5  Climate negotiations

How to break the impasse and deliver

Juan Zak and Myung Kyoon Lee

An enormous gap

Greenhouse gas emissions are still out of control, despite the Climate Convention that entered into force in March 1994. The very essence of the Convention and its Kyoto Protocol is reducing emissions to safer levels. However, how to share the burden among countries (or rather, among signatory governments) has been a permanent impasse for achieving any significant progress in emissions reductions. So far binding commitments are hardly more than symbolic and apply to developed countries only.

Stabilizing atmospheric CO₂ concentrations today would require reducing anthropogenic carbon emissions from the current ten billion tons per year (Global Carbon Project, 2008) to less than six billion, assuming that the rest is absorbed by natural sinks with no further environmental consequences. A perfect compliance of the Kyoto Protocol would reduce annual carbon emissions by 165 million tons at most (own estimate based on UNFCCC Secretariat, 2007). Clearly, the gap between what Kyoto could achieve in practice and real reduction needs is enormous. Performance of any post-Kyoto climate regime must improve dramatically if greenhouse concentrations are to be timely stabilized.

Renewable energy and technology not enough

Curbing emissions is becoming crucial as more evidence emerges on the serious limitations of renewable energy and new technologies in supporting current consumption patterns while reducing emissions to the required levels.

One of the best case studies concludes that decarbonizing the British economy in a sustainable way seems almost impracticable (MacKay, 2008). The average per capita energy consumption of the United Kingdom (195 kWh/p/d¹) could in principle be almost matched with about 180 kWh/p/d of renewable energy supply as follows, social and economic constrains aside:

In summary, the above initial approach would take 10 percent of the UK’s land for wind farms, 5 percent for photovoltaic panels, 75 percent for biomass plantations, and all south-facing roofs for solar panels. Another 39,000 km² of sea are required for offshore wind farms, and 500 km of coastline for wave power. Huge areas are also needed for tidal power (above 10,000 km²) and for geothermal energy facilities. This enormous demand for space is inherent to renewable energies and originates in their very low “areal” density (e.g., watts per square meter); in other words, although the technology of extracting energy may eventually improve, the very low energy density will ultimately demand huge areas anyway.

MacKay describes six plans to make the above approach technically realistic by 2050, each trying to satisfy a different sector of the British society. All the plans include technological improvements on the consumption side. Individual and public transport is largely electrified, and liquid biofuels are used for vehicles that cannot operate on electricity. Heating demand is reduced by improving insulation in houses and buildings, and by using heat pumps, solar heating, and biomass. Efficiency improvements in lighting and domestic appliances are considered, but offset by consumption of new consumer devices. The latter assumption is in line with the finding that new electronic devices have wiped out gains in energy efficiency achieved in residential appliances and lighting (International Energy Agency, 2009b).

Areas and rough costs of energy facilities were estimated only for Plan M (“middle”) as follows:

Onshore wind	5,200 km2, £27 billion
Offshore wind	2,900 km2, £36 billion
Pumped storage	15 facilities, £15 billion
Photovoltaic	1,000 km2, £190 billion
Solar water heaters	60 km2, £72 billion
Waste incinerators	100 units, £8.5 billion
Heat pumps	£60 billion
Wave	130 km, £6 billion
Barrage	550 km2, £15 billion
Tidal lagoons	800 km2, £2.6
Tidal stream	2,000 km2, £21 billion
Nuclear fission power	40 stations, £60 billion
Clean coal2	£16 billion
Solar power	2,700 km2 North Africa, £340 billion
Power line	3,200 km (for solar power), £2 billion
Biofuel plantations	30,000 km2, –
Wood plantations	31,000 km2, –
Total cost	£871 billion

The size of renewable energy facilities remains enormous, even when combined with controversial “clean” technologies like nuclear fission and clean coal, and despite technological improvements in the consumption side. The cost of Plan M is as enormous as the facilities to be constructed.

While a complete replacement of fossil fuels by nuclear fission power is in principle practicable (MacKay, 2008), the safety and security implications of such a switch are very controversial. In any case, the fact remains that any episode, either accidental or intentional, leading to radioactive release has severe long-term impacts on the population and the environment.

