs differ from one place to an- a collective action problem that is difficult to other because the anticipated impacts of climate overcome. For the past 25 years, the international change differ locally. The first step of any com- community has not found a convincing solution, prehensive adaptation policy thus should be to as global GHG emissions continue to increase. assess local risks and vulnerabilities in order to Nevertheless, at the United Nations Climate identify adaptation needs. Only then can specific Change Conference of the Parties in Paris (COP21) adaptation options be selected and implement- in 2015, the international climate change policy ed. The section also presents a schematic over- framework took a new and promising direction. view of adaptation policies drawing on the IPCC’s This module provides an in-depth analysis of cli- classification of adaptation options, and provides mate change policies and the international poli- examples of adaptation measures implemented 69 To do so, it relies on, tics of climate change.69 by developing countries. among other sources, the work of the Intergovernmen- Section 2 discusses the different policy instru- After having described the different climate tal Panel on Climate Change (IPCC) and on Barrett et al. ments and technological solutions that could change limitation and adaptation policy options, (2015), who present a collec- enable us to limit climate change. Section 2.1 Section 4 focuses on the international climate tion of studies and reviews on focuses on policy measures that aim to stabilize change policy architecture. The section reviews climate change policy. the concentrations of greenhouse gases in the key international climate change policy devel- atmosphere. Such stabilization requires either opments and explains that of the policy instru- reducing the flow of emissions reaching the ments outlined in Sections 2 and 3, international atmosphere, or extracting the already-emitted climate change policy negotiations have so far greenhouse gases from the atmosphere. Sec- focused mostly on those policy instruments that tion 2.1.1 discusses policies that aim to directly aim to limit the net flow of emissions. As- ex or indirectly decarbonize our economic systems plained in Module 3, these policy instruments are

by pricing CO2, increasing energy efficiency, and subject to a severe collective action problem. The substituting fossil fuels with alternative sourc- section shows that up until now, international 70 While the section focuses es of energy.70 Section 2.1.2 explains how policy policy negotiations have been based on a top- on policies capable of redu- could promote technological solutions to help down approach that has been unable to over- cing CO , note that many of 2 capture and store already-emitted CO emis- come this collective action problem. At COP21, the policies discussed simul- 2 taneously also reduce other sions before they reach the atmosphere. Section the international climate change policy frame- energy-related greenhouse 2.1.3 discusses the role of policies in promoting work considerably changed with the adoption gases like nitrous oxide. carbon geoengineering, a technology that could of the Paris Agreement. Unlike the past 25 years

directly extract CO2 out of the atmosphere. Un- of international climate change policy, the Paris like the other policy options to stabilize GHG Agreement is based on a bottom-up approach. concentrations, carbon geoengineering would The section ends by discussing several key issues not require transforming economies into low- of the Paris Agreement, with a particular focus on carbon economies. After having discussed the the situation of developing countries. different policy and technological options to stabilize GHG concentrations, Section 2.2 focus- At the end of this module, readers should be able to: es on solar geoengineering, a technology that allows for reflecting additional incoming solar • Distinguish the two fundamental options to radiation back into space and thus stabilizing limit climate change; temperatures on the planet. While most of the • Describe different policy instruments to sta- policy measures discussed in Section 2 are sub- bilize atmospheric GHG concentrations;

84 The politics of climate change – towards a low-carbon world 4 71 71 • Analyse advantages and disadvantages of the CO2-equivalent (CO2-eq) if the increase in mean CO2-equivalent concentra- different policy instruments to stabilize at- surface temperatures is to stay below 2°C. GHG tion is a measure to compare module mospheric GHG concentrations; concentrations can be stabilized by either reduc- radiative forcing of a mix of different greenhouse gases. • Understand how geoengineering could limit ing the flow of GHG emissions towards -the at It indicates the concentration climate change; mosphere or by removing those gases from the of CO2 that would cause the • Evaluate the importance of climate adapta- atmosphere. same radiative forcing as a

tion policies; given mixture of CO2 and • Describe the international climate change While all four major greenhouse gases contrib- other greenhouse gases (IPCC, 2014c). policy architecture; ute to the warming of the planet, stabilizing CO2 • Evaluate the links between the Paris Agree- concentration is of crucial importance, because ment and development. climate perturbations from accumulated fossil-

fuel-based CO2 emissions last for thousands of To support the learning process, readers will find years (Archer et al., 2009). Recall as well that the several exercises and discussion questions in Sec- fifth IPCC assessment report found an almost tion 5 covering the issues introduced in Module 4. linear relationship between total cumulative

Useful data sources and additional reading ma- CO2 emissions emitted since the start of the in- terial can be found in Annexes 1 and 2. dustrial era and global mean surface warming (see Section 4 of Module 2). This implies that the

larger the total sum of emitted CO2 emissions

2 Policy options and technological (and hence the larger atmospheric CO2 concen- solutions to limit climate change trations), the higher the mean temperature will be in the 21st century. Due to the importance of

As explained in Section 4 of Module 2, the IPCC CO2in limiting climate change, this section most- anticipates that, compared to the pre-industrial ly focuses on policies to stabilize the concentra- 72 72 era, mean surface temperature on the planet will tion of CO2 in the atmosphere. Note, however, that several increase by roughly 4°C by the end of the 21st cen- of these policies simulta- tury if the world does not implement additional CO concentrations can be stabilized in three neously address emissions 2 of other greenhouse gases policies to limit climate change. This human-in- complementary ways (Barrett and Moreno-Cruz, resulting from fossil fuel duced temperature increase is expected to trigger 2015): (a) by gradually reducing anthropogenic combustion

“severe, pervasive and irreversible impacts on peo- CO2 emissions to zero (see Section 2.1.1); (b) by ple and ecosystems” (Field et al., 2015: 62; see also capturing and storing CO2 emissions before they Module 2). If climate change policies could limit reach the atmosphere (see Section 2.1.2); and/or the warming to less than 2°C above pre-industrial (c) by reducing concentrations of CO2 in the at- temperatures, these risks would be substantially mosphere through direct removal of CO2 from reduced (IPCC 2014a, 2014b). Stabilizing tempera- the atmosphere (see Section 2.1.3). tures at less than 2°C above pre-industrial levels is thus a crucial policy objective that is currently on The first two options affect the flow of emissions the agenda of almost all countries (see Section 4). to the atmosphere by either reducing the amount

of emitted CO2 or by preventing the emitted CO2 To limit warming to 2°C and thereby avoid the from reaching the atmosphere. Policy instru- main bulk of the negative effects of climate ments available for this purpose are listed in Ta- change, humankind has essentially two options ble 7 and further discussed in Sections 2.1.1 and (Edenhofer et al., 2015). The first is to stabilize con- 2.1.2. To meet the 2°C target with a probability of at centrations of greenhouse gases in the atmos- least 66 per cent – taking all other human influ- phere (see Section 2.1). The second is to offset the ences on the climate into account - IPCC (2014b) expected temperature increase by increasing the estimates that the above policies need to keep amount of reflected incoming solar radiation us- total cumulative CO2 emissions since the start of ing solar geoengineering technologies (see Sec- the industrial era below 2,900 gigatonnes of CO2 tion 2.2). The following sections discuss different (GtCO2) by 2100. By 2014, roughly 2,000 GtCO2 had policy instruments that could be used to imple- already been emitted. Hence, if humans intend to ment both these options. reach the 2°C target, they have roughly 900 GtCO2 left to emit in the future, all else being equal. This 2.1 Policy instruments and technologies does not leave too much space for further emis-

to stabilize concentrations of greenhouse sions, as 900 GtCO2 is equivalent to less than 25 gases in the atmosphere years of emissions at the 2014 level (Edenhofer et al., 2015). Policies aimed at emission reduction IPCC (2014b) estimates that the atmospheric con- and emission capture and storage thus jointly centration of greenhouse gases in 2100 must be need to limit future CO2 emissions to 900 GtCO2. stabilized at below 450 parts per million (ppm) Unfortunately, these policy options are subject to

85 4 The politics of climate change – towards a low-carbon world the collective action problem discussed in Mod- CO2 concentrations by directly removing the al- ule 3. This makes the prospects for transforming ready emitted CO from the atmosphere. As such, module 2 current carbon-based economies into low-carbon this third option – called carbon geoengineering

economies and thereby stabilizing atmospheric – has the potential to stabilize CO2 concentra-

CO2 concentrations below the 450 ppm CO2-eq tions even if humans continue to emit CO2 emis- concentration level relatively bleak. sions as they do today. The most promising carbon geoengineering technology – industrial air The third option is different. It does not reduce capture (see Table 7) – will be discussed in Section the flow of emissions towards the atmosphere as 2.1.3. As we will see, collective action prospects are the first two options do, but lowers atmospheric entirely different for this option.

Table 7 Selected policy options to stabilize concentrations of carbon dioxide in the atmosphere

Ways to stabilize CO2 emissions Policy category Examples of policy instruments Carbon tax

Cap and trade system Price CO2 emissions (directly or indirectly) Removal of fossil fuel subsidies

Reducing CO2 emissions Fuel taxation Energy conservation Promotion of energy efficiency

Promotion of nuclear energy Fossil fuel substitution Promotion of renewable energy sources Capturing and storing CO emissions Development and implementation of 2 Carbon capture and storage before they reach the atmosphere carbon capture and storage technologies Directly removing CO from Promotion of industrial air capture 2 Carbon geoengineering the atmosphere technologies

Source: Author.

