Will the Clean Development Mechanism be effectively implemented in China?

Abstract

The purpose of this article is to analyse whether the presence of surplus emission allowance trading jeopardizes the environmental target of an international environmental agreement. We argue that surplus emission allowance trading can be used as an implicit side-payment mechanism to actually bring about higher environmental protection compared with the situation without the trade option. We point to the existence of a fundamental trade-off between costs of compliance and the creation of dynamic incentives to develop cheaper reduction technologies. Implicit side payments, in terms of surplus emission allocations, may be needed in order to establish a compromise between these opposing demands. We identify the shortcomings and benefits of allowing fully flexible permit trading, including the allocation rule of grandfathering.     

Effects of economic recession and local weather on climate change attitudes

How are large companies responding to the challenges of reducing their greenhouse gas (GHG) emissions? An analysis of the published climate change policies and performance of 125 large European companies is presented. The results suggest that most large European companies have now developed the management systems and processes necessary for them to effectively manage their GHG emissions and related business risks. However, there is a significant disconnect between the targets that companies set for themselves and the more ambitious targets being set by the European Union (which has committed to a 20% reduction in its emissions by 2020 against a 1990 baseline). Of the companies surveyed, just over one-third had stabilized or reduced their total GHG emissions over the period 2002–2007, and fewer than one-third expected their emissions to stabilize or reduce in the coming years. The relationship between the quality of corporate policies and performance outcomes (in terms of GHG emissions) suggests that while companies with stronger policies are likely to have relatively better performance, only a minority of those companies with the highest-quality policies are committing to absolute reductions in their GHG emissions.     

A shale gas revolution for China?

The question of whether China is on the verge of a ‘shale gas revolution’ is examined. This has potentially significant consequences for energy policy and climate change mitigation. Contrary to the optimistic reading of some commentators, it argues that various technological, environmental, political, regulatory and institutional factors will constrain the growth of China's shale gas market and that such a revolution might in any event have consequences that are at best mixed, at worst antithetical to climate change mitigation.Policy relevanceChina's reserves of unconventional gas have the potential to transform energy policy, as has occurred in the US, resulting in the substitution of shale gas for coal in the energy mix. Because gas emits only approximately half the GHG per unit as coal, such a move would have important implications for climate policy. However, substantial obstacles stand in the way of the ‘energy revolution’ that some policy analysts see China as embarking upon. The need to acknowledge these obstacles, particularly those relating to regulation and governance (and whether or to what extent they can be overcome), is an issue of profound importance to the future of climate and energy policy.     

The population structural transition effect on rising per capita CO2 emissions: evidence from China

ABSTRACT

The per capita CO₂ emissions (PCCE) of many developing countries like China have been rising faster than total CO₂ emissions, and display spatial divergence. Such temporal growth and spatial divergence will have a significant influence on efforts to mitigate CO₂ emissions. Given the research gap on the impact of the structural transition in population on PCCE, we constructed an econometric model using the dynamic panel method. The results reveal that the population structural transition has a significant nonlinear impact on PCCE, as the rate of population growth in China decelerates. Both demographic ageing and urban-rural migration have a stronger impact on PCCE than other factors. This effect, however, decreases beyond a certain threshold. An increase in the number of households due to urbanization and family downsizing has resulted in a positive effect on PCCE, without a threshold turning point. The research also finds that an increased share of the service sector in employment can reduce PCCE only if the sector employs more than 31.56% of the total employed population. Overall, these findings indicate that policymakers should pay attention to the prominence of the demographic structural transition for effective climate policy.

Key policy insights

• Policymakers should address rising per capita carbon emissions (PCCE) and their spatial divergence in future climate policies, not just total CO₂ emissions.

• The transitioning demographics of ageing and urbanization in China show a nonlinear, inverted U-shaped effect on PCCE instead of a continuously positive effect.

• Based on the nonlinear effect of employment structure on PCCE, policymakers should focus on the relationship between the structural transition of the economy and PCCE in future climate mitigation policies.

     

Certified emissions reductions and CDM limits: revenue and distributional aspects

The EU allows those installations that are subject to emissions trading to use a limited volume of certified emissions reductions (CERs), generated through the Clean Development Mechanism (CDM), to cover their own GHG emissions. These CERs can be used in addition to the EU allowances (EUAs), which were primarily allocated free to installations in Phase II of the EU Emissions Trading Scheme (EU ETS) from 2008 to 2012. For the year 2008, the CER limits, which are differentiated by EU Member State, created substantial arbitrage rents (due to the CER-EUA spread) of approximately EU€250 million. Different options for the allocation of this rent are discussed and it is found that, according to economic theory, making the right to use CERs tradable or the regulator pre-committing to buying CERs at the level of the relevant limit reduces the inefficiencies connected to the current regulation. Furthermore, auctioning these CER usage rights shifts the rents created through the CER-EUA spread to the Member State itself. The improved design and implementation of CDM limits justifies EU policy makers intervening to correct previously competition-distorting choices.     

