by Judith Curry
International climate agreements like the Kyoto Protocol may discourage much-needed investment in renewable energy sources, and hence be counterprodutive, according to new research.
A provocative new paper has been published:
The Dynamics of Climate Agreements
Bart Harstad
Abstract. This paper analyzes a framework in which countries over time pollute and invest in green technologies. Without a climate treaty, the countries pollute too much and invest too little, particularly if intellectual property rights are weak. Nevertheless, short-term agreements on emission levels then reduce every country’s payoff, since countries invest less when they anticipate future negotiations. If intellectual property rights are weak, the agreement should be tougher and more long-term. Conversely, if the climate agreement happens to be short-term or absent, intellectual property rights should be strengthened or technological licensing subsidized.
[link] to abstract (manuscript behind paywall); [link] to earlier version of manuscript.
Science Daily has an article Global Climate Agreements Could be Counterproductive. Excerpts:
Bård Harstad is a professor of economics at the University of Oslo and has done research on climate agreements and international cooperation for many years. In the recent journal article “The Dynamics of Climate Agreements,” Harstad analyses the connections between emissions, negotiations, and the development of new technology. His findings reveal weaknesses of today’s system, but also show how international climate agreements should be designed in order to better stimulate the development of new technology.
“The main problem with emission agreements, such as the Kyoto Protocol, is that they do not provide incentives to invest in green technology because they are too short-sighted.
The basis for the U.N.’s climate negotiations is that the world requires more energy but at the same time fewer emissions. Hence, Harstad argues that it is imperative to develop new technology to resolve this challenge. According to him, politicians lack an understanding of how new technology is developed and affected by a treaty.
“In order to stimulate the development of new technologies, we need an agreement which is both long-term and ambitious. Instead of expiring, the agreement should be renegotiated at a later stage,” he says.
The main reason why the current, short-term climate agreements do not lead to any increased investments in green technology is described by Harstad as the hold-up problem. In today’s system the countries investing in green technology may be asked to reduce their emissions even more in the next negotiation round. It is often argued that countries, which have the technology in place, can reduce emission in a more effective and cheaper way. In other words, the most committed countries are subject to tougher requirements.
“This was the case when Denmark, which had invested a lot in wind power, negotiated with the other countries in the European Union on how to reduce aggregate emission. Poland, which had little renewable energy, argued that it would be easier for Denmark to reduce emissions than for them,” says Harstad.
Hence, it makes it less tempting to be the best in class, like Denmark, and more tempting to stay at the same level as other countries.
Thanks to this hold-up problem, Harstad shows that investments in green technology may in fact be less with a climate agreement in place than without one, if there is little time left until the next negotiation round.
“In this case, a short-term agreement may be worse than no deal at all, particularly if we believe that green technology is a large part of the solution to climate change.”
“It is very likely that there would have been much more money in green technology today, if we had a long-term climate agreement in place, rather than short-lasting ones, such as the Kyoto Protocol,” he says.
What characterises a good international climate agreement? The time frame may be the most critical issue, according to Harstad. The agreement must be long-term in order for countries to be willing to invest sufficiently to get a sustainable development going.
Harstad suggests an alternative model based on international trade agreements. Ideally, the commitments should not expire, but rather be frequently renegotiated.
“The reason is that the development of technology affects countries’ negotiation power,'”he says.
“In other words, countries which have invested in green technology will benefit from renegotiations. This will make green technology more attractive,” says Harstad.
He points out that international trade agreements do not expire. Instead, they are subject to renegotiation by the parties.
“The climate agreement negotiators can therefore learn from successful trade agreements,” says Harstad.
It is often argued that we need short-term agreements because we do not know how the climate will look like in 50 years’ time. Hence, we need flexibility as well as a long-term time frame, according to Harstad. If we could renegotiate the agreement to adjust the reductions as we go, we would take both these issues into considerations.
The world’s governmental leaders will meet up in Paris in December to negotiate a new global climate agreement. “It is difficult to be optimistic. The basis for the Paris negotiations is that each country will suggest its own obligations, and they will not be binding. This procedure is clearly far from ambitious. The best one may hope for is that the agreement will be long-term and that it can easily be renegotiated to a more ambitious level later on.”
JC reflections
Harstad makes some valid points, but I think the most impactful thing here is the title of the Science Daily article: “Global climate agreements could be counterproductive.” Harstad is correct that the current focus on short term emissions reductions directs funding and political capital towards implementing existing renewable technologies. The current renewable technologies are simply not up to the task, and funding and intellectual energy is being diverted away from true innovation. Another problem with the current policy framework is that the problem and the solution has been formulated to be irreducibly global.
It seems a propos to reproduce some of the material from my talk last year at the National Press Club [link]:
When talking about climate change and how we should respond, much of the debate relates to a conflict of values. Sustainability is the value that is driving the UN climate policies that are trying to mitigate damage by reducing CO2 emissions. These policies are in stark conflict with survivability issues in the developing world, where there are severe challenges to meeting basic needs and where there idea of clean green energy is something other than burning dung inside their dwelling for cooking and heating. While the UN policies also include adaptation, which is targeted at increasing reslience, funds for mitigation are in direct competition with funds for resilience. And finally we have thrivability, which is about people wanting not only to make money and support economic development, but also to strive for greatness and transform the infrastructure for society. The goals of thrivability are also in conflict with sustainability, with its emphasis on austerity and obligations and its costs that conflict with economic development goals.
The final points I want to make is related to the different decision-analytic framework associated with each of these columns. In the sustainability column, related to carbon mitigation, we are faced with conditions of deep uncertainty. The precautionary principle has guided policy making, although no regrets and robust decision making are also decision making strategies for conditions of deep uncertainty. The sustainable column frames both the problem and the solution as irreducibly global.
In the other columns, the problems and solutions are local to regional. Some of these problems can be carved out as tame problems, where everyone can agree on both the problem and the solution. Particularly for tactical adaptation, you can make use of probability forecasts on timescales of days to seasons, and ensemble forecast systems can be used for extreme event scenarios. Decadal scenarios can support infrastructure decisions.
My summary point is that framing the problems in different ways supports the identification of more tractable problems and solutions.
Thinking about the problems in new ways, and trying to accommodate different values, can lead to solutions that have greater political viability. For example, at the intersection of sustainability and resilience, you can identify robust strategies that have multiple benefits with little downside.
The challenges of climate change related to survivability can benefit from thrivability thinking, particularly some strategies suggested by anti-fragility strategies, whereby you learn and grow from adversity. Some of these strategies include economic development, reducing the downside from volatility, developing a range of options, tinkering with small experiments, and developing and testing transformative ideas.
The current UNFCCC efforts focus on the sustainability column, with a small dose in the resilience column. What is missing (apart from addressing concerns in the survivability column, and a meaningful effort in the resilience column) is thrivability, which includes innovation.
I suspect that it is hopeless to turn the UNFCCC behemoth, but hopefully some individual countries can do a better job of fostering innovation. US Presidential candidate Carly Fiorina’s emphasis on innovation over regulation [link] points the way towards a better approach.
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