2.1.1 Policy instruments to reduce anthropogenic ting CO2, they directly bear (part) of the climate carbon dioxide emissions change-related costs associated with their emis-

sions. As emitting CO2 would then no longer be We first look at policy instruments capable of re- free of charge, economic actors would emit less

ducing CO2 emissions that have been at the cen- emissions compared to a scenario without a tre of the international policy debate on climate price on carbon. Pricing carbon would reduce change mitigation (see Section 4) and have been emissions not only directly by affecting the de- well known for several decades (see also Module cisions of economic actors, but also indirectly by 3). Generally speaking, there are three policy in- making investments in cleaner technologies and strument categories directed towards reducing research and development (R&D) of new tech-

anthropogenic CO2 emissions. The first contains nologies more attractive. It is thus not surprising policy instruments that put a price on carbon di- that the necessity of putting a price on carbon oxide, the second consists of policy instruments has been clear for a long time (Barrett et al., 2015). that conserve energy, and the third contains Several policy instruments can be used to price policy instruments to directly decarbonize the carbon and thereby help decarbonize economies. energy system by substituting energy from fossil The most important ones are carbon taxes, cap fuels with alternative energy sources. and trade systems, removal of fossil fuel subsidies, and fuel taxation. 2.1.1.1 Policy instruments that price carbon

dioxide emissions Carbon taxes directly tax the amount of CO2 emitted. The level of the tax is often expressed

Module 3 showed that GHG emissions are a typi- per tonne of CO2 (e.g. US$50 per tonne of CO2). cal example of a negative externality. Economic Carbon can be taxed at various points of the actors do not directly bear the climate-change- energy supply chain. Usually one distinguishes related costs associated with the emissions, between so-called upstream and downstream which they can dump free of charge into the at- carbon taxes, although combinations of the two mosphere. Consequently, they produce too much approaches are also possible (Wang and Murisic, GHG emissions. This externality problem can be 2015). Upstream carbon taxes impose a charge on partly corrected by putting a price on carbon. producers or importers of raw materials such as

If economic actors have to pay a price for emit- coal, oil, or natural gas that contain CO2 (Mansur,

86 The politics of climate change – towards a low-carbon world 4 2012). The levied charge is designed to be propor- face severe political hurdles at the national level. tional to the amount of carbon contained in the Among them are (a) the presence of strong fossil module raw material. As upstream carbon taxes directly fuel lobbies actively opposing implementation tax fossil fuel producers or importers, the levies of carbon taxes; (b) pressure from the public to are subsequently passed forward and affect the not implement carbon taxes in order to avoid economy-wide prices of electricity, petroleum increases in commodity prices; (c) a general products, and energy-intensive goods. Down- perception that taxes reduce consumption and stream carbon taxes impose a charge on direct production and thereby induce welfare losses; sources of CO2 emissions such as cars, power (d) the fact that carbon taxes, unlike other policy plants, energy-intensive industries, etc. (Man- instruments, clearly identify winners and losers sur, 2012). The charge levied is proportional to of the policy, leading to stronger opposition; and the amount of CO2 emitted by the source of the (e) potential institutional preferences favouring emission. A fully inclusive downstream carbon other carbon pricing instruments (Sterner and tax thus also affects all prices of commodities Köhlin, 2015). whose production or consumption processes involve the release of CO2 emissions. One of the dif- Despite these political hurdles, some countries ferences between the two types of carbon taxes have already implemented carbon taxes. Figure is the amount of affected agents and hence the 36 presents an overview of countries that have administrative simplicity: upstream carbon tax- implemented carbon taxes or cap and trade sys- es are often imposed on relatively few firms (the tems. Following Finland in 1990, several North- fossil fuel producers and importers), while down- ern European countries implemented carbon stream carbon taxes, if they are fully inclusive, af- taxes in the early 1990s. By 2016, 16 countries fect many different agents. and one subnational entity (the Canadian province of British Columbia) had implemented a Economists consider carbon taxes the most cost- carbon tax.73 While most of these countries 73 Finland, Poland, Sweden, Norway, Denmark, Latvia, efficient policy instrument to reduce2 CO emis- are developed ones, two developing countries sions. In their recent review on different carbon (Mexico and South Africa) have implemented a Slovenia, Estonia, Switzer- land, Ireland, Iceland, Japan, pricing policy instruments, Sterner and Köhlin carbon tax and a third one (Chile) plans to im- France, Mexico, Portugal, (2015: 252) note that a carbon tax is “generally plement such a tax in 2017. However, only eight and South Africa. Note that more efficient than direct regulation of technol- countries (Sweden, Finland, Switzerland, Norway, a 17th country (Chile) plans ogy, products, and behaviour, as it affects con- Denmark, Ireland, Slovenia, and France) and the to implement a carbon tax sumption and production levels as well as tech- province of British Columbia have a tax rate that in 2017. nologies, it covers all industries and production is higher than US$10 per tonne of CO2 (World and provides dynamic incentives for innovation Bank, 2015). To put this figure into perspective, and further emissions reductions. In addition, the most simulations suggest that a global average tax revenue can be used to facilitate the transi- carbon price of US$80 to US$120 per tonne of CO2 tion toward renewable energy, cover administra- would be consistent with the 2°C target (World tive and implementation costs, or lower taxes on Bank, 2015). Sweden is currently the only country labour.… Furthermore, a tax is easy to incorporate with a carbon price in this range, as it imposes in the existing administration.” Besides these a carbon tax of US$130 per tonne. This tax is by direct effects, carbon taxes can also generate far the highest in the world – the second high- considerable national co-benefits. One example est carbon price (US$65 per tonne) is in Switzer- of such a co-benefit of carbon taxes is improve- land. Hence, besides the fact that carbon taxes ment in health: carbon taxes decrease the use of are only imposed on a fraction of global CO2 coal and thus have the potential to reduce deaths emissions, there is also a large gap between the related to air pollution (Parry et al., 2014). required and the actual price of carbon. Having said that, the Swedish experience does clearly il- While carbon taxes are an appealing policy in- lustrate that carbon taxes are effective in reduc- strument from an economic point of view, they ing CO2 emissions, as shown in Box 15.

87 The politics of climate change – towards a low-carbon world

4 Figure 36 Overview of implemented or scheduled carbon pricing policy instruments

module ALBERTA MANITOBA ONTARIO ICELAND KAZAKHSTAN REPUBLIC BRITISH EU UKRAINE OF KOREA COLUMBIA QUÉBEC WASHINGTON OREGON JAPAN CALIFORNIA RGGI TURKEY CHINA

MEXICO

THAILAND

BRAZIL

RIO DE JANEIRO SÃO PAULO NEW CHILE SOUTH AFRICA ZEALAND

NORWAY SWEDEN

REPUBLIC DENMARK FINLAND OF KOREA

UK ESTONIA IRELAND LATVIA BEIJING KYOTO POLAND TIANJIN SAITAMA TOKYO

HUBEI PORTUGAL SHANGHAI

CHONG- GUANGDONG QING TAIWAN PROVINCE OF CHINA FRANCE SLOVENIA SHENZHEN SWITZERLAND

Tally of carbon pricing instruments Cap and trade (CAT) implemented CAT and carbon tax implemented or scheduled or scheduled for implementation Carbon tax implemented or scheduled CAT implemented or scheduled, tax under consideration 14 for implementation CAT or carbon tax under consideration Carbon tax implemented or scheduled, CAT under consideration 4 1 39

22 23 The circles represent subnational jurisdictions. The circles are not representative of the size of the carbon pricing 21 instrument, but show the subnational regions (large circles) and cities (small circles).

Note: Carbon pricing instruments are considered “scheduled for implementation” once they have been formally National level Subnational level adopted through legislation and have an ofﬁcial, planned start date.

Source: World Bank (2015: 11). Note: The Regional Greenhouse Gas Initiative (RGGI) is a cooperative cap and trade effort among the US states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

88 The politics of climate change – towards a low-carbon world

Box 15 4 The results of the Swedish carbon tax Sweden’s carbon tax of US$130 per tonne (as of 1 August 2015) is the highest carbon tax worldwide to date. It module particularly affects the Swedish transport sector, as the country taxes gasoline and diesel strictly in proportion to carbon emissions. It also applies to commercial use, residential heating, and partly to the industrial sector, which is, however, subject to a reduced tax rate (Sterner and Köhlin, 2015).

Given that Sweden also uses other climate change policies, it is difficult to precisely isolate the impact of the Swedish carbon tax on emissions. Nevertheless, Sterner and Köhlin (2015) note that the tax has achieved a cost-effective and efficient emission reduction over recent decades and has enabled the country to meet the commitments made in the Kyoto Protocol. Since 1990, Swedish CO2 emissions have declined by 22 per cent while the country’s economy has been growing. Sterner and Köhlin thus note that the country has success- fully managed to decouple domestic CO2 emissions and economic growth and thus made strides towards a low carbon-economy. As illustrated in Figure 37, Sweden’s CO2 emissions per US dollar of GDP are about one-third of the world average and have been constantly declining for more than 40 years. Note, however, that this figure does not account for potential carbon leakage effects of the Swedish carbon tax (relocation of polluting industries towards countries with less stringent climate change policies and hence lower costs of emitting CO2).

Figure 37 Carbon dioxide emissions per unit of GDP

1.0 World

0.8 USA atio OECD 0.6 GDP r

UK 0.4 emissions/ 2 Sweden CO 0.2 Norway

0.0 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Source: Sterner and Köhlin (2015: 254).

Source: Author's elaboration based on Sterner and Köhlin (2015). Note: OECD: Organisation for Economic Co-operation and Development.

A second policy instrument to price CO2 emis- this way, a CAP system creates a market for CO2 sions is known as cap and trade (CAT) systems emissions (hence the “trade” in “cap and trade”). (also called emissions trading systems - ETS). The basic idea is to generate incentives for firms Unlike carbon taxes, CAT systems do not directly to reduce their emissions, as they can sell excess regulate the price of CO2, but rather its quantity. permits and make money out of emitting less. At Regulators decide on an upper limit of emissions the same time, the system penalizes firms that that a country, region, or specific industry can pollute too much, as they have to spend money emit (hence the “cap” in “cap and trade”), and then to buy additional permits. allocate permits to emit CO2 emissions to different firms. Each permit allows the firm to emit a Regulators can allocate permits through auc- certain quantity (often a tonne) of CO2. Each firm tions, free allocation, or a hybrid system that initially receives a certain quantity of permits, al- combines free allocation and auctions (Sterner lowing it to emit a certain quantity of emissions. and Köhlin, 2015). If the regulating authority de- If the quantity emitted is smaller than the quan- cides to allocate permits by auction, it can gener- tity of permits the firm possesses, the firm can ate extra revenue for the government and does sell its excess permits. If the quantity emitted is not need to devise a specific mechanism for the larger than the quantity of permits the firm pos- allocation of permits to firms. If permits are allo- sesses, the firm has to buy additional permits. In cated freely, no government revenue is raised, as