Evidently, the only environmentally sound option left to fill in the gap is a change to less energy-intensive lifestyles, especially by richer consumers; but the gap is so significant that direct limitation of emissions seems the only practicable way to achieving the required emissions reductions.

Curbing emissions at the root

The ultimate cause of greenhouse gas (GHG) emissions is the consumption of goods and services by individuals. Emissions by individuals are released directly at final consumption (mostly of fuels), and indirectly along the whole production/supply chain. In this context, emissions released by producers and suppliers are in fact indirect emissions from the individuals consuming the goods produced and the services supplied.

In theory, the most effective way of reducing global emissions to safer levels is limiting emissions at the root—the individuals. This would require translating a global emissions reduction target to an individual reduction target, to be met by every person on the planet.

More importantly, limiting emissions at an individual level implies setting per-capita emissions allowances, and therefore per-capita emissions rights. Essential sense of equity indicates (see for example Centre of Science and Environment, 1998; Meyer, 2000) that per-capita emissions rights should be the same for every person on Earth.

A complementary line of argument, held by the authors, is that the benefits of emitting GHG must be shared equitably among the world population just because the consequences of emitting GHG will inevitably strike the entire population. In other words, since emissions ultimately have global effects and thus reach the entire global population, it would be unfair not sharing the benefits equitably among the same population. This principle necessarily leads to assigning the same emissions rights to every person on Earth.

Unfortunately, as further discussed in this chapter, the current climate regime and its eventual successor are inherently inequitable in terms of per-capita emissions rights.

A first global emissions reduction target was already agreed in the Kyoto Protocol, in the form of reduction commitments for developed (Annex 1) parties to the Climate Convention. These commitments amount to 5.2 percent of the total emissions of developed parties in 1990, and should be achieved in the period 2008–2012.

However, the global reduction target set in the Kyoto Protocol is not convertible to an individual reduction target. The most evident reason is that reduction commitments under the Kyoto Protocol apply to developed parties only; developing (non-Annex 1) parties have no reduction commitments.

The fundamental reason that makes the global target of the Kyoto Protocol not convertible is more subtle, though: the reduction commitments under the Kyoto Protocol are based on absolute emissions levels, which de facto grant inequitable per-capita emissions rights among developed parties. A further analysis, later in this chapter, shows that these emissions rights are also inequitable to developing parties, despite having no reduction commitments as such.

The above discussion indicates that limiting emissions at individual level requires first of all a climate regime that sets global emissions targets agreed by the parties and equitably allocates emissions rights to each party, such that every individual is granted the same emissions right, regardless of nationality.

Limiting emissions by individuals also requires flexibility schemes that permit transfer of unused emissions among countries, and among individuals in the countries. These mechanisms should guarantee that the agreed global amount of emissions is not exceeded, while allowing transfer of unused emissions rights from parties spending less emissions than the equitable level to parties demanding more emissions. Similarly, these schemes should guarantee that the allocated national amount of emissions rights is not exceeded, while permitting transfer of unused rights from individuals spending less emissions than the equitable emissions right to those demanding more.

The above flexibility schemes have by definition no connection with the intricate flexibility mechanisms and related trading schemes operating under the Kyoto Protocol. The former are much simpler and transparent than the latter. Initial schemes for the proposed mechanisms are discussed later in this chapter.

An unjustified impasse

There are no strong indications at present climate negotiations that the burden-sharing impasse will be overcome for the post-Kyoto regime. Developed countries are not willing to accept the required major reduction commitments unless developing countries take some initial binding commitments. But developing countries are reluctant given their hitherto minor contribution to global warming and the lack of progress by developed countries.

Regrettably, the rationale behind the impasse is not well sustained by reality on the ground. It is richer individuals from both developed and developing countries, and not developed countries per se, who have major historical responsibility and contribute most to global warming.

From this perspective, the direct burden of significantly reducing emissions should be on the individuals causing the emissions and not on the Convention’s signatory governments. The role of governments should be to implement and regulate systems to directly limit emissions by individuals.

Governments, and climate negotiators in particular, should realize that there is no point in blaming other countries for emitting more or doing less, and that efforts should focus on reducing emissions of individual consumers, irrespective of nationality.

