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A Bretton Woods for the Climate Crisis FORES Policy Paper 1:2010

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  • 1.
  • 2. A Bretton Woods for the ClimateCrisisFORES Policy Paper 1: 2010
    Martin Ådahl
    Daniel Engström
    Mattias Johansson
    Jakob Rutqvist
  • 3. The failure of COP15
    Failure of the negotiation process
    Failure of the political ambition of major emitters
    Failure of concrete problem solving (MRV)
  • 4. The fundamental flaws
    Prisoner’s dilemma / tragedy of the commons
    Consensus among 194 participants – risk of spoilers / posturing
    Diplomatic minutiae
    Insubstantiality
    No sanctions, Weak Compliance Mechanism
    What needs to be done:
    Align incentives:
    • reward cooperation / penalize deviation
    • 5. internalize external costs
    Reduce complexity by delegating
    Transparency and accountability to establish trust (MRV)
  • 6. Benefits of institutions
    Voluntary containment of options
    Builds norms around common goals  more difficult to deviate  increases reputational costs / reciprocity  internalization of common good (Keohane 1984, 1986; Abbot&Snidal 1998, Ostrom 1996)
    Honest broker – transparency (MRV)
    Reduces transaction costs / complexity(North 1990 , Coase 1960 )
    Pool of accumulated expertise
  • 7. Bretton Woods 1944 (Dominguez 1992)
    IMF
    World Bank
    IAT  GATT  WTO
    The mechanisms:
    Gold standard
    Fixedbutadjustable pegs
    Multilateral funding
    Durabilitydespite drawbacks:
    Fixed pegs failed – but new IMF role
    Lowered tradebarriers
    Norms: ”Washington consensus”
    Bretton Woods, New Hampshire, July 1, 1944
  • 8. Bretton Woods institutions vs. UNFCCC
    Bretton Woods:
    Governedbyexecutiveboard with quotas
    Employees:
    World Bank: 10 000
    IMF 2 400
    WTO 630
    Economists and lawyers
    UNFCCC:
    Consensus decisionprinciple – one nation onevote
    Employees:
    UNFCCC 300
    IPCC experts
    about 2000 total
    <20 economists
    2-3 experts on markets
  • 9. 1. Permanent institution:IMF/WTO equivalent for the climate
    Rules set by politicians instead of discretion
    Practical decisions delegated to practical experts not diplomats
    Standing army of experts on practical deployment (markets, economic instruments)
    Independence as watchdog
    Governing structure reflecting responsibilities and economic weight (quotas)
  • 10. New “International Carbon Fund”
    Linking emission markets
    Governing reformed Clean Development Mechanism (CDM)
    Funding mitigation and adaptation through market mechanism
    Technical assistance
  • 11. 2. Global emission markets linkingmechanism
    Linking emissions markets
    Aligning incentives
    Funding
  • 12. Emission markets(Tientenberg, Stavins etc)
    Emission
    reductions
    Price
    Tax
    Reductions
    Cap
  • 13. Existing / proposedmarkets(Damsgaard 2009)
    Global emission markets 2009:
    7,375 MtCO2
    $126.6bn +5.5%
    Markets / mechanisms:
    EU ETS
    US: Waxman-Markey / Kerry-Boxer
    CDM
    JI
    Australia, others
    Sources: Bloomberg, US EPA, EU Commission
  • 14. Linking markets
  • 15. Linkingequalizesprices(Jaffe & Stavins 2009, Aldy & Stavins 2010, Flachsland, Marschinski & Edenhofer 2009)
    Price
    Price
    Cap
    Cap
  • 16. Price convergence when markets link(Dellink 2009)
    Source: OECD
  • 17. Less costly to reduce emissions(Dellink 2009)
    Source: OECD
  • 18. Wrongpoliticalincentives (regardless of instrument)
    Price
    Price
    Cap
    Cap
  • 19. An ”exchange rate” betweencaps
    ”Exchange rate” between
    emission markets within the system:
    Per capita cap nation / Per capita cap global
    (Basic commodity ”climatespace”
    instead of emissions)
  • 20. Mechanism for correctingpoliticalincentives
    Price
    Price
    Cap
    Cap
  • 21. Funding for poorer nations
    Incentive to cap / mitigate emissions
    Compensation for historical emissions by earlyindustrialized nations
    Support for nations hit by climatechange
  • 22. Green FundNorwegian/Mexicanproposal
    Contributions:
    from all exceptleastdeveloped
    based on current and historical emissions, GDP, population and CO2- intensity
    proportion of UN-allowances for auctioning.
    national cap and trade systems maycontribute
    Developing countriesnetbeneficiaries.
    Governed by high level board
    policy guidance of, and accountable to, the COP
    equal representation developed/developing nations.
  • 23. Extendedmechanism for fundingmitigation and adaptation
    Contributions:
    Fraction of all cap-and-trade systems within system set aside (instead of grandfathering)
    In relation to historical emissions
    Developing countries that capbeneficiariesaccording to formulabased on GDP per capita
    Funding for carbon institutions
    Source: WRI, IEA
  • 24. 3. ”Major Emitters Forum”
    Top emitters based on present MEF (Major Economies Forum)
    Clear objective -> Emission reductions
    Commonpracticewithin UN institutions
    Minilateralism -> Multilateralism
    GHG emissions 2005
    Source:: WRI
  • 25. Benefits of major emitters forum
    Higherreputationalcosts(Abbot&Snidal 1998)
    Tighterreciprocity -> Issuelinkages
    No (or fewer) spoilers
    Negotiationtailored to needs
  • 26. The proposal
    A permanent institution
    Rulesinstead of discretion
    Normative
    Expertise
    A comprehensivemechanism
    Linking
    Correctingincentives
    Funding
    A Major Emitters Forum

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