EU Energy Policy Blog

Climate negotiators recognize that, at root, the climate problem is a free-rider problem. Each country would prefer that the others do more. But the free-rider problem is not immutable, and that has been overlooked. The design of agreements can exacerbate it or alleviate it. Instead, the implicit assumption has been that it must be overcome by moral suasion and scientific argument, both of which are weak instruments when dealing with national self-interest. Because of this oversight, both Kyoto and Copenhagen negotiations followed a global cap-and-trade framework, which has proven ineffective. We find that adopting cap-and-trade rules polarizes the free-rider incentive and discourages cooperation.
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As the Copenhagen Accord makes emphatically clear, developing countries are not accepting emission caps. This will make passing a strong national cap more difficult. Economically cap and trade is a carbon tax with the tax rate set by the permit market to make sure the cap is met. This results in a highly volatile tax rate, which slows investment, makes it more costly, and will likely create political problems as the price of carbon increases over the years.
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Part 1 and Part 2 of this series explained why caps have been rejected by developing countries, why offsets can’t do the job, and why we need to expand from caps to carbon pricing. This part 3 outlines Flexible Global Carbon Pricing, a plan for re-orienting the Kyoto Protocol toward international cooperation.
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In Part 1 of this series explained that the Kyoto Protocol offers only two alternatives for controlling the fastest-growing half of world emissions, and neither will work. Emission caps have been rejected by the developing countries. And carbon offsets credits cost too much and waste too much to be politically feasible. Fortunately a flexible alternative that expands on the Kyoto approach just might work. …
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Offsets, such as the U.N.’s Certified Emission Reductions (CERs), provide incentives for developing countries to refuse meaningful caps. And they have. Which means the Kyoto approach is left with only offsets, which are no substitute for caps..

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Half the world will not accept carbon caps but might accept a carbon price requirement. Such a requirement would not put a lid on growth in developing countries. But to gain acceptance, a global pricing policy must be flexible and fair.
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Capping only developed countries would cost far too much in Clean Development payments. Global commitment is essential. Our best hope is global carbon pricing, as favored by top US economists from left to right (Stiglitz, Nordhaus, Mankiw). But first, the US and EU must realize that China and India have said no to caps for 15 years with good reason, and they mean it.
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Clean development projects reduce emissions and allow countries with emission targets to buy “carbon credits” from developing countries. This is well intentioned and appears effective. However, no matter how well intentioned, credits will eventually run into two serious problems. First, they will cost a lot, and second, they will be gamed or cheated on.

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In May 2008, the Boston Globe reported, “Many of the North American and European investors who sunk $5.2 billion into “cleantech” companies last year—up [629%] from $714 million in 2001, according to Cleantech Group LLC—are alumni of the last high-tech boom and bust.” One story of venture capital and energy innovation holds particular interest—the story of the race between lithium-ion batteries and hydrogen fuel cells.

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C. J. Campbell is the leading advocate of the peak-oil catastrophe theory, and one of the few to recognize its most startling prediction. If the theory (actually more of a hunch) is correct, oil production will peak quite soon, or possibly on November 24, 2005 according to Deffeyes, the smartest of the bunch. Once oil production declines, there will be no adequate replacement, and we will be doing a lot less driving around. This will dramatically reduce CO2 emissions which are half from oil, and that will fix the global warming problem. These guys are geologists and ignore economics. Continue reading »