2.6.4 Equity consequences of different policy instruments

All sorts of climate change policies related to vulnerabilities, adaptation, and mitigation will have impacts on intra- and inter-generational equity. These equity impacts apply at the global, international, regional, national and sub-national levels.

Article 3 of the UNFCCC (1992, sometimes referred to as ‘the equity article’) states that Parties should protect the climate system on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof. Numerous approaches exist in the climate change discourse on how these principles can be implemented. Some of these have been presented to policymakers (both formally and informally) and have been subject to rigorous analysis by academics, civil society and policymakers over long periods of time.

The equity debate has major implications for how different stakeholders judge different instruments for reducing greenhouse gases (GHG) and for adapting to the inevitable impacts of climate change.

With respect to the measures for reducing GHGs, the central equity question has focused on how the burden should be shared across countries (Markandya and Halsnaes, 2002b; Agarwal and Narain, 1991; Baer and Templet, 2001; Shukla, 2005). On a utilitarian basis, assuming declining marginal utility, the case for the richer countries undertaking more of the burden is strong – they are the ones to whom the opportunity cost of such actions would have less welfare implications. However, assuming constant marginal utility, one could come to the conclusion that the costs of climate change mitigation that richer countries will face are very large compared with the benefits of the avoided climate change damages in poorer countries. In this way, utilitarian-based approaches can lead to different conclusions, depending on how welfare losses experienced by poorer people are represented in the social welfare function.

Using a ‘rights’ basis it would be difficult to make the case for the poorer countries to bear a significant share of the burden of climate change mitigation costs. Formal property rights for GHG emissions allowances are not defined, but based on justice arguments equal allocation to all human beings has been proposed. This would give more emissions rights to developing countries – more than the level of GHGs they currently emit. Hence such a rights-based allocation would impose more significant costs on the industrialized countries, although now, as emissions in the developing world increased, they too, at some point in time, would have to undertake some emissions reductions.

The literature includes a number of comparative studies on equity outcomes of different international climate change agreements. Some of these studies consider equity in terms of the consequences of different climate change policies, while others address equity in relation to rights that nations or individuals should enjoy in relation to GHG emission and the global atmosphere.

Equity concerns have also been addressed in a more pragmatic way as a necessary element in international agreements in order to facilitate consensus. Müller (2001) discusses fairness of emission allocations and that of the burden distribution that takes all climate impacts and reduction costs into consideration and concludes that there is no solution that can be considered as the right and fair one far out in the future. The issue is rather to agree on an acceptable ‘fairness harmonization procedure’, where an emission allocation is initially chosen and compensation payments are negotiated once the costs and benefits actually occur.

Rose et al. (1998) provide reasons why equity considerations are particularly important in relation to climate change agreements. First, country contributions will depend on voluntary compliance and it must therefore be expected that countries will react according to what they consider to be fair,^[25] which will be influenced by their understanding of equity. Second, appealing to global economic efficiency is not enough to get countries together, due to the large disparities in current welfare and in welfare changes implied by efficient climate policies.

Studies that focus on the net costs of climate change mitigation versus the benefits of avoided climate change give a major emphasis to the economic consequences of the policies, while libertarian-oriented equity studies focus on emission rights, rights of the global atmosphere, basic human living conditions etc. (Wesley and Peterson, 1999). Studies that focus on the net policy costs will tend to address equity in terms of a total outcome of policies, while the libertarian studies focus more on initial equity conditions that should be applied to ex ante emission allocation rules, without explicitly taken equity consequences into consideration.

Given the uncertainties inherent in climate change impacts and their economic and social implications, it is difficult to conduct comprehensive and reliable consequence studies that can be used for an ex ante determination of equity principles for climate change agreements. Furthermore, social welfare functions and other value functions, when applied to the assessment of the costs and benefits of global climate change policies, run into a number of crucial equity questions. These include issues that are related to the asymmetry between the concentration of major GHG emission sources in industrialized countries and the relatively large expected damages in developing countries, the treatment of individuals with different income levels in the social welfare function, and a number of inter-generational issues.

Rights-based approaches have been extensively used as a basis for suggestions on structuring international climate change agreements around emission allocation rules or compensation mechanisms. Various allocation rules have been examined, including emissions per capita principles, emissions per GDP, grandfathering, liability-based compensation for climate change damages etc. These different allocation rules have been supported with different arguments and with reference to equity principles. An overview and assessment of the various rights-based equity principles and their consequences on emission allocations and costs are included in Rose et al. (1998), Valliancourt and Waaub (2004), Leimbach (2003), Tol and Verheyen (2004) and Panayotou et al. (2002).

While there is consensus in the literature about how rules should be assessed in relation to specific moral criteria, there is much less agreement on what criteria should apply (e.g. should they be based on libertarian or egalitarian rights-based approaches, or on utilitarian approaches).

A particular difficulty in establishing international agreements on emission allocation rules is that the application of equity in this ex ante way can imply the very large transfer of wealth across nations or other legal entities that are assigned emission quotas, at a time where abatement costs, as well as climate change impacts, are relatively uncertain (Halsnæs and Olhoff, 2005). These uncertainties make it difficult for different parties to assess the consequences of accepting given emission allocation rules and to balance emission allocations against climate damages suffered in different parts of the world (Panayotou et al., 2002).

Practical discussions about equity questions in international climate change negotiations have reflected, to a large extent, specific interests of various stakeholders, more than principal moral questions or considerations about the vulnerability of poorer countries. Arguments concerning property rights, for example, have been used by energy-intensive industries to advocate emission allocations based on grandfathering principles that will give high permits to their own stakeholders (that are large past emitters), and population-rich countries have, in some cases, advocated that fair emission allocation rules imply equal per capita emissions, which will give them high emission quotas.

Vaillancourt and Waaub (2004) suggest designing emission allocation criteria on the basis of the involvement of different decision-makers in selecting and weighing equity principles for emission allocations, and using these as inputs to a multi-criteria approach. The criteria include population basis, basic needs, polluter pays, GDP intensity, efficiency and geographical issues, without a specified structure on inter-relationships between the different areas. In this way, the approach primarily facilitates the involvement of stakeholders in discussions about equity.