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Trade and the Environment –Kyoto Protocol

Presentation to

Bill Jones, Ph.D.

November 1 & 4, 2010

MIM 513: Pacific RIM Economies,International Trade, & Markets

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Alternative Presentation Title: Are We Really Capable of Successfully Mitigating Climate Change & Continuing Global

Economic Development?

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Agenda

• Lecture goals• Climate change context: climate science primer• Brief history: Kyoto Protocol major elements• Global implications • Trade impacts• International Trade• Shipping/transport• Energy consumption• Conclusions• Q&A

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Goals

•Climate change unique, complex, uncertain•Impact all things global & economic•International CC agreements create opportunities & obstacles

•New markets & product•Offset trading•Continued emissions

•North/south divide: developing and developed countries •Global trade challenges•Energy use is key

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Carbon Cycle 101: Anthropogenic Contribution

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Unprecedented Atmospheric CO2 Concentrations

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Climate Is Getting Warmer

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Contribution:World’s CO2e Emissions

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GHG Global Emission Sources

Energy Consumption ≈ 65%

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Long-Term Forecasts Uncertain But Suggest High Concentrations Remain For 100s Of Years

• Irreversibility of climate change: 1,000 year time horizon impact

• Inability of natural syncs to absorb carbon dioxide (18% decrease last 50 yrs.)

Source: Irreversible climate change due to carbon dioxide emissions; Susan Solomona,1, Gian-Kasper Plattnerb, Reto Knuttic, and Pierre Friedlingsteind, PNAS February 10, 2009

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Climate Change Impacts: Latest Trends

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History: Climate Change International Agreements (Early Years)

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History: Climate Change International Agreements (Kyoto 1997-2012)

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Key Kyoto Protocol Elements

• Signed December 1997, in force 2005, reduction period 2008-12 (140 nations ratified; now 192 nations)

• Assign numerical GHG emission reduction targets– 35 industrialized nations (Annex I) Initially: 55% of all 1990 Annex I nations’ GHG

emissions (currently 55 Annex I)– Collective average GHG reduction 5.2% below 1990 benchmark by 2012– Covered private businesses assigned reduction targets– 6 gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons,

perfluorocarbons, sulhpur hexifluoride

• Mitigation methods (least cost method):– Internal reductions: covered private sector businesses internal process mitigation– Allowance trading: Annex I undershoot trade to Annex I overshoot– Joint Implementation: Annex I nation develop GHG mitigation project in another Annex

I nation for credit against emission allowance– Clean Development Mechanism (CDM): Annex I develop “offset” projects as a credit

against Annex I nation target in non-Annex I countries (not bound by Kyoto target)

• Spark investment in sustainable technologies & new business sectors: phase-out GHG emitting sectors

• Win Win for World: socially, environmentally, economically

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Developing Countries & Kyoto Protocol: Why Participate?

• No emission goals for non-Annex I nations (developing)• 2016 responsible for 50% GHG emissions

– Annex I assist developing countries reduce overall emissions

• Significant commitment of Annex I nations:– Accelerate economic development in developing countries– Assist nations most vulnerable to CC– Minimize adverse social adverse & economic impacts

• Article 10: – “Promote facilitate & transfer”technologies, know-how, practices, processes– Transfer environmentally sound technologies that are publicly owned & available to

indigenous economies– Development & transfer of education, training & knowledge programs

• Article 12– Developing countries share in project “proceeds” of CDM projects

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Why is Kyoto Unique?