89 4 The politics of climate change – towards a low-carbon world firms do not have to pay to obtain the initial per- which has led to issuance of too many permits mits (“free allocation”). In that case, the regulat- during the first two phases of the programme module ing authority must determine how to distribute (2005–2007 and 2008–2012). This oversupply of the permits. It can, for instance, allocate permits emission allowances resulted in an extremely proportional to firm output or based on histori- low price of CO2 emissions, reaching even zero cal emission levels of firms. Regulators can adapt euros in 2007. The third phase of the programme, the cap over time, lowering the total quantity of which started in 2013, aimed to correct these ini- emissions allowed to be emitted by issuing fewer tial design flaws. The EU replaced the previous permits, and thereby tighten the CAT system. system of national caps with a single EU-wide cap that will be reduced annually by 1.75 per cent, While CAT systems can in theory achieve any made auctioning (instead of free allocation) the amount of emission reduction in a cost-effective default rule to allocate permits, and included way, they face considerable political obstacles, more sectors and gases in the system (European making stringent implementation difficult. In- Commission, 2015). The European Commission is dustry lobbying and fears that carbon prices confident that due to these design changes, the might skyrocket and slow economic develop- system will achieve substantial emission reduc- 74 The European Commission ment often lead to a lax design of CAT systems tions in the years to come.74 (2015) states that since the with extremely high caps, resulting in only few start of the third phase, emis- emission reductions. Carbon taxes and CAP systems are the main sions have fallen by 5 per cent and are expected to fall by 21 policy instruments to directly price CO2 emis- per cent in 2020 (compared Several CAT systems are currently in place and sions. Together, these instruments were applied to 2005) and 43 per cent in more are scheduled for implementation (see in roughly 40 countries (including 10 developing 2030 (compared to 2005). Figure 36). The People's Republic of China, for in- and transition countries) and 20 subnational re- stance, has already implemented several regional gions in 2015 (World Bank, 2015; see also Figure pilot CAT systems. Based on these pilots, it is plan- 36). In many cases both instruments were applied ning to launch a national CAT system in 2017 that in a complementary way in the same country. is expected to cover major industry and energy The instruments put a price on roughly half of sectors (World Bank, 2015). The largest CAT system the emissions emitted in these countries and re- currently in place is the European Union’s (EU) gions, which represent about 12 per cent of global ETS, which was launched in 2005 and covers ap- emissions (World Bank, 2015). As long as the inter- proximately 45 per cent of the EU’s CO2 emissions national carbon pricing landscape remains this (Sterner and Köhlin, 2005). The success of the fragmented, carbon leakage may be a major prob- programme has so far been mixed at best: most lem for all carbon pricing policy instruments (see studies find evidence of only small if any emis- Box 16). Based on (rather spare) existing empirical sion reductions (Anderson and Di Maria, 2010; Bel evidence, however, the World Bank (2015) notes and Joseph, 2015; Ellerman et al., 2010; Georgiev that carbon leakage has so far not materialized on et al., 2011). The main reason for these mixed re- a significant scale and that it affects mainly sec- sults lies in the design of the European system, tors that are both emissions- and trade-intensive.

Box 16 Carbon leakage, competitiveness, and carbon border tax adjustments

Domestic carbon pricing is a major policy instrument, allowing countries to reduce their domestic CO2 emis-

sions. In a world marked by a fragmented carbon pricing landscape, costs of emitting CO2 differ widely among countries. This cost difference raises two major concerns (Flannery, 2016). First, countries that put a high price

on CO2 worry about the international competitiveness of their firms, as high carbon taxes are assumed to increase relative production costs and hence relative prices (especially in energy-intensive sectors). Second, countries worry that the impact their climate change policies have on global emissions might be limited by carbon leakage. Carbon leakage refers to the possibility that firms relocate their production or future investments towards countries with less stringent climate change policies and thereby shift their emissions to these countries.

While carbon leakage does not yet seem to have materialized on a significant scale (World Bank, 2015), and while results from empirical economic analysis suggest that the overall macroeconomic impact on competitiveness, investment, and employment is small and statistically insignificant compared to other factors (Aldy, 2016), policymakers worry about these two possible effects. One possibility to mitigate them is so-called carbon border adjustments (BAs). Kortum and Weisbach (2016: 2) define border adjustments as “taxes or other prices on imports and rebates on exports based on ‘embedded carbon,’ the additional emissions of carbon dioxide caused by production of a good. For imports, they can be thought of as the carbon tax that would have

90 The politics of climate change – towards a low-carbon world

Box 16 4 Carbon leakage, competitiveness, and carbon border tax adjustments been imposed had the good been produced domestically (but using the production process and fuel that was module actually used abroad). They therefore reduce the advantage of producing abroad and selling domestically because the carbon price is the same regardless of where production takes place. For exports, BAs are a rebate of the tax that was previously paid when the exported good was produced. By rebating previously paid taxes or carbon prices on exports, BAs reduce the disadvantage of producing domestically when selling into foreign markets.”

Such border tax adjustments can limit potential leakage and competitiveness effects, but in turn they pose several difficulties and risks. BAs are administratively complex instruments that are difficult to design and implement (Flannery, 2016). A major challenge of designing BAs is to avoid conflict with World Trade Organi- zation rules. Moreover, their effects on the welfare of the country imposing them are also difficult to estimate and not necessarily positive (Flannery, 2016).

Source: Author’s elaboration based on Flannery (2016).

While carbon taxes and CAP systems are the emission reduction potential of energy conser- main policy instruments to tax carbon directly, vation policies is large. For example, the Interna- two other policy instruments can achieve this tional Energy Agency (IEA) estimated that if its 25 goal indirectly. The first is removing fossil fuel energy efficiency recommendations were imple- subsidies that encourage consumption of fossil- mented globally, up to 7.6 GtCO2 per year (roughly fuel-based energy, discourage investments in 21 per cent of global CO2 emissions emitted in clean energy sources and energy efficiency, and 2014) could be saved by 2030 (IEA, 2011). impose large costs on governments (Sterner and Köhlin, 2015). Phasing out these types of subsi- IEA (2011) identified seven priority areas where dies is an administratively simple way of making increases in energy efficiency can substantially carbon-based fuels more expensive, thereby indi- affect CO2 emissions. These areas include cross- rectly pricing CO2 and contributing to lower CO2 sectoral energy efficiency increases, and sectoral emissions. The second policy instrument, directly energy efficiency increases in buildings, appli- linked, is fossil fuel taxation. While fossil fuel ances and equipment, transport, lighting, indus- taxes do not tax fossil fuels in proportion to their try, and energy utilities. A wide variety of policy carbon content, they still provide an effective way instruments are available to increase energy ef- to indirectly tax CO2 emissions in the transport ficiency in these areas, including the following sector. As such, they lower total consumption of (World Energy Council, 2013): fossil fuels as people adapt their behaviour (a fuel price increase of 1 per cent is estimated to • Institutional approaches (e.g. setting up ener- lead to a reduction in fuel consumption of 0.7 per gy-efficiency agencies, energy- efficiency laws, cent in the long run), create incentives for invest- or national energy-efficiency programmes); ments in fuel-saving technologies, and favour • Product regulations (e.g. energy labels and/or the development of energy-efficient cars (Sterner minimum energy-efficiency standards for cars, and Köhlin, 2015). Fossil fuel taxes such as taxes buildings, domestic appliances and motors; or on petrol and diesel have been around for a very bans of specific energy-intensive products); long time, are frequently applied, and have been • Consumer regulations (e.g. mandatory ener- well-studied. Reviewing various studies, Sterner gy audits for selected customers, energy-sav- (2007), finds that fuel taxation is the policy in- ing quotas, mandatory energy-consumption strument that has had the highest impact on reporting, and energy-saving plans); global carbon emissions. • Financial and fiscal measures (e.g. energy-efficiency funds, subsidies for energy audits by 2.1.1.2 Policy instruments that save energy sector, subsidies or soft loans for energy-efficiency investment and equipment by sector, Policy instruments that increase the energy ef- tax credits or deductions on cars, appliances, ficiency of economies can also contribute to re- and buildings; accelerated depreciation for ducing anthropogenic CO2 emissions, especially industry, tertiary or transport sectors; or tax if they are implemented together with carbon reductions by type of equipment such as ap- pricing instruments. By increasingly relying on pliances, cars, lamps, etc.); energy-efficient technologies and thereby using • Cross-cutting measures (e.g. voluntary agree- less energy from fossil fuels, CO2 emissions per US ments, mandatory professional training, or dollar of GDP can be substantially reduced. The promotion of energy-saving companies).

91 4 The politics of climate change – towards a low-carbon world While energy-saving policy instruments can re- ergy – are expected to play a key role in decarbon- duce anthropogenic CO2 emissions, their poten- izing the energy system (Bossetti, 2015). Renewa- module tial to save energy and thus reduce CO2 emis- bles not only have the potential to substantially sions might be reduced by so-called rebound contribute to a low-carbon world, but might also effects. Rebound effects can be illustrated by generate important co-benefits, including (a) the following example: if you buy a more fuel- increased energy security due to more widely di- efficient car you will be driving more often, as versified energy sources; (b) reduced local pollu- you will have to pay less for fuel (Gillingham et tion as fossil-fuel-based energy carriers such as al., 2013). Such behavioural changes in reaction coal are replaced; (c) promotion of green growth; to increased availability of energy-efficient tech- and (d) new possibilities for development in nologies might offset parts of the energy-saving many regions of the world, as renewables such potential. However, the literature finds that re- as solar power are more evenly distributed glob- bound effects are too small to offset the energy- ally than fossil fuels (Bossetti, 2015). For example, saving effects of energy-efficiency policy instru- the African Development Bank (2015) estimates ments (Gillingham et al. 2013). that Africa has enormous potential for renewable energy, and that its capacity for renewable 2.1.1.3 Policy instruments that substitute energy generation could reach more than 10,000 energy from fossil fuels with alternative gigawatts (GW) for solar energy, 109 GW for wind energy sources energy, 350 GW for hydro energy, and 15 GW for geothermal energy. The African Development These instruments aim to reduce the use of en- Bank (2015) is confident that when the continent ergy from fossil fuels and thus facilitate the de- unlocks its full potential for renewable energy, carbonization of the global energy system. IPCC it could tackle fundamental inefficiencies in its (2014a) estimated that by 2100, the share of low- energy system, hugely expand power generation, carbon energy sources (e.g. renewable energy and contribute towards the development goal sources or nuclear power) in total energy should of universal access to energy. Hence, policies fa- increase from the current roughly 20 per cent to cilitating the adoption, integration, and develop- over 80 per cent. If this is not achieved, it is un- ment of renewable energy sources play a key role likely that the atmospheric GHG concentration in mitigating climate change and can also have in 2100 will stay below the level compatible with huge co-benefits in terms of health and econom- the 2°C temperature target. Fundamental pro- ic development. gress in new and more efficient energy technologies is needed for such a transformation, as low- The cost of renewable energy technologies can carbon energy technologies are currently not be considerably lowered by publicly funded cost-competitive with fossil-fuel-based technolo- R&D programmes and by providing incentives gies when applied on a large scale (Toman, 2015). (e.g. tax incentives) for private programmes (Bossetti, 2015). These kinds of policies can di- While carbon pricing and some energy-saving rectly promote development and adoption of re- policy instruments alter incentives of economic newable energy sources by making them more agents and thus indirectly promote investments cost-competitive. A second way to promote in a low-carbon economy, the energy-substitu- adoption is to subsidize renewable energy tech- tion policy instruments try to directly promote nologies. Germany’s Energiewende (see Box 17) the replacement of fossil-fuel-based energy with is an example of probably the most aggressive low-carbon energy. To decarbonize the energy subsidy policy to date favouring renewable en- system, policies need to stimulate the develop- ergy sources. Demand-side promotion policies ment and implementation of new low-carbon such as standards, energy certificates, or feed-in 75 Feed-in tariffs are policy technologies. A priori, policies can promote two tariffs75 are another policy option directly pro- mechanisms that aim to technological options: nuclear energy technolo- moting adoption of renewable energy sources. provide long-term contracts gies and renewable energy technologies. While Such policies have contributed considerably to to renewable energy producers based on the cost of the next-generation nuclear reactors might replace the adoption of solar and wind power in Europe technology, thus stimulating a share of fossil-fuel-based energy and address (Bossetti, 2015). Because renewable energy – un- investments in renewable the cost and safety issues undermining current like energy from fossil fuels - is highly unpredict- energy production. generation reactors (Toman, 2015), we focus in able and volatile (depending, for instance, on this section on the promotion of renewable en- weather conditions in the case of wind or solar ergy technologies. energy), infrastructure has to be adapted. Hence, public investments in new energy storage and Renewable energy technologies – hydropower, distribution infrastructure can facilitate the in- wind and solar energy, tidal and wave energy, tegration of renewables into the existing energy ocean and geothermal energy, and biomass en- infrastructure.

