AVOID 1: Implications of technological development and regional climate damage costs for international climate policy

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AVOID 1: Implications of technological development and regional climate damage costs for international climate policy

May 23, 2012
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We attempt a first analysis of the dynamics of the current international climate negotiations in terms of a novel stylised model of economic growth that balances short‐term economic wellbeing against the disutility of climate change in the longer‐term.  As a first approximation, we see that countries differ in their desired level of cumulative carbon emissions, which is determined for each country by the ratio of the marginal economic benefits of investing and emitting a further unit of CO2 and the weighted marginal long‐term damages from climate change.  Whether or not countries can agree – explicitly or implicitly ‐ on an interim level of cumulative CO2 emissions at a global level is crucial for building trust and providing time to develop effective monitoring and verification mechanisms, both of which might allow countries to go beyond this type of non‐cooperative behaviour at a later stage.

We provide estimates for a range of major emitters and least developed economies of their desired cumulative carbon emissions.  We find significant divergences, which may in part be due to the methodology, but also reflect significant differences in the character of the countries studied.  This divergence could prove problematic in future negotiations.  We see three distinct groupings of countries. For the first, the priority is on development and the impact of long‐term climate damages appears negligible in comparison, e.g. Ethiopia, Bangladesh, Kenya and Chile.  Climate impacts are somewhat more important for the second group but so too is economic growth.  Our estimates suggest that this group includes Australia, Brazil, Canada, India, Indonesia, Mexico, South Africa, South Korea and the UK.  There is also a third group of large economies for which the long‐term climate damages are important relative to considerations of shorter‐term economic growth.   Surprisingly, this group includes the US as well as China, France, Germany, Italy, Japan and Russia.  If climate damages are sensitive to the level of capital, differences between these groups are reduced.   Additionally, consumption smoothing effects would also tend to narrow differences between these groups.  There remain a range of important factors that could not be included within the scope of this exercise and which might alter these conclusions, including fossil fuel endowments, carbon leakage concerns, adaptation and technological change.  Nevertheless, the model and estimates provide a useful basis for further analysis.