La négociation internationale des politiques d’environnement: entre

économie pure et économie politique

Cours EDDEE

Séance n° 7

Jean-Charles HOURCADE

Un principe de base (B-L-S) pour les biens publics non divisibles

• Max sous contrainte de

– Condition de Bowen – Lindhall – Samuelson– disparition des alphai : séparabilité équité-efficacité

• Quid si les alphai sont des poids de Neigishi? distribution actuelle des revenus comme optimale ou irréformable

( , )ii i i

i

xW U tM ( )i

i C xt

'( )

i

ii

i

Ux C x

UM

Optimal abatement expenditures at

1st period

First-Period Revenue yi

Mar

gin

al U

tilit

y

A

B

C

YrichYpoor

apoor arich

Unweighted Marginal Utilities

Weighted Marginal Utility of the Poor

The ‘separability’ question in one vs. multi- period models

A multi-period model imposes to make two sets of additional “judgments”

• The second period weights: Neigishi like? reflecting current negotiating powers?

• The arguments of the utility functions: do Parties account for damages falling on their own descendants, or on all future individuals?

• The latter “judgment” is not a matter benevolence vs selfish interest but a matter of attitude in the face of deep uncertainty

De la théorie à l’expérience de la négociation climat …

• 1979 1st world conference on CC• 1985-1986 first experiments with 3D GCM• 1988: the G7 decides ….• 1992: Rio de Janeiro UNFCCC• 1995: Berlin Mandate• 1997: Kyoto Protocol• 2000: COP6 Den Hagen semi-failure• 2001: COP7 Marrakech accord/US out• 2004: Kyoto into force• 2005: G8 declaration: a new area?

In illo tempore…

• What’s bitten Bush(sr) and Thatcher at the 1988 G7?

- Back to ‘Independence 1980’ (Nixon) - In a context of unstable Middle-East, Perestroïka and

Emerging China and India …. - A question of Energy Security (Schlessinger WEC 1989)

• Why the EU promptly picked the window of opportunity?

• The reasons for the failure of the EU proposal

• The Rio compromise … back to Stockholm 1972?

A negotiation before the negotiation: what, where and why to negociate?

– Type of commitments• prices – quantities - PAMS: neutral in terms of ‘pay-off’

not in terms of the « object » of the negociation and of implications for various stakeholders

– Compliance rules and national sovereignty• content of the notion of « legally binding commitment»• What Umbrella: committed with whom?

– Status of the Issue Linkages: • Implicit or explicits?• Institutional implications for the ‘World Goverance’

Why an agreement on prices may be easier?

PPangloss

PIndustriels

Abatement

Marginalcost

Cpess

Copt

Dpess

Dopt

PDoom

PEcolo

Why the EU carbon energy tax failed?

• The nuclear divide

• The EU governance failure: the subsidiarity principle => the EU proposal = a leonine contract for industry

• The ‘French’ responsibility … good example of the gap between decisions and real economic interests

• “hidden agenda”, “lobbyists” and “distraction” of key stakeholders … “computational constraints?”

Table I - Gross impact of a $120/tC

U01

T02 T03

T04

T05

T06

T07

T08T09 T10

T11

T13T21

T23 T14 T15AT15B T16T17 T12 T18 T19 T20 T22

U07 U08

T31

T32T29 T30 T33 T34 U12 U13 U14

+ 0%

+ 2%

+ 4%

+ 6%

+ 8%

+ 10%

+ 12%

+ 14%

+ 16%

Sector

Var

iatio

n of

pro

duct

ion

cost

sWhy a $120t/C tax undermines

competitiveness of industries (french case)

Why a generalized carbon tax may be a good bargain for industry (french case)

Decrease of total fiscal burden on industry : - 22815 MF

U01

T02T03

T04

T05

T06

T07

T08

T09 T10

T11

T13

T21

T23T14T15A

T15BT16T17

T12 T18T19

T20

T22U07

U08

T31

T32T29 T30

T33T34 U12U13

U14

- 1,0%

- 0,5%

+ 0,0%

+ 0,5%

+ 1,0%

+ 1,5%

+ 2,0%

Sectors

Prod

uctio

n co

st v

aria

tion

Loosers :9 % of total product4 % of employment

Rio 1992 : a move in the US strategy

« Ce que le peuple américain a retenu de la guerre du Golf, c’est qu’il est extrêmement plus facile et plus drôle d’aller botter les fesses des gens au Moyen-Orient que de faire des sacrifices pour limiter l’indépendance de l’Amérique vis-à-vis du pétrole importé… Ceux qui me connaissent savent que je n’aurais jamais utilisé une phrase comme celle que je viens d’employer si elle n’était pas utilisée aux niveaux les plus élevés du gouvernement.  » (James Schlesinger, 15e Congrès du Conseil Mondial de l’Energie, sept. 1992, Madrid)

Le mode de vie américain n’est pas négociable(G. Bush Sr.)