• First to recognize CC as a global threat & need for global response• First to bind responsible countries to emission reductions • First to set up a market mechanism (allowance trading, CDM) as most efficient

method to meet GHG reduction targets• Multiple goals:

– GHG emission reductions primary goal– Developing countries cooperate: developed countries invest in economic development

(CDM)– Long term reductions

• Impact global economy– Competitiveness– International trade– Manufacturing– Capital flows– Energy supply & consumption– Transport– Labor supply

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Kyoto Protocol Implications

• International trade• Economic relationships between countries (regulated, non-

regulated)• Competitiveness• Manufacturing• Transport• Supply chain• Labor supply• Energy supply

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International Trade

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Trade & GHG Emissions

• Kyoto Protocol Article 2.3 addresses international trade– Develop policies procedures that minimize adverse impacts on “international

trade”

• Recognizes emission targets can conflict with trade growth:– Trade growth directly related to energy demand (fossil fuel main energy

source)– Trend to export manufacturing production from regulated to unregulated

nations– Potential to handicap global economic growth both developed & developing

nations

• Greater Trade increase economic growth: energy consumption linked to growth & therefore increase in GHG emissions

• Kyoto Protocol could create Leakage: where countries with more stringent environmental regulations shift production weaker regulated country

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International Trade Growth

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How Trade Impacted

• Manufacturing– Shift to developing countries– Increase embodied carbon in goods (energy carbon intensity, transport)

• Emission target impact– Emission leakage (regulated to unregulated countries)– Annex I meeting reduction targets

• Opportunities: – Cheaper labor developing nations– Lower investment costs– Economic development creates demand– Create new markets for EE & RE development (CDM)

• Challenges– How do regulated countries meet reduction targets?– Rapidly developing countries (BASIC) increase Share of GHG emissions– Technology shift too slow (clean energy, sustainable technologies)

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Embodied Carbon: Traded GoodsBalance of Emissions Embodied in Trade (BEET)

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GHG/GDP

CO2 Emissions Per Unit GDP

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Implications

• There is significant carbon embedded in export trade

• Developing countries gain economic benefit but increase emissions– Developed countries reduce GHG emissions meet targets

• Technology transfer not rapid enough – IP become a major concern (violate spirit of Kyoto Protocol)– Annex I concerned with competitive loss

• BASIC countries: – Pressured to regulate future emissions– Before they agree (Cancun COP/MOP 16)

• BASIC: want Annex I to meet reduction targets &

• USA: Participate in reductions (7% below 1990 by 2012)

• Other developing countries– Excluded or receive little benefit (Small Island Nations, Equatorial Africa)

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Transport & Trade

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Transport Energy ForecastNon-OECD Energy Consumption Rapid Growth

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Freight Energy GrowthFreight Energy Use Greatest Increase

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Modes of Transport

Modes of Transportation: International Trade

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GHG & Transport

Transport Represents 24% Total GHG Emissions

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Transportation & Trade Implication

• GHG emissions continue to increase as trade increases

• Little change in fuel carbon intensity• International trade will increase GHG emissions

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International Energy Use

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Energy Use

Non OECD countries account for 86% energy increase

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Economic Activity & Energy Use

Economic Activity & Population Increase Energy Use

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Increase Petroleum Based Energy Use

Nearly All Coal Based Energy Use in Non-OECD Asia Nations

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Renewables Increase But Remain Small %

RE Fastest Growing, But Coal Continues to Dominate Generation

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Energy Use Implications

• Continued reliance on fossil-based fuels– Non OECD (mostly Annex I countries + USA) largest % increase

• Increasing manufacture export & international trade will continue fossil fuel reliance

• Kyoto Targets more difficult to achieve– Overall global emissions continue to grow

• Increasing need for more restrictive targets– Political ramifications: nations unwilling to impede economic growth– North/South rancor over emissions controls

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Conclusions

• Global GHG targets increasingly difficult to achieve under Kyoto Protocol

• Annex I countries concerned about:– Post 2012 agreement uncertainty– Pressure to impose GHG emissions targets for developing nations– IP & technology transfer protections (transparency & publicly owned

technologies)

• Developing countries– Not nations that created GHG concentrations– Want Annex I to continue investment in development– International trade– Cannot successfully reduce fossil fuel reliance & grow

• Bleak outlook given current state of Kyoto – Need for drastic changes in global agreement

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QUESTIONS AND ANSWERS