Kyoto Protocol and the post-2012 treaty: implications on emissions rights

The Kyoto Protocol sets reduction commitments for developed (Annex 1) parties relative to their emissions in 1990. The reduction commitment varies from party to party in the range³ of −10 percent to 8 percent⁴ (Table 5.1), and should be achieved in the period 2008–2012. Developing (non-Annex 1) parties have no reduction commitments under the Kyoto Protocol.

Table 5.1 Emission rights and commitments 2008–2020, Annex 1 parties

Source: Own estimate based on International Energy Agency, 2008, 2009a; International Monetary Fund, 2009; UNFCCC, 2009; and United States Congress, 2009.

It is important to realize that commitments set in the Kyoto Protocol imply de facto emissions rights for developed parties, ranging from 92 percent to 110 percent of their 1990 emissions. By setting reductions on absolute emissions, the Protocol is implicitly granting inequitable per-capita emission rights, not only among developed parties but especially to most developing parties.

By granting inequitable emissions rights, the Kyoto Protocol contradicts the Universal Declaration of Human Rights (United Nations, 1948). Article 1 of the Declaration proclaims that all human beings are equal in rights. Article 2 goes further by saying that no distinction shall be made on the basis of the status of the country to which a person belongs. Article 7 states that all are equal before the law and are entitled without any discrimination to equal protection of the law.

The Kyoto Protocol also contradicts the Climate Convention. Article 3.1 of the Convention states that “… Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities …” It should be noted that the word “equity” does not appear in the text of the Kyoto Protocol.

Inequity of the Kyoto Protocol would persist if its architecture is adopted for the post-2012 treaty. This would be the case if the Copenhagen Accord is taken as starting point for the post-2012 treaty, despite the promise of equity stated in the text of the Accord. Article 1 of the Accord states: “To achieve the ultimate objective of the Convention … on the basis of equity … we shall … enhance our long-term cooperative action …” Article 2 of the Accord goes further to state: “We agree that deep cuts in global emissions are required … and take action to meet this objective consistent with science and on the basis of equity.”

Inequity of the Kyoto Protocol and a post-2012 treaty based on its architecture, as well as its consequences, are better illustrated through figures, as discussed below. These figures correspond to CO₂ emissions from the following sectors: for developed countries, all sectors excluding land use, land-use change, and forestry;⁵ for developing countries, combustion of fossil fuels.

For the period 2008–2012, annual emission rights of developed parties are 9.7 tonnes per capita. By comparison, annual emissions of the United States (not a Kyoto Party) are 22.6 tonnes per capita, and equitable emission rights (i.e., total emissions of all parties divided by total population of all parties) are only 4.8 tonnes (Table 5.1). Annual emissions of the 95 developing parties included in the estimation are 2.8 tonnes per capita (Table 5.2⁶).

Table 5.2 Per-capita emissions 2008–2020, non-Annex 1 parties

Source: Own estimate based on International Energy Agency, 2008, 2009a; International Monetary Fund, 2009; UNFCCC, 2009; and United States Congress, 2009.

Note

1  In tonnes CO₂ per capita per year.

A new climate treaty for the period 2013–2020 based on the Kyoto Protocol’s architecture, be it the Copenhagen Accord or an extension of the Kyoto Protocol, would grant Annex 1 parties (United States included) annual emission rights of 10.7 tonnes per capita, while equitable emission rights are only 4.7 tonnes (Table 5.1). Annual emissions of the 95 developing parties included in the estimation are 3.3 tonnes per capita (Table 5.2). As a result of this inequitable allocation of emission rights, in the period 2013–2020 developing parties would lose 61 billion tonnes in CO₂ trading.

In summary, the Kyoto Protocol is inherently inequitable in terms of per-capita emissions. Any new climate treaty which overlooks per-capita emission will become inequitable as well.

While the Kyoto Protocol formally grants inequitable emission rights to developed parties, inequity in per-capita emissions has persisted for many years. For the sake of illustration, emission debts and credits between the parties were estimated for CO₂ emissions from combustion of fossil fuels since the entry into force of the Climate Convention (~1995) until 2007, just before the start of the Kyoto Protocol’s commitment period (own estimates based on International Energy Agency, 2008). The net debt of developed parties for the period 1995–2007 reaches 116 billion tonnes which is, in turn, the net credits to which developing parties are entitled.