92 The politics of climate change – towards a low-carbon world

Box 17 4 Germany’s Energiewende policy Germany has been pursuing an ambitious energy transformation policy for almost two decades based on module massively subsidizing solar and wind energy. The policy, known as Energiewende, aims to achieve a transition from a coal- and nuclear-power-based energy system to a system relying on renewable energy. Germany intends to reduce its GHG emissions by between 80 and 95 per cent (compared to 1995) within the next four decades. To achieve this target, it plans to increase the share of renewable energy in totally consumed energy to 80 per cent and simultaneously increase energy efficiency by 50 per cent (Sterner and Köhlin, 2015).

From 2000 to 2015, Germany increased its share of renewable energy in the energy production sector from 6 to almost 30 per cent (Figure 38). However, the share of renewable energy in the production of heat (9.9 per cent) and transport (5.4 per cent) is still relatively low. Prices of renewable energy technologies have decreased substantially as a result of the massive subsidies and continue to do so (Sterner and Köhlin, 2015). However, CO2 emissions per kilowatt of produced energy have not yet dropped substantially, which Sterner and Köhlin attribute to the simultaneous phasing out of nuclear energy, which has required continued use of fossil fuel power stations.

Figure 38 Share of renewable energies in Germany’s energy market

30 27.8% Electricity 25 Heat 20

t 15 Mobility 12.4% 9.9% er cen

P 10 Final energy (up to 2013) 5.4% 5

0 2 2011 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 200 2003 2004 2005 2006 2007 20082009 2010 2012 2013 2014 Source: BEE (2015: 1). 76 Theoretically, it is also While the Energiewende policy has clearly reduced costs and promoted widespread adoption of renewables, possible to apply CCS technologies to biomass the subsidies have also generated important costs for the German government and for German households. burning, which could

Source: Author's elaboration based on Sterner and Köhlin (2015) and BEE (2015). remove CO2 directly from the atmosphere, creating a so-called “negative emission 2.1.2 Policies to promote technological there would not be an immediate need to de- technology” (Tavoni, 2015; see solutions to capture and store carbon carbonize the economy. Tavoni (2015: 344) notes also Section 2.1.3). Biomass is a renewable resource which dioxide emissions in his recent review on CCS technologies and extracts and binds CO2 out policies that “CCS could effectively allow for the of the atmosphere during its Section 2.1.1 described different policy instru- procrastinated use of fossil fuels while limiting process of growing. By bur- ments to reduce the production of anthropogen- – if not eliminating – their impact in terms of ning biomass, CO2 is emitted ic CO2 emissions. In addition to these emission greenhouse gas emissions.” Given the appealing back into the atmosphere. If CCS technologies are applied reduction policy instruments, governments can nature of CCS, it is not surprising that it plays an to biomass burning, the CO2 also implement policies that aim to capture and important role in the IPCC’s climate mitigation that biomass extracts from store already-emitted CO2 emissions before they strategies (IPCC, 2014a). the atmosphere when it is reach the atmosphere. growing could be captured While CCS technologies generate high hopes as and stored. This is one way to remove CO2 from the atmos- Carbon capture and storage (CCS) technologies an alternative mitigation option to reduce the phere. See Section 2.1.3 for a capture CO2 emissions from large sources such as flow of emissions towards the atmosphere, the discussion of other negative coal power plants,76 transport them to a carbon technology is still in the early phases of develop- emission technologies. storage site, and store them there so that they ment. In 2016, only 15 large-scale CCS pilot pro- do not reach the atmosphere (Tavoni, 2015). Dif- jects were operational on a worldwide scale, with 77 Most of these technolo- ferent technological storage solutions are avail- an additional four expected to enter into opera- gies store CO2 in its super- able, including geological and oceanic storage tion (see Figure 39). These large-scale projects are critical form in geological or oceanic storage sites. Super- sites.77 CCS has the capacity to make the ongoing complemented by small-scale pilot projects. So critical CO2 is a fluid state of large-scale use of fossil-fuel-based energy com- far, the existing projects have the capacity to cap- CO2 in which it is held at or patible with climate change mitigation targets: if ture and store 28 million tonnes of CO2 per year above its critical temperature CCS technologies could be sufficiently up-scaled, (Global CCS Institute, 2015). and critical pressure.

93 The politics of climate change – towards a low-carbon world

4 Figure 39 Number of large-scale carbon capture and storage pilot projects per year

module Projects currently under 25 construction that will enter into operation Projects in 20 the operational stage 7 4

ojects 15

Number of pr 15 15 15 12 13 5 7 88

0 2010 2011 2012 2013 2014 2015 2016 2017 Source: Global CCS Institute (2015: 4).

It should be noted, however, that several tech- 2.1.3 Policies to promote technological solutions nological, political, and economic problems aimed at removing carbon dioxide directly would need to be solved in order to apply CCS from the atmosphere technologies on a sufficiently large scale. First, it is still not clear which CCS technology works While Sections 2.1.1 and 2.1.2 discussed policy op- best and if it will be able to operate at the re- tions to reduce the flow of emissions towards the quired scale. Policy measures are therefore re- atmosphere, this section discusses a policy in-

quired to launch and (partially) fund additional strument that aims to remove CO2 directly from pilot projects to test the different CCS designs the atmosphere: carbon geoengineering. (Tavoni, 2015). To do so, it would also be neces-

sary to overcome public fears opposing the in- Several technologies could remove CO2 from the stallation of CCS infrastructure. This has led to atmosphere. One of them, already briefly intro- the cancellation of CCS pilot projects in Europe duced in Section 2.1.2, is the application of CCS in the past. It is also of crucial importance that technologies to biomass. According to Barrett and storage solutions be safe and long-lasting, as Moreno-Cruz (2015), this approach could be use-

leaking CO2 escaping towards the atmosphere ful but will be limited in scale by design. A second would undermine the entire purpose of CCS. technology is industrial air capture, a carbon geo- Second, the economic viability of CCS projects engineering technology that could be a viable al- has to be improved, as the cost of capturing a ternative with the potential to be scaled up to any

tonne of CO2 is currently estimated at about level (Barrett and Moreno-Cruz, 2015). Industrial US$100 (Tavoni, 2015). Policies to increase the air capture is a technology in which a capture so- price of carbon (thereby making higher-cost lution (e.g. a chemical sorbent like alkaline liquid) CCS technologies economically viable) and poli- is exposed to air, resulting in a chemical reaction

cies to fund R&D could help achieve such a cost removing CO2 from the air. The CO2 is subsequent-

reduction (Tavoni, 2015). ly filtered out of the2 CO -enriched capture solution and is stored in suitable storage sites while the chemical sorbent is recycled (Figure 40).

Figure 40 Direct industrial air capture system

Capture solutions CO2

Natural gas Air Energy Wind Nuclear

CO2 rich solutions

Source: Carbon Engineering. Available at: http://carbonengineering.com/air-capture.

94 The politics of climate change – towards a low-carbon world 4 If industrial air capture is powered by renew- and risks of industrial air capture technologies. able energy, the technology has the capacity Only if and when costs and risks are known can module to remove any amount of CO 2 from the atmos- further policy instruments to promote carbon phere. If enough renewable energy is available geoengineering be designed and implemented. to operate this technology on a sufficiently large scale, no other policies to stabilize CO 2 2.2 Policies to promote technological solutions concentrations would be needed. As such, car- aimed at increasing the amount of incoming bon geoengineering is considered to be the solar radiation reflected back into space only true backstop technology to address climate change (Barrett and Moreno-Cruz, 2015). Section 2.1 provided an overview of policy in- However, this technology can only be imple- struments to stabilize atmospheric GHG con- mented provided it is further developed and centrations. Alternatively, however, humans available at an affordable cost. could also try to offset the positive radiative forcing resulting from increasing GHG concen- Several studies reviewed in the survey by Bar- trations by reflecting more of the incoming so- rett and Moreno-Cruz (2015) estimate the costs lar radiation back into the space. This approach, of removing a tonne of CO2 through industrial known as solar geoengineering, is able to offset air capture. These estimates range from US$30 increases in mean temperature rather quickly. per tonne up to US$600 per tonne. Barrett and But it does not address certain other impacts Moreno-Cruz argue that if costs turn out to be of increased GHG concentrations such as ocean as high as US$600 per tonne, the technology will acidification (Barrett and Moreno-Cruz, 2015). not take off within a reasonable time frame. If, For this reason, Barrett (2014) labels solar geo- however, costs are as low as US$30 per tonne, the engineering a quick fix but not a true solution technology could revolutionize climate change to climate change. policy and could even be implemented by a small coalition of countries. This coalition could uni- Solar geoengineering can be implemented in laterally mitigate climate change (Barrett and many ways. One option seems to be particularly Moreno-Cruz, 2015) by bypassing the collective promising in terms of costs: the injection of sul- action problem associated with conventional phate aerosols into the stratosphere. Barrett and emission reductions, and emission capture and Moreno-Cruz (2015) cite a study by McClellan et storage policies. al. (2012) that provides an estimate of less than US$8 billion per year to offset the positive radia- Because this technology is not yet on the table of tive forcing expected to occur over coming dec- climate change policy negotiations (see Section ades due to rising GHG concentrations. Unlike all 4), and because there are still many unknowns other options, it seems that, in theory, even one about it, the first policy step should be to fund willing country could implement such a solution and coordinate R&D efforts to evaluate the costs single-handedly (Table 8).78 78 This raises international governance questions, which Table 8 today are far from settled. Comparison of policy options limiting climate change See Barrett and Moreno-Cruz (2015) for a short discussion Options Objectives Cost Risks Unknowns Collective action on possible international Substantial reduction Reduce fossil fuel consumption governance frameworks. of the flow of CO and apply capture and storage 2 High Low None Difficult (see Module 3) emissions reaching the technologies atmosphere Carbon geoengineering Reduce the concentration of Very high Moderate Few Coalition of the willing CO2 in the atmosphere Solar geoengineering Limit solar radiation reaching Easy, apart from Low High Many the lower atmosphere governance

Source: Author’s elaboration based on Barrett and Moreno-Cruz (2015).

