Working Group III: Mitigation

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10.2 International Regimes and Policy Options 10.2.1 Introduction

Previous chapters provide some answers to the most relevant policy questions related to the climate change problem. Issues such as the timing of optimal responses to climate change, the role of technological innovation and diffusion, the choice between domestic action and the adoption of “Kyoto mechanisms”, the importance of co- and ancillary benefits, etc., have been analyzed from different perspectives. However, it is important to notice that the costs and benefits of all the above options crucially depend on the characteristics of the international agreement on climate change that is adopted. In particular, they depend upon two main features of the international regime: the number of signatories, and the size of their quantitative commitment to control GHG emissions.

It is therefore impossible to assess the costs and benefits of the Kyoto Protocol or of other potential agreements on climate change independently of the number of signatories of the agreement and of their abatement targets and/or policy commitment. However, the number of signatories is endogenous and depends on the abatement targets and mitigation polices adopted in various countries. Hence the weakness of most of the available literature on costs and benefits of climate change policies, which widely neglects the full interdependency between policies, costs–benefits, and signatories (more generally, the structure of the international agreements). For example, studies analyze the costs of implementing the Kyoto Protocol either through a set of domestic policies and measures or through a system of international tradable permits, with a fixed number of signatories. But the adoption of either policy crucially affects the number of signatories, which can be larger or lower under policies and measures than under tradable permits. And the number (and identity) of signatories crucially affects the costs and benefits of different agreements.

Therefore, this section aims to provide an analysis of the effectiveness of climate policies by focusing on the link between policy options on the one hand and the structure of the agreements and international regimes on the other. Some of the most important theoretical results are reviewed first, and then the existing literature is revisited to see which information it provides on the interdependencies described above. In particular, can such an analysis show whether there exist the conditions for an agreement on climate change to be signed by all or almost all world countries (see Carraro, 1998; Carraro and Siniscalco, 1998; and Barrett, 1999 for a theoretical analysis of these conditions)? Also, would it show which countries can play a leadership role with respect to achieving the largest possible coalition by proposing strategies, measures, and institutions that help expand the number of countries that commit to control their emissions (see Grubb and Gupta, 2000)? Notice that in this way we also analyze which strategies can be proposed to reduce the costs of mitigation policies. But this is a quite different approach to those analyzed in the previous sections of this chapter and in Chapters 8 and 9. The reason is that here a country’s goal is not to identify a new climate friendly technology or an adequate redistribution of costs across sectors. Now the goal is to affect other countries’ behaviour to increase the number of those that share the burden, and to share the burden more equitably.

The equity issue is also very important to understand which countries are going to reduce and/or control5 their emissions. As a consequence, given what is said above, equity is crucial to assess adequately the costs of emission reductions at the global and country level. It has been argued that some countries are allowed to reduce emissions less than other countries, both within (Kram, 1998) and outside the European Union (EU) bubble (Bosello and Roson, 1999; Metz, 1999; Rose and Stevens, 1999). Even when applying the Kyoto mechanisms, some countries will benefit from the agreements more than other ones (Nordhaus and Boyer, 1999). It has also been argued that some countries can exploit their monopolistic power in a future trading system (Burniaux, 1998). All these remarks address the problem of optimal burden-sharing (the distribution of costs) of climate change control. This problem is strictly related to the features of an international agreement on climate for two main reasons. First, increasing the number of participating countries reduces the direct costs for each signatory; second, an agreement in which the burden is equitably shared is more likely to be signed by a large number of countries (Convery, 1999). Therefore, equity and the structure of the international agreement (number and identity of signatories) are strictly linked. However, the number of signatories affects and is affected by costs. Hence, equity and efficiency cannot be separated.

These remarks reinforce the previous basic statement. An analysis of the costs and benefits of different policy options, and of the distribution of these costs and benefits across countries, cannot be done independently of an analysis of the likely features of the prevailing international regime (i.e., of the incentives that lead countries to sign an international agreement to control GHG emissions and to set quantitative emission targets).

Notice that an analysis of the features of climate international agreements and of their repercussions on the choice of different policy options (and vice versa) must take into account:

  • basic features of the climate problem recalled in Section 10.1, and particularly the public-good nature of GHG abatement in the absence of a supranational authority;
  • scenarios that describe the future evolution of economic and environmental climate-related variables;
  • economic incentives for countries to sign an international agreement on climate change control, that is under what conditions, in terms of the number of countries, damaging effects of free-riding (leakage), structure of costs and benefits, can a coalition (i.e., a group of signatories of the international agreement) emerge?6
  • the political and institutional dimension of an international climate agreement, its history, the possibility of monitoring and sanctioning deviations, the links with other agreements.

This section is devoted to the analysis of the above issues and also aims to provide a framework to understand how future negotiations on climate change can evolve, and how costs and benefits of climate policies are modified by these possible evolutions.

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