Developed parties will also bear an emission debt originated from the inequitable emission rights granted by the Kyoto Protocol. The debt acquired by the United States (not a Kyoto party) originates from its emissions over the equitable right. The resulting net debt of developed parties for the period 2008–2012 is estimated at 52.8 billion tonnes while net credits developing parties are entitled to amount to 52.6 billion tonnes.

An equitable and effective climate regime

Besides causing an impasse on how to share the burden, the architecture of a Kyoto-based climate regime has other unwanted side effects, inter alia:

•  implicit allocation of emission rights on an inequitable basis (as discussed above);

•  unfair emissions-reduction burden on poorer people in developed countries, and conversely carte blanche to richer individuals in developing countries;

•  unfair emissions-reduction burden on producers of exported goods, and carte blanche to consumers in countries importing such goods; and

•  ineffectiveness in reducing emissions on the ground: governments are left on their own to achieving the committed reductions.

The above problems could be overcome by transitioning to a climate regime based on per-capita emissions allowances. For the sake of equity henceforth, every human being should be granted the right to generate the same amount of (direct plus indirect) emissions, irrespective of the country in which the person lives.

An equitable climate regime requires two components: an international climate treaty where the emissions allowance of each Party is an internationally agreed global per-capita emissions allowance multiplied by the population of the Party; and national systems where emissions allowances are allocated to individuals and their emissions are tracked to comply with the said global per-capita allowance.

While an equal emissions allowance may not be immediately practicable across developing and developed Parties, this should be the equitable goal in the near future.

Any initially agreed global per-capita emissions allowance could be gradually reduced over time as required by the stabilization trajectory of greenhouse gas concentrations which science suggests.

For the sake of equity and transparency, allocation of emissions allowances should by definition be fixed and equal for all individuals in any country. Since richer individuals will need more allowances and poorer individuals less allowances than the equitable allowance, national schemes should be in place to facilitate trading of unused allowances among individuals.

Similarly, allowance trading between countries should provide flexible distribution of the allocated allowances. It is expected that developed countries will need more allowances and developing countries less allowances than those allocated on a per-capita basis. The total amount of allowances globally should of course remain constant, despite trading among countries, and trading among individuals within the countries.

Since most emissions are caused by richer individuals, allocating emissions allowances only to them would deliver most of the reductions. The downside, however, is inequity against poorer individuals, and short supply of unused allowances for trading. Widening the allocation to poorer individuals would secure sufficient supply of unused allowances, and even provide a source of additional income or finance better life conditions for the poor. Allowance trading among individuals can serve for income redistribution as well.

It is important to note that national systems for allocating allowances to—and tracking emissions by—individuals do require an equitable climate treaty to be in place, and equitable allowance trading among parties to be operational. Otherwise, developed parties would not be able to purchase enough unused allowances as the majority of the population has emissions well above the equitable level; conversely, developing parties would not be in position to sell all the allowances that most of their population is not able to use.

Implementing per-capita emissions allowances

The authors propose the implementation of national systems of per-capita emissions allowances. These systems would allocate emissions allowances to individuals while tracking that the allowances are not exceeded.

It could be argued that implementing a system for tracking emissions from every individual in a country is hardly practicable. There are two main aspects to consider: the scale of the system (millions of individuals) and the complexity of tracked variables (a myriad of goods and services with different emission factors).

Systems for tracking consumption of goods and services by the population are not new. Major examples are the systems for metering and billing the consumption of electricity, natural gas, and water. From a technical standpoint, knowledge and experience gained from existing systems seem sufficient to implement national systems for tracking individual emissions.

Operation of the entire allowance system (i.e., allocating allowances and tracking emissions) could be further facilitated by taking advantage of synergies with existing systems. For example, if emissions allowances are monetized, crediting and debiting allowances could be easily achieved through money accounts, in the same way as money is credited to and debited from normal personal accounts.

Power-law statistical distributions occur in many natural and anthropogenic phenomena: the occurrence of a particular value is inversely proportional to a power of that value (Newman, 2006). A special case of this relationship is better known as the Pareto principle: 80 percent of the effects come from 20 percent of the causes, which also implies other relationships (for example 64 percent of effects come from 4 percent of causes).