However, as in the case of carbon geoengineer- Cruz, 2015). Funding and coordinating R&D to ing, many unknowns remain about solar geo- assess the risks, feasibility, and efficiency of solar engineering. Most importantly, the technology geoengineering is therefore needed before such may entail severe environmental risks that are technologies could be deployed. not yet (fully) understood (Barrett and Moreno-

95 The politics of climate change – towards a low-carbon world

4 Short summary Section 2 reviewed the three fundamental policy options humans have to limit climate change: (1) substantial reduction of the flow of greenhouse gas emissions reaching the atmosphere, (2) direct removal of CO2 from module the atmosphere by using carbon geoengineering, and (3) offsetting the positive radiative forcing resulting from increasing GHG concentrations by using solar geoengineering. These three options, including their expected costs, risks, unknowns, and the prospect of collective action, are summarized in Table 8. While policies to substantially reduce the flow of emissions (carbon pricing, promotion of renewables, conventional carbon capture and storage) are well known and entail only few risks, there are two main caveats regarding their implementation: associated costs are high and there are collective action problems. Despite this, actions to limit climate change have so far focused almost exclusively on these options, which have also been implemented by several developed countries and some developing countries. Carbon geoengineering could be an alternative to these policies because it could be implemented by only a handful of nations, thereby bypassing the collective action problem. However, the associated environmental risks and especially the costs are higher than those associated with policies to reduce the flow of emissions. Finally, solar geoengineering has the advantage of being easy to implement single-handedly by only one country and of having very low costs. At the same time, however, it does not address some impacts of climate change, and entails even higher environmental risks than carbon geoengineering.

3 Climate change adaptation adaptation policies are especially important for policy options these countries. Drawing on Sauter et al. (2015, 2016), Figure 41 displays the projected population 79 Sauter et al. (2015, 2016) In addition to policies to limit climate change, and damage shares of different regions.79 Re- used a rough proxy of poten- humans can also try to reduce or even avoid the gions mostly composed of developing countries tial damages based on pre- anticipated impacts of climate change by adapt- (especially South Asia, sub-Saharan Africa, and dicted increases in extreme temperature events. ing to climate change. IPCC (2014c: 118) defines the Middle East and North Africa) are expected to climate change adaptation as the “process of have a higher share in world damages in propor- adjustment to actual or expected climate and its tion to their share in world population by 2050. effects. In human systems, adaptation seeks to In other words, these regions will most likely be moderate or avoid harm or exploit beneficial op- over-proportionally affected by the impact of portunities. In some natural systems, human in- climate change. Regions mostly composed of de- tervention may facilitate adjustment to expected veloped countries (especially Europe and North climate and its effects.” America) are anticipated to have lower damage shares in proportion to their population shares. Given that the anticipated impacts of climate While these are only rough estimates, the num- change are expected to be largest in developing bers clearly indicate that adaptation policies are and least developed countries (see Module 2), of crucial importance for developing countries.

Figure 41 Potential climate change damage share in relation to population share by region in 2050 (per cent)

30 South Asia

2065 Sub-Saharan Africa

6– East Asia 20 & Pacific

15 e over 204 Latin America 10 & Caribbean Europe & Central Asia 5 Damage shar Middle East & North Africa North America 0 015 10 5 20 25 30 Population share (projection in 2050)

Source: Mekonnen (2015: 88), adapted from Sauter et al. (2015, 2016).

Humans have a long history of adapting to a tural technologies, and changed entire economic changing climate. Throughout history, human processes in response to climate variations (Bur- beings have changed the locations or construc- ton, 2006). Humans have been rather successful tion of their settlements, adapted their agricul- in doing so, but history also provides examples of

96 The politics of climate change – towards a low-carbon world 4 local adaption failures that resulted in the col- risks, and vulnerabilities differ locally, different lapse of entire societies (see Module 1). Adapting adaptation policies are needed in different places module to human-induced climate change thus repre- on the planet. The first step of any comprehensive sents a new chapter in a long history of human adaptation policy therefore consists of assessing adaptation to climatic conditions, but this time, local risks and vulnerabilities in order to identify the dimension of the challenge is global. local needs (Noble et al., 2014). Once local needs are known, the government can choose appropri- Climate change adaptation policies have gained ate measures from a wide range of adaptation increased attention recently. Since about 10 years options. While a detailed discussion of all these ago, adaptation has figured more prominently on options is out of the scope of this teaching mate- the international policy agenda as the failure of rial, we provide a schematic overview by using the current policies to reduce emissions has become IPCC’s classification of adaptation measures. evident (Barrett and Moreno-Cruz, 2015). As will be shown in Section 4, these policies are currently Table 9 lists the three broad categories of adap- one of the two main pillars of international cli- tation options as classified in the fifth IPCC as- mate change policy (the second pillar being poli- sessment report: structural and physical options, cies to reduce the flow of emissions towards the social options, and institutional options (Noble et atmosphere). Given that climate change impacts, al., 2014).

Table 9 Categories and examples of adaptation options discussed in the fifth IPCC assessment report Category Examples of adaptation options Seawalls and coastal protection structures; flood levees and culverts; water storage and pump Engineered storage; sewage works; improved drainage; beach nourishment; flood and cyclone shelters; and built building codes; storm and waste water management; transport and road infrastructure adap- environment tation; floating houses; adjusting power plants and electricity grid New crop and animal varieties; genetic techniques; traditional technologies and methods; efficient irrigation; water-saving technologies, including rainwater harvesting; conservation Technological agriculture; food storage and preservation facilities; hazard mapping and monitoring technology; early warning systems; building insulation; mechanical and passive cooling; renewable Structural energy technologies; second-generation biofuels and physical Ecological restoration, including wetland and floodplain conservation and restoration; increasing biological diversity; afforestation and reforestation; conservation and replanting Ecosystem- mangrove forest; bushfire reduction and prescribed fire; green infrastructure (e.g. shade trees, based green roofs); controlling overfishing; fisheries co-management; assisted migration or managed translocation; ecological corridors; ex situ conservation and seed banks; community-based natural resource management; adaptive land use management Social safety nets; food banks and distribution of food surplus; municipal services, including Services water and sanitation; vaccination programmes; essential public health services, including reproductive health services and enhanced emergency medical services; international trade Awareness raising; gender equity in education; extension services; sharing local and traditional knowledge, including integrating it into adaptation planning; participatory action Educational research and social learning; community surveys; knowledge-sharing and learning platforms; international conferences and research networks; communication through media Hazard and vulnerability mapping; early warning and response systems, including health early warning systems; systematic monitoring and remote sensing; climate services, including im- Social Informational proved forecasts; downscaling climate scenarios; longitudinal datasets; integrating indigenous climate observations; community-based adaptation plans, including community-driven slum upgrading and participatory scenario development Accommodation; household preparation and evacuation planning; retreat and migration, which has its own implications for human health and security; soil and water conservation; livelihood Behavioural diversification; changing livestock and aquaculture practices; crop-switching; changing crop- ping practices, patterns, and planting dates; silvicultural options; reliance on social networks Financial incentives, including taxes and subsidies; insurance, including index-based weather Economic insurance schemes; catastrophe bonds; revolving funds; payments for ecosystem services; water tariffs; savings groups; microfinance; disaster contingency funds; cash transfers Land zoning laws; building standards; easements; water regulations and agreements; laws to Laws and support disaster risk reduction; laws to encourage insurance purchasing; defining property regulations rights and land tenure security; protected areas; marine protected areas; fishing quotas; pat- Institutional ent pools and technology transfer National and regional adaptation plans; sub-national and local adaptation plans; urban upgrading programmes; municipal water management programmes; disaster planning and Government preparedness; city- and district-level plans and sector plans, which may include integrated policies and water resource management, landscape and watershed management, integrated coastal programs zone management, adaptive management, ecosystem-based management, sustainable forest management, fisheries management, and community-based adaptation

Source: Noble et al. (2014: 845).

97 4 The politics of climate change – towards a low-carbon world Structural and physical options include the use and ecosystem services (e.g. assisted migration of engineering (e.g. building sea walls or coastal of threatened species or ecological restauration module protection structures), the application of specific measures), and the delivery of specific services at technologies (e.g. the use of new crop varieties various levels (e.g. the creation of food banks to resistant to local anticipated climate impacts counter anticipated food shortages or the imple- or the implementation of early warning sys- mentation of vaccination programmes to limit tems to prepare for the increased frequency of expected health risks). Box 18 provides an example extreme weather events), the use of ecosystems of a structural adaptation project in Bangladesh.

Box 18 Cyclone shelters and early warning systems in Bangladesh Bangladesh has experienced a number of extreme weather and climate events over its history. According to the Intergovernmental Panel on Climate Change (IPCC), approximately 500,000 people died during a category 3 cyclone in 1970. In 1991, another category 3 cyclone killed 140,000 people.

As climate change increases, the likelihood of such extreme weather and climate events, including future cyclones, is probable. Bangladesh has therefore undertaken a collaborative process between local communities, government, and private organizations to implement adaptation measures. This collaboration has improved overall education about disasters (a social adaptation measure), deployed early warning systems based on high-technology information systems and measures such as training volunteers to distribute warning mes- sages by bicycle (a structural and physical adaptation measure), and built a network of cyclone shelters (another structural and physical adaptation measure).

