Can Paris achieve what Kyoto could not for carbon reduction?

Between the developing world paradox, and the intractable political failure in Australia, the problem of climate change has limited solutions. Former government economist on climate change, Jon Stanford, writes that we could still look to a regulatory approach to achieve a realistic outcome in Paris.

Given that the substantial threat brought about by anthropogenic climate change has been recognised for a quarter of a century, it is remarkable that global policy makers have been so dilatory in responding to it. Voluminous scientific and economic studies have been produced, Ministers have met annually to discuss and negotiate a global policy response and yet in terms of outcomes nothing much has happened. This year, however, the annual conference of the parties (CoP) to the UN Framework Convention on Climate Change to be held in Paris will be of unusual importance. The parties will be required to commit to making reductions in greenhouse gas emissions beyond 2020 in pursuit of their agreed objective of limiting the future rise in global temperatures to two degrees Celsius.

To date, the only significant global response to climate change has been the Kyoto protocol, signed in 1998. Under the terms of the protocol, most developed countries undertook to reduce their greenhouse gas emissions to 95% of 1990 levels by 2012. In the decade to 2013, however, when the world’s primary energy consumption increased by 28%, the use of carbon-intensive fossil fuels remained at a high level. Fossil fuels comprised 87% of global primary energy consumption both in 2003 and in 2013. The kindest statement that can be made about the Kyoto protocol is that it probably did not make the situation any worse.

A ‘diabolical’ global policy problem

That said, the difficulties confronting policy makers in seeking to address climate change are many and intense. Ross Garnaut was not exaggerating when he called it a diabolical policy problem.

There are important efficiency issues involved in taking action against climate change. The fundamental difficulty is that greenhouse gases know no frontiers so that a global agreement is required if they are to be significantly reduced. Because reducing emissions can involve considerable costs and we do not always have technologies that are efficient and effective substitutes for fossil fuels, it is not surprising that national governments are reluctant to commit to substantial action. In a situation where the actions of most individual countries can make only a negligible difference, there is also a free rider problem, or even a positive economic incentive to take as little action as possible and leave the heavy lifting to others. In addition, the problem of ‘carbon leakage’, or the migration of footloose investment projects to jurisdictions with zero or low taxes on carbon emissions, implies that national governments face a substantial disincentive to taking ambitious action against climate change that would involve getting in front of the pack.

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