Considerable literature exists about the application of the Pareto principle to energy efficiency and carbon footprint analysis in facilities, buildings, and similar premises (see for example Franchetti and Apul, 2012). Thus, there is high probability that energy consumption and emissions at facility level do follow a power-law distribution.

A quick analysis of national carbon emissions by the authors (based on International Energy Agency, 2008) seems to confirm that GHG emissions follow a power-law distribution quite well. Therefore, the complexity of tracked variables in a national system for following individual emissions could be streamlined by targeting the minority of goods and services that accounts for most of the emissions.

Which particular goods and services should be prioritized for tracking will depend on the peculiarities of GHG emissions in each particular country, the possibilities of the national body responsible for implementing the allowance system, and the level of support anticipated from the government, political parties, and the public in general.

Early difficulties to be expected in the development and implementation of national emissions allowance systems could be overcome more easily through technical cooperation among signatories of the Climate Convention. Besides making best use of available expertise in different countries, international cooperation would also contribute to harmonizing the design of national systems such that interoperability is assured. Interoperability is important at the moment of tracking GHG embedded in goods traded between countries.

International cooperation would also contribute to making the implementation of emissions allowance systems practicable and affordable for less developed countries.

The implementation and running costs of national allowance systems, including designated national authorities, could be paid from the trading of allowances, for example through a fee on each transaction.

The designated national authority for the national allowance system should be appointed by the government of the country. This role could be taken by existing agencies or authorities already dealing with operational matters of the Climate Convention in the country. In developing countries hosting projects within the Clean Development Mechanism (CDM), already existing Designated National Authorities (DNA) for the CDM could operate the national systems. Since new CDM projects would become redundant under the proposed allowance system, this would enable the DNA to keep its role while using its existing expertise.

In order to avoid unwanted political effects, the introduction of the emissions allowance system in a country should be preceded by a public information campaign explaining the reasons for and the operation of the system. Just as important is raising awareness and conducting debates among politicians, public opinion leaders, and representatives of main sectors of the society so as to gain early acceptance for the system.

The implementation difficulties of national emissions allowance systems should be assessed in comparison to the difficulties in implementing a post-2012 climate regime built on the Kyoto Protocol’s architecture. In the opinion of the authors, successfully implementing the extended Kyoto flexibility mechanisms or their successors is seemingly more difficult than implementing the more straightforward and transparent per-capita emissions allowance system once streamlined as suggested above.

The following is an early outline of how the emissions allowance system would work in a developed country:

 1  A total emissions allowance is allocated to the country at the beginning of each commitment period by a competent international authority, such as the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC), according to the global emissions reduction target and the global per-capita allowance agreed by the parties for the commitment period. The total allowance for the country is simply the global per-capita allowance multiplied by the population of the country.

 2  The international price of emissions allowances is agreed annually by the parties, as to provide sufficient incentive to countries to reduce emissions without placing an excessive burden on the world economy. Similarly, the national price of emissions allowances is set by the designated national authority, so as to provide sufficient incentive for consumers to switch to less emitting goods and services; for producers and suppliers to lower embedded greenhouse gases (GHG) in goods and services; and for technology developers to come up with new low-emissions solutions; while avoiding excessive burden on the national economy.

It could be argued that prices of emissions should be set by the market in order to avoid trade distortions. The authors are of the opinion that free markets are not the best way to address emergencies. Since the trading of emissions allowances is just a mechanism to share equitably the significant burden of avoiding an imminent environmental emergency, emissions allowances are not ordinary goods traded in free markets. Trading of emissions allowances must be closely regulated to avoid the abuses free markets are prone to.

An important advantage of setting the price by the regulatory authority is that it can reduce the market uncertainly by a fixed price for a certain period of time. On the other hand, setting the price through international negotiation may require a lot of time and effort. Theoretically, the price set by regulation with perfect information is the same as that determined by a perfectly competitive free market.

 3  Every individual has an emissions allowance account, akin to a bank money account. A sum of money, representing the total price of the allocated emissions allowance for a given allowance period—in principle one year or one quarter—is credited by the state at the beginning of each allowance period.