As a result of these adaptation efforts, Bangladesh was able to achieve a remarkable reduction in mortality: during the category 4 cyclone in 2007, 3,400 people died, considerably down from the 500,000 and 140,000 deaths recorded during the previously mentioned cyclones. The achievement is even more remarkable considering that the country experienced population growth of more than 30 million between the cyclone events.

Source: Author's elaboration based on Smith et al. (2014).

Social options aim to reduce local vulnerabilities tify risks), or behavioural measures (e.g. changing of disadvantaged segments of the population agricultural practices, switching crop varieties, or and actively address social inequities (Noble et developing household evacuation plans). Table 9 al., 2014). They include educational measures outlined additional examples of social adapta- (e.g. awareness-raising and knowledge-sharing tion options. Box 19 provides an example of an about adaptation planning), informational adaptation project implemented in Bolivia that measures (e.g. the development and dissemina- combines a behavioural measure with a struc- tion of improved climate forecasts to better iden- tural measure.

Box 19 The camellones project in Bolivia In Bolivia, the frequency of extreme weather events has increased in recent years and is expected to further increase in the future due to climate change. Increased frequency of floods particularly threatens the poor population living in remote rural areas of the country. Devastating floods in Beni in 2007 prompted people from locations around Trinidad to participate in a project known as camellones that was jointly implemented by the Kenneth Lee Foundation and Oxfam.

The project consists of a combination of behavioural adaptation – a change of an agricultural practice – and a structural adaptation – the building of the camellones platforms. The aim of the project was to avoid future agricultural losses due to increased occurrence of floods. Instead of using a conventional farming technique, the project implemented the camellones farming technique that is based on a traditional farming method. Several modern camellones were built in 2007 and have since been used for farming (see photo). These modern camellones are essentially earth platforms. Each platform measures roughly 500 m2 and varies in height between 0.5 and 3 meters, depending on the predicted height of the local flooding and the area’s capacity for water run-off (Oxfam, 2009). Because these platforms are above the flood levels, they protect the crops from the flood. The ditches surrounding the camellones become canals in the event of a flood and act as an irrigation and nutrient source during the dry season (Oxfam, 2009).

98 The politics of climate change – towards a low-carbon world

Box 19 4 The camellones project in Bolivia

Camellones in Bolivia module

Source: http://valorandonaturaleza.org/noticias/manejo_precolombino_de_ecosistema_amaznico_

As a result of the new agricultural practices, farmers did not lose their crops and seeds during floods in 2008. The system seems to be a sustainable solution to address increased flooding, and it also preserves water for times of drought, acts as a natural seed bank, and improves soil quality and ultimately food security (Oxfam, 2009).

Source: Author's elaboration based on Oxfam (2009).

Institutional options aim to increase the poten- laws to encourage contracting and insurance), tial for adaptation (Noble et al., 2014) through a and governmental plans and programmes (e.g. variety of economic measures (e.g. disaster con- national and regional adaptation plans to coordi- tingency funds or financial incentives to imple- nate adaptation efforts). Table 9 listed additional ment adaptation options), legal and regulatory institutional options. An example of an institu- measures (e.g. mandatory building standards, or tional adaptation policy is provided in Box 20.

99 The politics of climate change – towards a low-carbon world

4 Box 20 Nepal’s National Framework on Local Adaptation Plans for Action In 2011, Nepal adopted the Nepal National Framework on Local Adaptation Plans for Action (LAPA). The LAPA module framework aims to integrate climate adaptation into local and national development planning processes in a bottom-up, inclusive, responsive, and flexible manner (Government of Nepal, 2011). Figure 42 outlines schematically how climate adaptation actions are integrated into and harmonized with local and national planning. The LAPA framework foresees seven steps: (1) information gathering; (2) vulnerability and adaption assessment; (3) prioritization of adaptation options; (4) formulation of LAPAs; (5) integration of LAPAs into local planning processes; (6) implementation of LAPAs; and (7) assessment of the progress of LAPAs. These steps are followed by implementation of a village- or district-specific LAPA (Government of Nepal, 2011).

Figure 42 The local adaptation plans for action framework

Climate change policy, 2011 and NAPA, 2010

Implementation

National Integration of adaptation options Identification of most into national and climate unerable districts district plans

District Support for adaptation of public Integration of local

Climate vulnerability goods by local bodies adaptation plan for action silience planning assessment to identity and/or adaptation ability assessment VDC, municipalyty and options into district-level livelihoods at risks development plan

VDC/Municipality Collective actions by groupes Climate vulnerability and enterprises Climate vulner assessment to identity communities Local plans for adaptation Climate adaptation re and people at risk and collective action

Village/town/community Adaptation households, enterprises and groups Bottom-up planning of adaptation that involves identification and prioritization of needs and options

Source: Government of Nepal (2011: 6). Note: NAPA: National Adaptation Programme of Action; VDC: Village Development Committees.

By 2014, a total of 70 LAPAs had been prepared (69 at the village level and one at the municipality level) and implemented by the affected communities (Mimura et al., 2014).

Source: Author's elaboration based on Government of Nepal (2011) and Mimura et al. (2014).

Identifying adaptation needs and implement- tion requires globally coordinated financing. As ing adaptation options is costly and requires Section 4 will show, negotiations on adaptation funding. As risks and vulnerabilities and thus financing are a central part of global climate adaptation needs are unevenly distributed and change negotiations. are often highest in poor countries, local adapta-

Short summary Section 3 reviewed adaptation policies that aim to reduce or even avoid the anticipated impacts of climate change by adapting economies to climate change. Given that climate change impacts, risks, and vulnerabilities differ locally, different adaptation policies are needed in different places on the planet. The section explained that the first step of any comprehensive adaptation policy therefore consists of assessing local risks and vulnerabilities in order to identify local needs. Once local needs are known, the government can choose appropriate measures from a wide range of adaptation options. The section also highlighted that adaptation policies are especially important for developing and least developed countries, as the anticipated impacts of climate change are expected to be largest in these countries.

100 The politics of climate change – towards a low-carbon world 4 4 The international climate change In other words, the principle of common but differentiated responsibilities takes into account policy architecture module that the bulk of cumulative human-induced Having discussed the different options for cli- GHG emissions have been emitted by the cur- mate change limitation and adaptation policies, rent developed countries. For this reason, these we now turn our attention towards the interna- countries should bear a greater responsibility in tional climate change policy framework. Multi- solving the climate change issue. lateral climate change negotiations to date have mainly focused on emission reduction policies The Kyoto Protocol was the first substantial in- and, more recently, have also started to integrate ternational agreement to reduce GHG emissions. adaptation policies. We structure our discussion Signed at the COP3 in Kyoto in 1997, it fully em- around three milestones in the development of braced the principle of common but differentiat- the multilateral climate change policy frame- ed responsibilities (Flannery, 2016). The protocol work: (a) the signature of the 1997 Kyoto Proto- used the UNFCCC classification of countries into col, which was the first substantial international Annex I, Annex II, and Non-Annex I Parties. An- agreement to reduce GHG emissions by estab- nex I Parties encompassed industrialized mem- lishing country-specific, legally binding emission ber countries of the Organisation for Economic targets for developing countries; (b) the failure of Co-operation and Development (OECD) as of the COP15 in Copenhagen that marked the end 1992 and countries with economies in transition of the Kyoto Protocol approach; and (c) the suc- (EIT Parties), which included Russia, Central and cessful conclusion of the COP21 in Paris, which Eastern European countries, and Baltic countries. marked the start of a new era of international Annex II Parties consisted of a subset of Annex climate policy architecture. Unlike what has hap- I countries, namely those countries that were pened over the past two decades, the Paris Agree- members of the OECD in 1992. Non-Annex I Par- ment does not impose legally binding emission ties were mostly developing countries. targets for developed countries, but rather is built on voluntary national contributions by all Based on this country classification, the Kyoto countries. As such, it represents a major change Protocol imposed legally binding mitigation tar- from the Kyoto Protocol approach, which had a gets for Annex I Parties and established a mar- more limited scope albeit high ambitions, to a ket mechanism to facilitate reductions in GHG regime based on broad participation, even if its emissions. In accordance with the principle of ambitions are initially relatively modest. common but differentiated responsibilities, it excluded all developing countries (Non-Annex 4.1 From Rio to Paris – 25 years of climate I Parties) from any legally binding obligation to change negotiations80 reduce emissions. Moreover, it imposed an ob- 80 This section draws on ligation on Annex II parties to provide financial Flannery (2016). The 1992 Conference in Rio adopted the United support to Non-Annex I Parties. Nations Framework Convention on Climate Change (UNFCCC), which required signatory The Kyoto Protocol used the so-called top-down countries to undertake national inventories of approach (Flannery, 2016): negotiations conduct- GHG emissions and develop action plans to re- ed at the international level focused essentially duce national emissions. Signatory countries of on determining country-specific, legally bind- the UNFCCC then held yearly conferences (called ing emission targets for Annex I countries. Each Conferences of the Parties - COPs) starting in 1995. country then had to implement the required From the very beginning of the UNFCCC process, a emission reductions using suitable policy instru- key principle guiding the negotiations was that of ments (many of which were described in Section common but differentiated responsibilities. This 2.1). The overall goal of the protocol was to reduce principle is enshrined in Principle 7 of the Rio Dec- emissions of all major greenhouse gases by 5 per laration on Environment and Development: cent by 2012 relative to 1990.

“In view of the different contributions to glob- To enter into force, the Kyoto Protocol needed to al environmental degradation, States have be ratified by at least 55 countries, responsible for

common but differentiated responsibilities. at least 55 per cent of 1990 CO2 emissions. While The developed countries acknowledge the it was signed in 1997, the required conditions for responsibility that they bear in the interna- entering into force were only met in 2005. The tional pursuit of sustainable development in first phase of the protocol thus started in 2005 view of the pressures their societies place on and was set to end in 2012. The United States, the global environment and of the technolo- at the time the country with the highest GHGs gies and financial resources they command.” emissions worldwide, never ratified the protocol.