Berlin: a decision under hypnosis?

• Rio’s statement: the ‘unexpected’ effects of a non binding declaration

• A price approach squeezed by the a-synchrony of political life cycles (Clinton’s BTU tax)

• When a national compromise between opposite views (Germany) dictates the option to the absent minded, the hypnotized and the oversophisticated

Overlooked political consequences of the Cap & Trade (only) option

• The Byrd – Hagel Resolution (1997) about the meaningful participation of DC; economic interest or political philosophy?

• “There will be no emissions trading until the question of the entitlement of primary emissions rights is resolved”; India on behalf of G77+ China (Kyoto 1997)

• Development as an “ancillary benefit of

climate policies” (Ipcc TAR)

Kyoto when the G77 breaks the hypnosis

• The Pams vs cap&trade misunderstanding

• The compromise on carbon trading

• Targets, multigases, sequestration … how new traps are invented

• The supplementarity condition

• The veto of the G77 to the carbon trading

• The symptomatic Kyoto surprise: the CDM)

Kyoto to Marrakech: the structure of the game

RUSSIA

UMBRELLA USA AUST

CN, NZ, J

EUROPEANUNION

G77•Brésil, Inde, Chine•PMA•OPEP•AOSIS•ARGENTINE

SU

PPLE

MEN

TARIT

ETRANSFERTS(MDP, GEF)

Kyoto to Marrakech

• The roots of the supplementarity quarrel: – Symbolic investments cannot be changed overnight– They resists to economic analysis when transformed into

a political operator– The “German” domestic compromise and the diplomatic

traditions

• A paradoxical timing of negotiations • Reasons for the failure of a possible way out: a price-cap

– the rejection of “transactions”– the attraction for a legally binding international system– some media “vagaries”: when symbolic capital should be

accounted as a component of the “pay-offs”

• The last day performance: the hidden agenda on the table : nuclear issue

Uncertainty of MACCs, when the pessimists and optimists can select their prefered model

0

75

150

225

300

375

450

0 100 200 300 400 500 600 Abatement from reference emissions, MtC

Car

bon

pric

e in

2010

(199

0USD

/tonn

e)

GTEM AIM G-Cubed MERGE3 EPPA MS-MRT Oxford RICE SGM Worldscan POLES

MACCs - European Union

The economics of a price-cap; effect on environmental integrity

-100

100

300

500

700

900

1 100

BAU WP $50 ...+RP WP $75 ...+RP WP $100 ...+RP

201

0 C

arb

on

em

issi

on

s:M

tC b

eyo

nd

Kyo

to t

arg

ets

Kyoto

1990

level

+

+

+

+

+ +

+

iU iU

What lessons for the Future : questioning the Economic Vulgate

• Equate marginal costs across countries and sectors• Minimize total costs of given abatement targets• Prevent distorsion in international competition

• CARBON TAXES or CAP and TRADE: reconciling environmentalist political will, economic

rationality and national sovereignty

… A «  tabulae rasae  » utopia ?

A table cluttered with embarrassing details

Price increases after a $150/tc tax in France:gasoline: 8.6%gas for industry: 34%coal (coke): 260%

Pre-existing ‘carbon taxes’ on gasoline:$ 1.43/l in France $ 0.18/l in the USA

Welfare impact of 1$/tc: 26 in India for 1 in the US

US importing 10G$ of carbon from Russia?

Private vs social costs: questions of tangibility

Carbon price in 2010 (1990$s) GDP losses in 2010 (%)

Model

USA

EU

Japan

USA

EU

Japan

ABARE-GTEM 4

322

1

665

2

645

1

1,96

3

0,94

(4)

0,72

AIM 3

153

2

198

1

234

2

0,45

3

0,31

4

0,25 G-Cubed 4

76

1

227

3

97

4

0,42

2

1,50

3

0,57

MERGE3 2

264

4

218

1

500

2

1,06

3

0,99

(4)

0,80 MS-MRT 2

236

4

179

1

402

1

1,88

4

0,63

3

1,20

RICE 4

132

2

159

1

251

2

0,94

4

0,55

3

0,78 Average 3

202

2

320

1

408

2

1,30

3

0,98

4

0,80

IDDRI – 16 janvier 2007

A significant paradox about the benefits from carbon trading

$/T C (%) T (G$)