 4  No emissions allowances are allocated to producers and suppliers because emissions released along the production/supply chain are accounted as indirect emissions by the individuals consuming goods and services. Producers and suppliers nevertheless have allowance accounts where inflows and outflows of allowances are settled as discussed in points 5 and 10 of this outline. Economic signals for reducing embedded GHG come from final consumers as explained in points 11 and 12 below.

 5  Prices of goods and services include an emissions surcharge that represents the embedded GHG at the current price of emissions allowances. Embedded GHG include the emissions already incurred during production and/or supply, and any direct emissions released from consumption by individuals.

Embedded GHG of any good or service are added up along the production/supply chain as producers/suppliers pass along the embedded GHG of the resources they use for producing/supplying the goods or services. Those goods that generate direct emissions during use/consumption by the final user (mostly fuels) must have their embedded GHG added at the first point of entry in the production/supply chain, in which case the designated national authority determines the corresponding specific values. Most of these values can be directly taken from standard values provided by guidelines of the Intergovernmental Panel on Climate Change (IPCC), already used by countries to prepare inventories of greenhouse gases for their National Communications to the UNFCCC Secretariat.

 6  Embedded GHG and the resulting price surcharge apply regardless of the place (in-country or abroad) where emissions were incurred. Embedded GHG of imported fuels, goods, and services are taken from the allowance system of the country of origin. In case the country of origin has no allowance system in place, values of imported embedded GHG are determined by the designated national authority.

Emissions of international transport are charged to the carriers when buying local fuel, goods, and services. These emissions are eventually passed along as indirect emissions to passengers or goods transported, in the latter case as indicated in the next section of this outline.

 7  Embedded GHG of exported fuels, goods, and services are provided to the allowance system of the country of destination.

 8  The emissions surcharge of any fuel, good, or service bought by an individual is withdrawn from his/her allowance account, and repaid to the State.

 9  Emptying the individual’s allowance account before the end of the allowance period has the same economic consequences as running out of money. The individual can no longer buy fuels, goods, or services with embedded GHG until the allowance account is replenished by buying unused allowances from the allowance trading system.

10  Producers and suppliers also pay emissions surcharges for the goods and services they buy from others; these surcharges are initially debited from the allowance account until they are passed along to customers via the corresponding emissions surcharges; any emissions surcharges not passed to customers show as an overdraft in the allowance account and must be balanced by buying unused emissions allowances; persistent negative balance in the allowance account has the same economic consequences as temporary insolvency, which prevents the producer/supplier from buying further goods or services with embedded GHG.

11  The limited amount of allowances induces individuals to use fuels, goods, and services with lower embedded GHG, thus giving the corresponding producers and suppliers advantage over more emissions-intensive competitors.

12  Competition on offering fuels, goods, and services with lower embedded GHG creates demand for improved or new technologies from developers.

13  The price of allowances sends signals to individuals on the cost of overspending the allocated allowances. The limited amount of allowances available either globally or nationally, and the consequent scarcity of unused allowances should prevent rich individuals from emitting liberally regardless of the cost. Very rich individuals may be tempted to buy as many allowances as they need despite the cost. While monopolization of allowances would not impede meeting the overall emissions target, it would bring unwanted side effects on the economy, and should be prevented by close regulation.

The implementation of the above outlined system in developing countries would need modification, as discussed below. Emissions from richer individuals are mostly manageable as described above for developed countries, and would very probably deliver most of the emissions reduction. Decreasing the number of tracked variables could become necessary though, if the burden of the emissions allowance system proves excessive for the capability of the supporting systems in the country, especially for the designated national authority and the banking system.

Including poorer individuals in the allowance system is however important, both for equity considerations and for a fully performing allowance trading. Since the informal economy is rather extensive in developing countries, providing all poor individuals with emissions allowance accounts does not seem practicable. The same constraint applies to informal producers and suppliers: predictably not all of them are in position to have emissions allowance accounts.

Alternative approaches should be devised for enabling poor individuals outside the banking system to receive emissions allowances, reimburse incurred emissions, and sell any surplus to the allowance trading system. Simple cash payments for the total price of the emissions allowance could deliver equivalent results if emissions incurred by the individual are lower than the emissions allowance. This can certainly be the case for most individuals outside the banking system.