101 4 The politics of climate change – towards a low-carbon world Its absence from the Kyoto Protocol illustrates the In parallel with negotiations on a second Kyoto collective action problem (see Module 3) and has commitment period, negotiations were taking module been one of the factors that considerably weak- place to develop a post-2020 climate change ened the Kyoto process. policy framework. To this end, the COP17 in Dur- ban established the Ad Hoc Working Group on After 2005, efforts quickly concentrated on nego- the Durban Platform for Enhanced Action (ADP) tiating the roadmap for future developments to with a mandate to (a) increase the ambition of shape international climate change policy after the climate change limitation policy for the pre- the first commitment phase of Kyoto expired in 2020 period, and (b) negotiate a global agree- 2012. During COP13 in Bali in 2007, a roadmap was ment for the post-2020 period by 2015 (Flannery, agreed upon with two key points. The first was to 2016). Compared to the political landscape of the prepare a second Kyoto commitment period with 1990s that led to adoption of the Kyoto Protocol, legally binding emission reductions for Annex I the situation has changed considerably. Besides Parties for the COP15 to be held in Copenhagen. the obvious failure of the top-down approach of The second was to open negotiations for a new the Kyoto Protocol, GHG emissions from develop- agreement involving all UNFCCC parties. Accord- ing countries have been growing rapidly. While ing to Flannery (2016), it was this latter decision the United States had been the largest emitter

that signalled, for the first time, that the princi- of CO2 until the mid-2000s, the People's Republic ple of common but differentiated responsibili- of China has been the largest emitter since 2005. ties could evolve. Other developing countries such as India are currently also among the top emitters worldwide. The COP15 in Copenhagen in 2009 resulted in Following intense negotiations, the ADP’s work an outcome that many observers qualified as a ultimately led to the outcome of the COP21: the failure: the conference did not agree on a legally Paris Agreement. binding extension of the Kyoto Protocol. Flannery (2016: 72) states that by failing to reach such a 4.2 The Paris Agreement legally binding extension, “Copenhagen dealt a deathblow to the top-down approach in which Negotiations for a post-2020 climate change nations negotiated terms for one another’s ac- framework initiated by the ADP concluded suc- tions as the basis for agreement. Going forward, cessfully in 2015 with the adoption at COP21 of national pledges will be based on voluntary sub- the Paris Agreement. The agreement brings the missions that reflect national circumstances and 197 parties to the United Nations Framework priorities.” Such an approach based on voluntary Convention on Climate Change (all United Na- national contributions is generally called a bot- tions Member States, the State of Palestine, the tom-up approach. In retrospective, Copenhagen Cook Islands, Niue and the European Union) un- indeed marked the end of top-down approaches der a common legal framework. This represents in international climate change negotiations. a change from the Kyoto Protocol, which had a Such an outcome could have been anticipated, more limited scope, albeit high ambitions, to a however, as many heads of state (including those regime based on broad participation, even if am- of the United States and the People's Republic of bitions initially are relatively more modest. This China) had announced earlier that they would departure from the past two decades of a top- not sign a legally binding agreement. After the down climate policy, which suffered from lim- Copenhagen failure, negotiations remained ited coverage of only a small subset of countries stalled for several years. It was only in 2012 at the required to cut emissions, towards a bottom-up COP18 in Doha that there was agreement on a framework, which involves all UNFCCC parties, is second Kyoto commitment period (until 2020). important given the paramount significance of long-term action by all countries to address cli- With regard to global GHG emissions, the top- mate change. down approach of the Kyoto Protocol can be considered a failure (Barrett et al., 2015): the IPCC Together with the new architecture combining notes that while the group of Annex I countries bottom-up Nationally Determined Contributions indeed managed to collectively meet their Kyoto (NDCs) – i.e. national commitments to reduce 81 This growth can be target by reducing their aggregate emissions GHG emissions, with top-down procedures for partially attributed to carbon more than 5.2 per cent below 1990 levels by 2012, reporting and synthesis of NDCs by the UNFCCC leakages from developed these reductions were largely offset by emission Secretariat – the Paris Agreement represents sig- countries. growth in Non-Annex I countries (Stavins et al., nificant progress towards a climate regime that 82 Note that INDCs became 2014).81 Consequently, global GHG emissions, in- could limit climate change. Prior to the Paris Con- NDCs when the Paris stead of being reduced, have been growing at an ference, 186 parties had submitted Intended Na- Agreement was concluded. unprecedented rate over the past two decades. tionally Determined Contributions (INDCs),82 and

102 The politics of climate change – towards a low-carbon world 4 two more did so during the conference, bringing sue efforts to limit the temperature increase to the total to 188 INDCs. The Paris Agreement will 1.5°C above pre-industrial levels” (Article 2.1.a of module take effect in 2020 when the Kyoto Protocol ends. the agreement). This formulation represents a In the interim, parties agreed to promote climate win for small island developing states and other action, ramp up financing, and begin implemen- developing nations that argue that a tempera- tation of their climate plans. They will have an ture increase above 1.5°C would be devastating opportunity, as part of a collective review in 2018, for them. to update these plans. Equally important is the fact that the private sector has been involved in a Parties also aim to “reach global peaking of GHG major way in contributing to climate action. Over emissions as soon as possible,” without specify- 5,000 global companies in 90 countries covering ing a date. They will “undertake rapid reductions all industrial sectors pledged actions to combat thereafter in accordance with best available sci- climate change. ence, so as to achieve a balance between anthropogenic emissions by sources and removals by It is important to note that the new policy ar- sinks of greenhouse gases in the second half of chitecture incorporates several elements that this century” (Article 4.1). This does not mean that have been identified by game theory models (see emissions would go to zero, but that they would Module 3) as being able to increase cooperation. go low enough that they could be offset by natu- NDCs can be viewed as national commitments ral processes or advanced technologies that are to reduce emissions (to some extent) regardless able to remove greenhouse gases from the air of what other countries are doing. If they turn (see Sections 2.1.2 and 2.1.3). out to be credible commitments, they will be a key element fostering cooperation. The financial Put simply, the Paris Agreement requires any transfer mechanisms and the repeated follow-up country that ratifies it to act to stem its GHG procedures (see Section 4.2.2), as well as the pros- emissions in the coming century, with the goal pect of linking development and climate change of peaking GHG emissions “as soon as possible” policy issues (see Section 4.2.3), are additional el- and continuing the reductions as the century ements that strengthen cooperation under the progresses. Parties will aim to prevent global Paris Agreement. So far, these elements seem temperatures from rising more than 2°C by 2100 to have positively affected the agreement’s sig- with an ideal target of keeping the temperature nature and ratification process. The Paris Agree- rise below 1.5°C. ment was opened for signature on 22 April 2016. By 29 June 2016, 179 countries had signed it. To 4.2.2 Follow-up procedures and financing date, 19 of the 179 signatories have also deposited their instruments of ratification, acceptance, or The Paris Agreement calls on all countries to sub- approval, accounting in total for 0.18 per cent of mit a new NDC every five years (Articles 3, 4, 7, 9, total global GHG emissions (UNFCCC, 2016). Ac- 10, 11, and 13) that should represent a “progres- cording to Article 21, §1, of the Paris Agreement, sion” over the prior one, and should reflect the the agreement will enter into force 30 days af- country’s “highest possible ambition” (Article 4.3). ter the date on which at least 55 parties to the This process is crucial, because the commitments convention, accounting in total for at least 55 per in current NDCs are not sufficient to limit warm- cent of total global GHG emissions, have depos- ing to below 2°C, much less 1.5°C. The UNFCCC ited their instruments of ratification, acceptance, Secretariat’s assessment of the collective impact approval, or accession with the Depositary.83 of over 146 INDCs submitted by 1 October 2015 83 Note that the agreement (i.e. prior to the Paris Conference) concluded that specified the Secretary-Ge- Similar to the Kyoto Protocol, the Paris Agree- they will result in a fall in global emissions and neral of the United Nations as Depositary. He or she will ment reflects the principle of common but differ- keep the rise in global warming to around 2.7°C be responsible for ensuring entiated responsibilities and thus takes on board by 2100. While not enough to avert a dangerous the proper execution of all the equity and fairness concerns of developing warming of the earth, these commitments are treaty actions related to the countries. The following sections review the con- important steps forward. agreement. tent and the ambition of the agreement, explain the follow-up procedures, and discuss climate Implementation of the agreement will be as- financing. sessed at “global stocktakes” every five years, with the first global stocktake scheduled for 2023 (Arti- 4.2.1 Objectives of the Paris Agreement cles 14.1 and 14.2).

Parties to the agreement aim to limit “the in- In addition to climate change mitigation, the crease in the global average temperature to well agreement also stipulates that countries will “en- below 2°C above pre-industrial levels and to pur- gage in adaptation planning processes” (Article

103 4 The politics of climate change – towards a low-carbon world 9) to ensure that they are ready to cope with the extent determine the level of implementation effects of climate change. For impacts to which of NDCs by developing countries. The commit- module countries cannot adapt, the agreement contains ment of developing countries to address climate a “loss and damage” section, suggesting that change is thus largely contingent on financial as- these cases will be addressed through a variety sistance from wealthier countries. of means including “risk insurance facilities, climate risk pooling and other insurance solutions” In this context, developed countries should con- (Article 8.4.f). This provision is another key win tinue their existing collective financing mobi- for small island states and other vulnerable de- lization goal agreed upon in Cancún at COP16 veloping nations. through to 2025. That goal was to provide funds equal to US$100 billion per year by 2020. Prior to The agreement states that developed countries 2025, the parties to the Paris Agreement shall set “shall provide financial resources to assist de- a new collective quantified financing goal of at veloping country parties with respect to both least US$100 billion per year, taking into account mitigation and adaptation” (Article 9.1) – i.e. to the needs and priorities of developing coun- help them brace for impacts and shift to cleaner tries (Article 9, §3, Decision 54). To put this goal energy systems. The text suggests, however, that of US$100 billion per year into perspective, note wealthier developing countries can also contrib- that available climate financing in 2014 was esti- ute such funds if they so choose. Several such mated at US$62 billion (Mai et al., 2016). As Figure countries have considered doing so (e.g. Brazil), 43 shows, roughly one-third of this amount came and the People's Republic of China has already from multilateral sources, slightly more from bi- pledged to provide US$3.1 billion over a three- lateral sources, and the remaining part from pri- year period. Developed countries should report vate sources. Considerable efforts will thus have on their climate donations every two years (Ar- to be made to reach the US$100 billion per year ticle 9.5). Such financial assistance will to a large target by 2020.

Figure 43 Estimated climate financing in 2014 Targets and (actual and potential) sources of climate finance

Mobilize from advanced economies US$100 billion per year for climate mitigation Goals for 2020 and adapatation in developing countries by 2020

US$23.1 bn Bilateral (e.g Official development assistance)

US$20.4 bn Multilateral (moslty Multilateral development banks)

Actual flows in 2014 US$16.7 bn Private finance (leveraged from public sources

US$1.6 bn Export credits (mainly for renewable energy

US$61.8 bn Total flows

Potential extra revenues US$25 bn $30/ton CO2 charge, advanced economy domestic fuels (7 per cent apportioned).