• UE 43 ( 56) - 0.3 - 12.2• US A 43 ( 43) - 0.94 - 33.6• Japon 43 ( 52) - 0.62 - 4.6• Chine 43 (189) - 1.57 - 4.2 • Inde 43 (391) - 2.16 + 22.2• Brésil 43 (163) - 0.12 - 1.1$/T: prix de la tonne de carboneC (%): baisse de la richesse des ménagesT (G$): transferts monétaires associés

Cap&Trade, for lack of anything better

• Internationally coordinated carbon tax (Nordhaus, Cooper)– Distributional effects : the BSL theorem requires differentiated

C-taxes or compensations– No net transfers to developing countries

• Coordination of “P&Ms” : the essence of a nightmare

• R&D investment on carbon-free techniques:– Some misunderstandings about the nature of innovation– OK but where are the incentives?– OK but are you sure to put the money on technologies

appropriate to our specific contexts?

Amending Kyoto: avoiding two traps of the “negotiating targets”

• The fairness debate (thanks for the fairness but without the burden)

• Cost uncertainty

Example 1: Normalized net efforts 2030, convergence rule

-3

-2

-1

0

1

2

3

4

CNZ FSU JAP USA WEU CHI IND ROW

HbHa

LbLa

EITs

1=level Parties would pay if costs were shared pro-rata per capita GDP,>1 if Party pays more,<1 if Party pays less,<0 if Party gains from trading

Region

Nor

mal

ized

net

cos

ts o

f cl

imat

e m

itig

atio

n

Cutting the environment-development Gordian Knot

• Where are the obstacles in front of current development patterns?

• Which of them can be removed synergistically with the search for low carbon development pathways?

• Which aspects of climate policies intrinsically cannot but result in an obstacle to development?

• An intellectual pre-condition: from what baseline are we talking about?

Obstacles to sustainable development

• Financial Constraints, “Capital Scarcity” and funding of infrastructures

• Macro-economic Constraints: oil prices, technology imports, public indebtedness,

• Distorted technology choices

• Unfulfilled basic needs and Social Dualism: (energy, electricity, transport, sane water)

• Local environment disruption

Amending Kyoto: a workable architecture if no crispation on the entitlement issue

• no global binding cap until the Portuguese per capita income level is reached (principles to be discussed)

• a menu of– non binding national emissions caps

– sectoral binding quotas allowing to a direct access to ICT and allowing to help domestic P&M and sector heterogeneity

– CDM redesigned as a support to domestic policies

• price-caps and price-floors– Safety valve Hedging against uncertainty

– A compliance tool and a levy for development

… and if no crispation on the “favella” vs “grand archictecture” debate

• The climate regime can’t pretend to dictate all core decisions contributing to decarbonisation

• Carbon prices will not “do the job” alone

• They will have weak (and possibly perverse) influence on informal activities and will be swamped by high noise from other price signals (interest rates, real estates, land, shadow price of security, insurance costs)

• But they can operate as an attractor aligning bottom-up initiatives with pledges and review and the are a pre-condition for securing their consistencu

An architecture which does not avoid confronting four sensitive issues

• Coal and sequestration: serious environmental integrity question + the « loophole » rethoric

• Biological sequestration: when, where, under what condition?

• Coupling with discussions about ODA : crowding out, conditionality versus output based mechanism embedding measurement and control devices

• Climate regime and WTO; link with the compliance system

Complementary tools for supporting national and regional policy platforms

• Changing context for overseas aid and funding– Decreasing amounts– Big countries → technical and institutional facilitation

≠ LDCs → adaptation and capacity building

• Upgraded monitoring and «good quality money»– Misuse of ODA →need for monitoring of ODA

efficiency : → carbon monitoring = opportunity for upgrading the control but need for institutional innovation

– Risk mitigation instruments (exchange rate risks…)

What Issue linkages and real motives to act for a compromise?

• Developed countries perspectives– Will the North consider climate only damages

likely to affect them directly? – Will they interpret climate damages in the

developing countries as source of instability– Will there be a link with other strategic issues

• Developing countries perspectives– Degree of concern about global warming: – Not to be isolated from an emerging regime– Opportunity to reform the ‘international economic

order

The last G8: good news?

• “ We will act with resolve and urgency to meet our shared and multiple objectives of reducing GHGs emissions, improving the global environment, enhancing energy security and cutting air pollution in conjunction with our vigorous efforts to reduce poverty”

• “We face a moment of opportunity” given the demand for infrastructure investment in DCs; back to the Marshall plan metaphora?

• To respond the discontents of globalisation: universal solidarity triggered by well-informed perceptions of self-interest