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


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

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