US$25 bn $30/ton CO2 charge, international aviation/maritime fuels.a

Source: Mai et al. (2016: 28) a Includes only revenues from developed countries.

Financial resources to support climate mitiga- 4.2.3 Paris Agreement and development tion and adaptation actions in developing countries are managed by four funds: the Green Cli- Compared to the previous climate change pol- mate Fund, the Global Environment Facility, the icy architecture, the Paris Agreement marks a Least Developed Countries Fund, and the Special change for developing countries: they are now Climate Change Fund (Decision 59). While raising also called upon to implement climate change the required US$100 billion per year is clearly the limitation policies by submitting their own most pressing challenge, several other challenges NDCs, which was not the case under the Kyoto remain on the spending side and still need to be Protocol. These countries have a strong inter- addressed. Mai et al. (2016: 27) note that there “are est in limiting climate change, as they are over- concerns on the spending side about the balance proportionally exposed to the associated risks between mitigation and adaptation (currently (see Module 2 and also Section 3 of this Mod- most is on the former), allocating funding across ule). However, they also have a strong interest in countries and projects accounting for efficiency rapid economic growth that would allow them and equity, and avoiding paying for projects that to eradicate poverty and increase standards of would have gone ahead without funding.” living (Collier, 2015).

104 The politics of climate change – towards a low-carbon world 4 To pursue these two objectives simultaneously, sents “an opportunity to drive the economic the transformation towards low-carbon and transformation that Africa needs: climate-re- module resource-efficient economies must proceed in a silient, low-carbon development that boosts way that allows for decoupling economic growth growth, bridges the energy deficit and reduces and social development from climate change. poverty. Climate change gives greater urgency to UNCTAD (2015: 1) notes that for developing coun- sound, growth-stimulating policies irrespective tries, “such a decoupling should facilitate, and not of the climate threat.” The African Development undermine, opening new trade and investment Bank (2015) identifies several important co-ben- opportunities, generating jobs, growing national efits in different sectors. The African energy sec- economies, widening access to basic necessities tor could greatly benefit from a transformation and essential services and reducing poverty.” To towards renewable energies, which could tackle be able to achieve these objectives while limiting fundamental inefficiency in Africa’s energy sys- climate change, developing countries thus firmly tems and generate important investment op- demanded the inclusion of the principle of com- portunities. A second set of major co-benefits mon but differentiated responsibilities in the relates to the agricultural sector. Implementa- Paris Agreement. tion of climate-smart agriculture could increase Africa’s annual agricultural output from the Given that they succeeded and that the Paris current US$280 billion to an estimated US$880 Agreement is built upon this principle, developing billion by 2030, which would offer the potential countries can count on financial and technological to increase food security and generate jobs (Af- support from developed countries to implement rican Development Bank, 2015). The third major their NDCs. The financial transfer mechanisms set of co-benefits lies in low-carbon and climate- aiming at transferring at least US$100 billion resilient investments in African cities. Such in- per year from developed to developing countries vestments could make cities less vulnerable to by 2020 is one of the two key factors expected to anticipated climate change impacts, and also enable developing countries to implement their improve economic productivity, security, air qual- NDCs. Technology transfer from developed to de- ity, and public health, as well as reduce poverty veloping countries in areas such as renewable en- (African Development Bank, 2015). The combina- ergy and energy conservation technologies is the tion of finance and technology-transfer mecha- second key factor for successful implementation nisms with policies that help mitigate climate of developing countries’ NDCs. Financial and tech- change and also produce significant co-benefits nological transfers should jointly ensure that the stimulating growth is thus key for the success- implementation of NDCs does not hurt develop- ful transformation of developing economies into ing countries’ growth prospects. low-carbon economies.

Several observers are confident that due to the Many developing countries were among the first finance and technology-transfer mechanisms parties to sign the Paris Agreement: 18 of the 19 developing countries might not only be able to countries that had ratified the agreement as of contribute to limit global GHG emissions by im- this writing are developing countries. Many de- plementing their NDCs, but could also benefit veloping countries have also already submitted from important co-benefits of these policies. The detailed NDCs. Box 21 briefly illustrates the objec- African Development Bank (2015: 3) notes that tives and approaches of the NDC of one such de- the need to respond to climate change repre- veloping country, Kenya.

Box 21 Kenya’s Nationally Determined Contribution objectives and approaches Kenya’s experience is typical for a lower-income country that aspires to high growth but also wants to pursue

climate change policies. According to Kaudia (2015), Kenya’s GHG emissions were estimated to be 73 MtCO2-eq in 2010, with roughly 75 per cent of them attributable to activities such as agriculture, forestry, and free- range rearing of livestock. Historically, Kenya’s contribution to cumulative global GHG emissions has been

very low, ranging around 0.1 per cent, with cumulative per capita emissions of less than 1.26 MtCO2-eq (the

global average is 7.58 MtCO2-eq). Kaudia (2015) notes that the country plans to attain 10 per cent GDP growth by 2030, which would double its emissions if no additional climate change policies were implemented. The Intended Nationally Determined Contribution Kenya submitted before the COP21 in Paris foresees reducing the country’s emissions by 30 per cent compared to their 2014 levels (see the low-carbon pathway in Figure 44). Kenya thus intends to pursue ambitious growth while simultaneously committing to an ambitious emission reduction goal.

105 The politics of climate change – towards a low-carbon world

4 Box 21 Kenya’s Nationally Determined Contribution objectives and approaches To achieve this ambitious goal, Kenya has already implemented several policy measures to limit climate module change. These include policies to indirectly price carbon dioxide by taxing older and hence fuel-inefficient vehicles and by limiting the age of vehicles that can be imported to a maximum of eight years. Kenya has also integrated climate change into its national planning process and established, in cooperation with the World Bank, what are called Climate Innovation Centers, which have had a positive impact through various climatechange-related investment projects (Kaudia, 2015).

Figure 44 Kenya’s carbon dioxide abatement potential by sector

Forestry 3,000 Electricity Transportation Energy demand 2,500 Agriculture Reference case projection Indrustrial process Waste

eq 2,000 2

1,500 Emission Mton CO 1,000

Low-crabon pathway

500 Reduction below reference case: -15% -41% -59% -69% 0 2010 2015 2020 2025 2030

Source: Kaudia (2015) based on data from Government of Kenya (2012).

Kaudia (2015) reports that reducing the rate of deforestation by way of large-scale tree planting would be the least-cost solution to tackle climate change in Kenya and other low-income countries. As shown in Figure 44, Kenya’s forestry sector clearly has the biggest CO2 abatement potential. This cost-effective solution would preserve or even increase natural carbon sinks and thus contribute to reducing the country’s emissions. Kau- dia (2015) therefore recommends that low-income countries that rely on natural capital to develop their green growth strategy should mainly focus on environmental and natural resource management policies

Source: Author’s elaboration based on Kaudia (2015).

Short summary Section 4 reviewed the international climate change policy architecture. It discussed the past 25 years of international climate change policy that started with the adoption of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992. The section showed that climate change policy has been shaped by the principle of common but differentiated responsibilities. It also showed that over past years, climate change policy shifted from a top-down approach – the Kyoto Protocol – towards a mixed approach upon which the Paris Agreement relies. This latter approach combines bottom-up nationally determined contributions – i.e. national commitments to reduce greenhouse gas emissions – with top-down procedures for reporting and synthesis of nationally determined contributions by the UNFCCC Secretariat.

106 The politics of climate change – towards a low-carbon world 4 5 Exercises and questions for discussion module 1. Describe the two fundamental options available to limit climate change.

2. List policy instruments capable of reducing atmospheric greenhouse gas concentrations.

3. Compare carbon taxes to carbon cap and trade systems and discuss their relative advantages and disadvantages.

4. What are carbon capture and storage technologies?

5. Compare solar geoengineering to carbon geoengineering. What are the fundamental differences?

6. Discuss the objectives, costs, risks, unknowns, and collective action prospects of:

• Substantial reductions of the flow of carbon dioxide emissions reaching the atmosphere • Carbon geoengineering • Solar geoengineering

7. Discuss the importance of climate change adaptation projects for your country. Find examples of planned or implemented climate change adaptation projects.

8. Identify the fundamental difference between the Paris Agreement and prior international climate change agreements.

9. Define the concept of common but differentiated responsibilities. Why is this concept of central importance to many developing countries?

10. Go to http://unfccc.int/focus/indc_portal/items/8766.php and download the INDC of your country. Discuss the objectives and approaches of your country’s INDC.

11. What are the challenges and opportunities for climate change policies in developing countries?

107 4 The politics of climate change – towards a low-carbon world ANNEX 1

module Some useful databases Database Description Link Organisation for Economic Co-operation This data catalogue contains informa- http://www2.oecd.org/ecoinst/queries/ and Development database on instru- tion on climate change policies of ments used for environmental policy different countries. The database can be and natural resources management searched by policy category (taxes/fees/ charges, tradable permits, deposit-re- fund systems, environmental subsidies, and voluntary approaches), environmental domain, country, and sector. ECOLEX database This data catalogue contains treaties, http://www.ecolex.org/ Conference of the Parties decisions, legislation, court decisions, and literature related to various environmental issues, including climate change. World Trade Organization (WTO) envi- This data catalogue covers environ- https://www.wto.org/english/tratop_e/ ronmental database ment-related notifications submitted envir_e/envdb_e.htm by World Trade Organization (WTO) members and environmental measures and policies mentioned in the Trade Policy Reviews of WTO members. United Nations Framework Convention This data catalogue contains submitted http://unfccc.int/focus/indc_portal/ on Climate Change Intended Nationally INDCs of different countries. items/8766.php Determined Contributions (INDC) portal

ANNEX 2

Selected additional reading material Barrett S, Carraro C, and de Melo J, eds. (2015). Towards a Workable and Effective Climate Regime. CEPR Press and Ferdi. London. Stern S (2015). Why Are We Waiting? The Logic, Urgency, and Promise of Tackling Climate Change. MIT Press. Cambridge, MA.

OECD (2012). Energy and Climate Policy Bending the Technological Trajectory. Organisation for Economic Co-operation and Development Publishing. Paris. UNFCCC (2007). Impacts, Vulnerabilities and Adaptation in Developing Countries. United Nations Framework Convention on Climate Change Secretariat. Bonn.

108 The politics of climate change – towards a low-carbon world

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