Escaping the Fossil Fuel Trap

MILAN – There are many problems with fossil fuels. They are expensive and a source of political and supply volatility. As consumption rises globally, the costs associated with them will probably rise sharply. Worst of all, they carry large and unsustainable costs in terms of carbon emissions. Indeed, their contribution to rising levels of CO2 in the atmosphere is beginning to overshadow the other problems.But use of fossil fuels, and hence higher CO2 emissions, seems to go hand in hand with growth. This is the central problem confronting the world as it seeks to forge a framework to combat climate change. Compared to the advanced countries, the developing world now has both low per capita incomes and low per capita levels of carbon emissions. Imposing severe restrictions on the growth of their emissions growth would impede their GDP growth and severely curtail their ability to climb out of poverty. The developing world also has a serious fairness objection to paying for climate-change mitigation. The advanced countries are collectively responsible for much of the current stock of carbon in the atmosphere, as well as for a significant (though declining) share of the world’s annual emissions. As a consequence, the developing world’s representatives argue, the advanced countries should take responsibility for the problem. But a simple shift of responsibility to the advanced countries by exempting developing countries from the mitigation process will not work. To be successful, a strategy of fighting climate change must be not only fair, but also effective. If developing countries are allowed to grow, and there is no corresponding mitigation of the growth in their carbon emissions, average per capita CO2 emissions around the world will nearly double in the next 50 years, to roughly four times the safe level, regardless of what advanced countries do. Advanced countries by themselves simply cannot ensure that safe global CO2 levels are reached. Just waiting for the high-growth developing countries to catch up with the advanced countries is even less of a solution. So the world’s major challenge is to devise a strategy that encourages growth in the developing world, but on a path that approaches safe global carbon-emission levels by mid-century. The way to achieve this is to decouple the question of who pays for most efforts to mitigate climate change from the question of where, geographically, these efforts take place. In other words, if the advanced countries absorb mitigation costs in the short run, while mitigation efforts lower emissions growth in developing countries, the conflict between developing countries’ growth and success in limiting global emissions may be reconciled – or at least substantially reduced. These considerations suggest that no emission-reduction targets should be imposed on developing countries until they approach per capita GDP levels comparable to those in advanced countries. While such targets should be self-imposed by advanced countries, they should be allowed to fulfill their obligations, at least in part, by paying to reduce emissions in developing countries (where such efforts may yield greater benefits). A crucial corollary of this strategy is large-scale technology transfer to developing countries, allowing them both to grow and to curtail their emissions. The closer these countries get to being included in the system of restrictions, the greater incentive they will have to make their own additional investments to mitigate their emissions. The world has already accepted the basic principle that the rich should bear more of the cost of mitigating climate change. The Kyoto Protocol established a set of “common but differentiated responsibilities” that imply asymmetric roles for advanced and developing countries, with the obligations of developing countries evolving as they grow. The ingredients for such a grand bargain are fairly clear. The advanced countries will be asked to reduce their CO2 emissions at a substantial rate, while emissions in developing countries can rise to allow for rapid, catch-up economic growth. The goal is not to prevent developing countries’ growth-related emissions, but to slow their rise and eventually reverse them as these countries become richer. The best way to implement this strategy is to use a “carbon credit trading system” in the advanced countries, with each advanced country receiving a certain amount of carbon credits to determine its permissible emission levels. If a country exceeds its level of emissions, it must buy additional credits from other countries that achieve emissions lower than their permitted levels. But an advanced country could also undertake mitigation efforts in the developing world and thus earn additional credits equal to the full value of its mitigation efforts (thus allowing more emissions at home). Such a system would trigger entrepreneurial searches for low-cost mitigation opportunities in developing countries, because rich countries would want to pay less by lowering emissions abroad. As a result, mitigation would become more efficient, and the same expenditures by advanced countries would produce higher global emission reductions. As for developing countries, while they would not have explicit credits or targets until they graduate to advanced-country status, they would know that at some point (say, when their carbon emissions reach the average level of advanced countries) they would be included in the global system of restrictions. This would provide them with an incentive even before that point to make decisions concerning energy pricing and efficiency that would reduce the growth of their emissions without impeding economic growth, and thus extend the period during which their emission levels remain unrestricted. Conflict between advanced and developing countries over responsibility for mitigating carbon emissions should not be allowed to undermine prospects for a global agreement. A fair solution is as complex as the challenge of climate change itself, but it is certainly possible. Michael Spence is the 2001 Nobel Laureate in Economics, and Professor Emeritus, Stanford University. He chairs the Commission on Growth and Development. Ends