Climate Policy Now What John Reilly MIT Joint

Climate Policy: Now What? John Reilly MIT Joint Program on the Science and Policy of Global Change Fourth Annual Conference on Global Analysis, June 27 -29, 2001, Purdue University, West Lafayette, Indiana

Kyoto: 10 -Year Path to Deadlock • Rio (1992): the Framework Convention – Deal with climate in the UN context – Concept of quantity targets, and a timetable • Berlin (1995): the Berlin Mandate – “Common but diff. ” Annex I/Non-Annex I split – Seek (by 1997) national targets for 2005, 2010, 2020 • Kyoto (1997): the Kyoto Protocol – Agreed 2008 -2012 targets. . . but NOT key definitions! – Entry into force if get 55% of 1990 Annex I emissions • The Hague (2000. . and counting): – Resolve remaining definitions.

Where Are We Headed? Into force: YES EU + USA? Kyoto as written NO The Hague YES Agree COP-6 Details? NO Into force: YES w/o USA? NO Euro “Club” Return to Kyoto? Into force? Separate Paths? Renew Negotiations Return to Rio? ?

The Hague (2000) : The Devil Is In the “Details”

A US View of Flaws in Kyoto • Fixed, legally binding, short-term targets – Unknown and unbounded cost? – Unequal burdens, feasibility? • Trading/sinks: an artifact of premature targets? – Imply large international financial flows – Stimulate damaging fight over carbon sinks • Handling of developing countries – Not even discussion of how they might participate • Seek domestic policy details ahead of Congress

Where Are We Now? • Bush statements marks the end of pretense regarding US ratification – Senate: 95 -0 against, pre-Kyoto – Clinton: Warm words, but no action – Bush: Said he was opposed in campaign • Fundamental problem is lack of meaningful domestic political support • But US seeking a way to proceed – Non-Speech of June 11—An Administration divided?

What Will the US Do? • Will not denounce or abstain from COP processes • Cabinet-level review. . . – No concrete proposal for COP 6. 5 (inappropriate and presumptuous? ) – Expression of concern and general approach – The Bush (Clinton-Gore) Action Plan – Is a price on carbon still a possibility? • Where to restart? – Problems of UN structure for resolving key problems – Unlikely to return to Pronk text

What will Europe Do? • Desire/success in putting Kyoto into force? • Can’t consider alternative to Kyoto, or amend, until EU and member state positions become clear • How much stronger support in Europe than US? – Quiet abandonment of European eco-tax reform since the September price/tax protests – Differing forms of government explain differing rhetoric in Europe and US • Willingness to engage?

Top Down or Bottom-Up Policy • Top-down approach~ Kyoto Protocol or something like it: I. e. permits, coordinated tax, global technology standard. – – negotiation uniform policy instrument adopted in many countries expanded to all countries & tightened over time. • Bottom-up approach: countries act domestically ~ – – Some countries start, instrument choice varies Intn’l negotiations jawbone to limit free-riding Broaden and deepen involvement Knit together a more coordinated trading system later, if needed, a la 50 years of GATT-WTO

Economic Modeling Influence--Hobbled? • Economists, the “lemon suckers. ” – “Siren song” of no-cost abatement. – “Cross your fingers and hope” for new technology. – “Join hands” for voluntary reductions. – Climate policy, it’s “good for what ails you. ”

Economic Modeling Influence--Hobbled? • Which costs? What’s big? – $300 per ton C; . 05 percentage point reduction in growth; $4. 5 trillion 10 -year tax increase. – Economists preferred measure, welfare as equivalent variation is ~. 7% reduction—Is this an HHS budget proposal? – Is climate change a catastrophe, a change of clothes, or a false alarm?

Economic Modeling Influence--Hobbled? • Economics—Precisely irrelevant. – Triangles versus rectangles--$950 or $4500/household; $20 B/year to Russia. – Tradeable permits vs Pigouvian taxes vs political reality. – “Action” or the appearance of “Action. ” – Leading, following, trust—the commons problem. – A “first best” or “fourth best” world?

Where to for Economic Modelers? • Directions for policy not clear BUT as policy moves closer to happening the proposals on the table will be a lot messier than a uniform tax or cap and trade system. • Economic Modeling—Keep plugging away. Need serious analysis of even silly ideas and attention to communicate simply and clearly —vitae plumping or affecting policy?