Similarly, new approaches should be developed for enabling informal producers/suppliers outside the banking system to participate in the emissions allowance system. The lack of allowance accounts would not impede these producers/suppliers to buy goods/services from others or sell their own products; the emissions surcharges however would be passed to customers via the normal price instead of deducted from the customers’ allowance accounts. While this shift in the accounting of emissions surcharges is detectable upstream in the allowance system, it would introduce uncertainties in the actual allowances used by poor individuals outside of the banking system. In other words, the sale of goods/services by informal producers/suppliers to final consumers would create uncertainty in the corresponding allowance used by the latter when both the producer/supplier and the final consumer do not have allowances accounts.

A simple but not always accurate enough approach to solve the above uncertainty is estimating the unused allowances from poor individuals outside the banking system. On one hand, cash payments to these individuals—as discussed above—would cover both the emissions surcharges and the price of actual unused allowances; on the other hand, the unused emissions allowances cashed by those individuals are accounted in the allowance system by estimation rather than tracking.

As mentioned in previous sections, allowance trading could provide the poor with a source of additional income or even finance better life conditions (e.g., access to energy, sanitation, and potable water). Smart ways for allocating allowances, estimating (rather than tracking) emissions, and facilitating trading of unused allowances for the poor need to be developed. Methods used by mobile phone providers for example may bring initial inspiration.

An early outline of the emissions allowance system for a developing country is discussed below. Elements and features similar to those already presented for developed countries are discussed in lesser detail.

 1  As in the case of developed countries, total emissions allowances for developing countries are allocated at the beginning of each commitment period, on the basis of the global emissions reduction target and per-capita allowance agreed by the parties. The total allowance for a country is the global per-capita allowance multiplied by the population of the country.

 2  The international price of emissions allowances is agreed annually by the parties, while the national price is set by the designated national authority.

 3  Individuals with access to bank services have emissions allowance accounts. A sum of money, equivalent to the total price of the allocated emissions allowance, is credited by the state at the beginning of each allowance period.

Poor individuals outside the banking system receive from the state a cash payment for the total price of the emissions allowance at the beginning of one or more allowance periods. Emissions of these individuals are presumed lower than the emissions allowance.

 4  Producers and suppliers with access to bank services have emissions allowance accounts but do not receive emissions allowances. Informal producers and suppliers outside the banking system do not receive emissions allowances either.

 5  Prices of goods and services include an emissions surcharge for their embedded GHG. These include emissions already incurred during production and/or supply, and any direct emissions released from consumption by individuals.

Embedded GHG are added up along the production/supply chain as producers/suppliers pass along the embedded GHG. Goods generating direct emissions by the final user have their embedded GHG added at the first point of entry in the production/supply chain; the designated national authority determines the corresponding specific values.

 6  Embedded GHG and the resulting price surcharge apply regardless of the country where emissions were incurred. Embedded GHG of imported fuels, goods and services are taken from the allowance system of the country of origin; otherwise, values of imported embedded GHG are determined by the designated national authority. Emissions of international transport are charged to the carriers when buying local fuels, goods, and services.

 7  Embedded GHG of exported fuels, goods, and services are provided to the allowance system of the country of destination.

 8  The emissions surcharge of any fuel, good, or service bought by an individual is withdrawn from his/her allowance account, and repaid to the state. Poor individuals with no allowance account pay the emissions surcharge via normal prices; the corresponding amount is reimbursed in advance by the cash payment received from the state for the emissions allowance; the unused allowances of these individuals are accounted in the allowance system by estimation instead of tracking.

 9  Emptying the allowance account before the end of the allowance period impedes the individual to buy fuels, goods, or services with embedded GHG, until the allowance account is replenished by buying unused allowances from the allowance trading system.

10  Producers and suppliers with allowance accounts pay emissions surcharges for goods/services bought from others; these surcharges are debited from the allowance account until they are passed along to customers; emissions surcharges not passed to customers must be balanced by buying unused emissions allowances; persistent negative balance in the allowance impedes the producer/supplier buying further goods or services with embedded GHG.