Achieving additional emission reductions under a cap-and-trade scheme

Over the last decade, cap-and-trade emissions schemes have emerged as one of the favoured policy instruments for reducing GHG emissions. An inherent design feature of cap-and-trade schemes is that, once the cap on emissions has been set, no additional reductions beyond this level can be provided by the actions of those individuals, organizations and governments within the covered sectors. Thus, the emissions cap constitutes an emissions floor. This feature has been claimed by some to have undesirable implications, in that it discourages ethically motivated mitigation actions and preempts the possibility that local, state and national governments can take additional mitigation action in the context of weak national or regional targets. These criticisms have become prominent in Australia and the US within the public debate regarding the adoption of an emissions trading scheme (ETS). These criticisms and their potential solutions are reviewed. A set-aside reserve is proposed to automatically retire ETS permits, which would correspond to verified and additional emissions reductions. This minimizes the possibility that ethically motivated mitigation actions are discouraged, allows for additional action by other levels of government, while providing transparency to other market participants on the level of permit retirements.     

Alternative climate policy pathways in the US

Although it is likely that the political–economic coalition required for implementing a federal cap-and-trade programme for GHGs in the US is now sufficiently strong, the structural impediments that have prevented its legislative passage remain impressively durable and can be expected to continue to lay waste to congressional proposals for the foreseeable future. Indeed, given the complex history of environmental policy gridlock in Washington since the early 1980s, any expectations that a cap-and-trade programme could have been realistically achieved through the traditional legislative passage in Congress are fundamentally misplaced. Building on previous research, it is argued that – as with most other forms of environmental policy in the US over the past three decades – a national carbon market is more plausible given alternative policy pathways, which if taken are capable of circumventing the Federal Congress altogether. In particular, the interaction between litigation against the federal government and the ‘rulemaking’ authority possessed by the Executive Branch provides the potential space for the current administration to unilaterally establish a model rule for a national carbon-trading programme.

Policy relevance

This article aims to contribute to American climate policy debates by re-thinking the policy mechanisms most capable of establishing a national carbon market in the US. By taking into account the array of structural factors that have prevented the legislative passage of such a programme in federal Congress, a range of alternative policy ‘pathways’ is considered that have historically allowed progressive environmental policies to endure in Washington (despite increased Congressional gridlock over the past few decades). Two specific alternative strategies and the relationship between them are assessed: the use of litigation to impose legal obligations on federal agencies to regulate effluents, and the use of executive authority to define the nature and scope of environmental regulation. The administration's current potential to unilaterally develop a model-rule for a cap-and-trade programme under the Clean Air Act is emphasized, and the political implications of such a strategy are considered.     

Living with limits: growth,resources, and climate change

Is it possible for all of humanity to enjoy the standards of living of today's high-income countries? What would happen if these limits were reached, perhaps because of climate change or a shortage of natural resources essential to production? How would society manage – or fail to manage – such limits? Notwithstanding the current financial and economic crises, these are perhaps the biggest questions confronting our species (and of a host of other species, who are the victims of our decisions). The article begins by considering the biggest economic event of our lifetimes – the ‘great convergence’ and its implications for the demand for resources. The discussion then turns to a specific limit on our development, climate change, which is different from most other limits, because it involves a global public good: the atmosphere. What such limits might mean for our civilization is discussed. One can persuade people to tackle climate change only if those concerned with the dangers persuade ordinary people that action will not come at the expense of their prosperity.     

Tankering strategies for evading emissions trading in aviation

Which actors in the aviation sector ought to be obliged to participate in emissions trading? The European Commission opted for the aircraft operator in their proposal for a Directive. A major drawback is that non-EU aircraft operators might legally challenge their inclusion in this scheme and, if the challenge was successful, discrimination between EU and non- EU operators would undermine the scheme. An alternative would be to place an obligation on fuel suppliers to prove possession of allowances, thus avoiding discrimination. However, emissions trading can be evaded to some extent by increased refuelling beyond EU boundaries (tankering). Typical city pairs were used to analyse the conditions under which such tankering strategies are economically attractive. The analysis shows that the attractiveness of tankering depends substantially on the relationship between fuel prices and allowance prices. If the price relation as of March 2006 is taken as a basis, tankering would be attractive within a radius of up to 4,000 km especially on southbound and eastward routes. Emissions trading could, under unfavourable conditions, be evaded for up to 20% of the total fuel consumption in aviation with the help of tankering. Although this value is only a theoretical upper limit, more than 10% of fuel consumption could be affected by tankering.