Next Steps in Global Climate Policy

Raymond J. Kopp

Delegates to this month's annual gathering on climate change, known as COP10, should be in a festive mood. President Putin has tipped the balance and the Kyoto Protocol will enter into force this February. That's good news to many. In the words of United Nations Secretary General Kofi Annan, "This is a historic step forward in the world's efforts to combat a truly global threat." However, to some there is an equal dose of bad news: only a portion of the world is taking this historic step. The United States, currently the world's largest greenhouse-gas contributor - and its likely future competitors in this regard, China, India, and the rest of the developing world - are all still in the starting blocks. And the truly bad news is Kyoto provides no incentives for these countries to move an inch.

Oddly, the United States and developing countries share common concerns about climate policy. They center on the economic cost of greenhouse-gas (GHG) control and the effect such control will have on economic development and global competitiveness. Let's be honest with ourselves. These countries are worried by the risks posed by climate change - particularly by rapid climate change - now and for the foreseeable future but they apparently care more about economic development than climate change. No amount of political persuasion by the European Union and others is going to alter these priorities.

So how can we move the ball forward on climate change?

First, the focus on long-term GHG concentration targets is misplaced. While it is natural to think about long-term targets as policy drivers, it's dangerous (and fruitless) to believe we can design international agreements that will attain these targets with any degree of certainty. The cost of GHG control in terms of real and perceived economic growth, employment, wealth transfers, and international trade and competitiveness, combined with the perceived risks of climate change will ultimately determine global GHG concentrations.

Since we do not and cannot know now how much it will cost to meet any given target, choosing targets as the basis for policymaking at best distracts attention from the real objective - placing the greatest effort on activities that will lower mitigation costs and on the development of economically efficient policies. At worst, adopting rigid concentration goals leads to policies that are doomed as soon as costs exceed politically acceptable levels.

Second, rather than worry about burden-sharing agreements that parcel out emission allowances among all the world's people, the emphasis should be on technology development and the distribution of global investments needed to deploy that technology. By their very nature, all international agreements among sovereign nations are voluntary, and we correctly expect all nations to act in their own self-interest. Therefore, the current preoccupation with complex burden-sharing schemes designed to engender equity and fairness are unnecessary, and to the extent they provide yet another area of controversy, counterproductive.

Moreover, since perceived climate risk and mitigation cost - not concentration targets - will ultimately determine GHG concentrations a century from now, burden-sharing formulas based on global emission budgets derived from concentration targets are of little value. This is not to say that wealth transfers will not be required to meet the challenge of climate change, only to recognize these transfers will likely be tied to capital investment and technology, and negotiated as part of much larger packages.

Third, the key to international cooperation on climate change is cooperation on global trade, economic development, and environmental quality. Arguably, the United States and much of the developing world place a high priority on economic development for good reason. Wide-scale international participation in efforts to mitigate climate change will be facilitated if global climate agreements are discussed and negotiated as a part of larger international packages that include trade, development, international finance, and technology transfer. The larger the set of policies under discussion, the more degrees of freedom exist with which to craft compromises and satisfy competing political and economic needs. This form of "policy linking" is not a new idea but unfortunately lies outside the current Kyoto process.

Unfortunately, the UN process underlying Kyoto is too cumbersome to effectively negotiate complex policy packages. A smaller number of nations is needed to get the ball rolling, perhaps along the lines of the "Leaders 20 Summit"(L20) suggested by Canadian Prime Minister Paul Martin, that would include the major emitters and the major economic and political powers. In this new negotiating realm of policy packages that include climate - along with trade, development, finance, and technology - trade and finance ministers will have center stage and environment ministers will play supporting roles.

Bringing the United States and developing countries on board requires a change in global mindset. Rather than focus solely on annual emissions and long-term concentration targets, emphasis should also be placed on the cost of control. Rather than worry about burden-sharing agreements that parcel out emission allowances among all the world's people, emphasis should be on technology development and the distribution of global investments needed to deploy that technology. And, rather than model the global climate policy dialog on the Montreal Protocol, emphasis should be on the need for a smaller and more agile international forum that integrates climate policy into larger discussions of trade, development, international finance and technology transfer.

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