Informal producers and suppliers outside the banking system also pay emissions surcharges for good/services bought from others; these surcharges are paid via normal prices and then passed to customers, in the latter case via the normal price of their products. The use of normal prices to pass emissions surcharges is necessary as there are no allowance accounts to deduct from.

11  The limited amount of allowances induces individuals to prefer goods/services with lower embedded GHG. Resulting competition drives producers/suppliers to adopt improved and new technologies.

12  Eventual scarcity of unused allowances should prevent rich individuals from emitting liberally regardless of the cost. Close regulation should prevent attempts to monopolize allowances because of unwanted side effects on the economy. Monopolization per se would not impede meeting the overall emissions targets.

More research is needed on the detailed design and implementation issues of an equitable climate regime based on per-capita emissions allowances. Besides the system proposed in this chapter, there is valuable previous research on the topic (see for example Centre of Science and Environment, 1998; Meyer, 2000).

The ever-increasing concentration of GHG in the atmosphere is just one of the many manifestations of over-consumption of natural resources by richer individuals worldwide. These resources include inter alia water, minerals, forests, land, seas and atmosphere.

The system of per-capita GHG emissions allowances proposed in this chapter could be eventually extended to other natural resources which are over-consumed at the expense of the environment and future generations. The ultimate goal should be to regulate the consumption of these resources within sustainable levels, while guaranteeing their equitable sharing among the global population.

Conclusions

The current climate regime has proven largely insufficient to stabilize the global climate system. The root of the shortfall is in the system adopted to reduce emissions: meager binding targets for developed countries based on absolute 1990 levels. The issue of how to adopt more realistic and equitable allocation of emissions reduction targets has been a permanent impasse in the international climate negotiations.

There are two essential considerations to break the impasse and deliver an effective and equitable post-Kyoto climate regime:

 1  The emissions rights implicit in the Kyoto Protocol are ultimately inequitable. If per-capita global emissions must be halved on an equitable basis to stabilize climate, then most developing countries have always been under this sustainable target.

 2  It is richer individuals globally, and not developed countries per se, who have contributed most to global warming. Equity should transcend national borders: the poor in developed countries have the same rights to emit as anybody else; conversely, richer individuals in developing countries have the same obligation to reduce emissions as their counterparts in developed countries.

To be equitable, any new climate regime should be based on per-capita emissions. To be effective, the new regime should limit emissions directly at the root—the consumers—as new evidence emerges that renewables, nuclear fission and technologies per se in the near future cannot support current consumption patterns in a sustainable way.

While every individual in a country should receive the same equitable emissions allowance, flexibility in fitting different needs should be provided by national trading of unused allowances. Every signatory country should receive an equitable share of allowances proportional to its population. While trading between countries should provide flexible distribution of allocated allowances, the total amount of allowances globally should remain constant as per the agreed global reduction target.

At first glance, a system of per-capita emissions allowances could look unfeasible. Monetizing emissions allowances and prioritizing tracked variables should make the system practicable. A concerted international effort could also contribute to making the system operational by less developed countries.

The implementation difficulties of a per-capita allowance system should be assessed in comparison to the difficulties in implementing a post-2012 climate regime built on the Kyoto architecture. Successfully implementing the extended Kyoto flexibility mechanisms or their successors is seemingly more difficult than implementing the more straightforward and transparent per-capita allowance system.

This chapter provides an early outline of how a system of per-capita emissions allowances would work. More research is needed on the detailed design and implementation issues of a new climate regime based on this system.

The system of per-capita GHG emissions allowances here proposed could be eventually extended to other natural resources subject to unsustainable consumption, at the expense of the environment and future generations.

Notes

1  Kilowatt-hours per person per day. Note that this measure not only includes electricity but also all forms of energy.

2  Clean coal in this context means coal power stations with carbon capture and storage.

3  In this chapter, a negative reduction commitment is considered an increase in emissions.

4  According to the EU Burden Sharing Agreement, the reduction commitment ranges from −27 percent (Portugal) to 28 percent (Luxembourg).

5  These emissions essentially come from fuel combustion and cement production.

6  Table 5.2 only lists the top 20 developing parties ranked by their absolute CO₂ emissions in 2012. The complete table, presenting all the 95 developing parties included in the estimation, is available upon request to the authors.

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