Revised Version: Wuppertal Institute Recommends Paradigm Shift for International Climate Policy

As part of the discussion on a new international climate agreement, which is supposed to be concluded by 2015, the Wuppertal Institute contributed a submission to the UNFCCC’s Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP). It can be downloaded here. It is a significantly revised version of the Wuppertal Institute’s earlier contribution to the European Commission’s stakeholder consultation on the 2015 agreement.

The submission suggests that Parties should revisit the widely shared assumption that there is a trade-off between climate protection and economic well-being. First, maintaining the current energy system is hardly inexpensive and will tend to become ever more expensive in the future. Already today, the world’s countries each year spend trillions of dollars on subsidies for and imports of fossil fuels. Second, a high share of the necessary reductions can be achieved at a net economic benefit through energy efficiency. Third, the economics of renewable energy-based energy provision are changing rapidly. Renewable energy is already cost-competitive in various settings and the rapid decline of equipment costs through technological progress and increasing market penetration continues. Increasing numbers of analysts project that wind and solar energy will be fully competitive in most of the world by the end of the decade. Fourth, in addition to the global climate externality fossil fuel use also causes substantial local externalities, such as local air, water and land pollution, which have to be borne by the public and need to be taken into account in cost-benefit analyses. Fifth, the discussion about risks of carbon leakage is rather disproportionate to the share of national emissions that is actually at risk, and the risk decreases further the more efforts to tackle the climate problem pick up speed globally.

Emission reduction policies hence also provide strong immediate benefits to society. The more pertinent problem is that climate policy causes substantial distributional impacts and thus naturally leads to resistance. Those who stand to lose from the low-emission transition have so far managed to dominate the narrative while the innovation impulses and new markets created by climate policy have so far not received adequate attention.

Arguably, a key factor in the framing of the narrative is how commitments are framed. The contribution by the Wuppertal Institute recommends to reconsider the political wisdom of focusing almost exclusively on emission quantities, as the climate regime has so far done. This approach has the advantage of providing environmental clarity – but all political incentives point in the direction of setting weak rather than strong emission targets. As long as emissions are seen as inextricably linked to economic well-being, framing commitments in terms of emission reductions directly triggers the perspective of seeing climate protection as an economic loss. In addition, the approach of turning emissions into a valuable commodity means that quantity commitments are equivalent to giving countries money. Moreover, adopting quantity commitments is risky for governments as key emission drivers such as economic and population growth are largely beyond their influence. These factors directly give rise to the distributional controversy that has dominated the climate negotiations for more than 20 years. Finally, quantity commitments constitute not only a minimum but also the maximum emission reduction and adjusting commitments promptly once they have been set has proven to be nearly impossible. The Kyoto approach thus effectively caps ambition.

Emission pricing has so far been at the centre of the international regime and can, if designed well, indeed be a key instrument to incentive emission reductions. However, it is not a silver bullet as climate-friendly investments are impeded by a variety of non-economic barriers. Emission trading may also be the opposite of efficiency-enhancing if conducted by governments. Arguably, governments’ decisions on whether to pursue domestic reductions or purchase emission units from outside will often be based on political rather than on macro- economic considerations. The Kyoto Protocol’s basket approach, whereby different gases with strongly different global warming properties can be traded off against each other, is arguably also a weakness. It suggests an equivalence of greenhouse gases where in fact none exists, allowing relatively easy reductions of short-lived gases to substitute for more difficult reductions of long-lived CO2, which is the key determinant of future warming.

The climate regime clearly needs a reference to emissions as these constitute the environmental problem that is supposed to be solved. However, emission targets should arguably not be tradable and bankable by governments to reduce the incentives to adopt weak commitments and to prevent targets from becoming a cap on ambition. Emission trading should arguably only be pursued at the level of companies, for example in domestic emission trading systems, as companies actually make their trading and investment decisions on the basis of economic rather than political considerations. The Kyoto basket approach should be abandoned, each GHG should be regulated separately.

In addition, emission targets should be complemented by other types of commitments that do not trigger fears of imposing a “cap on development” and that are more in line with what governments can actually deliver: implementing policies. We recommend to adopt commitments related to policies and to economic inputs such as energy sources. As reducing emissions is a complex problem, it is an adequate approach to tackle it from as many different angles as possible. Addressing policy and economic inputs will also allow to develop approaches that reduce emissions while at the same time promoting sustainable development more generally.

In particular, all countries should commit to phasing out fossil fuel subsidies and to incorporate the costs of climate change into all government procurement decisions, in particular investment decisions on long-lived infrastructure. Parties should ideally also commit to limiting fossil fuel extraction. Countries should also be encouraged to commit to scaling up certain climate-friendly technologies and improving energy efficiency. Experience suggests that the sum of such sector or technology specific commitments may well often be more ambitious than the respective country’s overall emission commitment. Experience also seems to indicate that overachieving clean energy targets is often seen as a prompt for doing more, while overachieving emission targets is seen as an invitation to rest on one’s laurels.

However, such dynamics will only have a positive climate impact if emission targets do not effectively cap ambition as is the case in the Kyoto Protocol. The 2015 agreement needs to be organised to allow a race to the top rather than a race to the lowest common denominator.

Commitments should give clear short-term and long-term directions. Commitment periods should therefore not be longer than five years as commitments that are due longer into the future are quickly seen as somebody else’s problem. In addition, Parties should agree to a long-term goal of reducing net global emissions to zero by 2050. This high level of ambition will probably be necessary to compensate for the probable shortfall of ambition in the current decade.

Evaluation of the experience from implementing concrete actions based on systematic monitoring should contribute to shifting opinions about the feasibility of climate protection and thus allow knowledge-based adoption of ever more ambitious commitments step by step.

The submission also covers other issues such as means of implementation, transparency and accountability, and the organisation of the negotiation process.

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