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Solutions to the global warming problem must be long term and international, but not necessarily global, said Robert Stavins, director of the Harvard Environmental Economics Program and a professor at the John F. Kennedy School of Government.
“A credible international approach is needed,” Stavins said April 8 at Harper Center in a talk sponsored by the Chicago Energy Initiative, an interdisciplinary program housed at Chicago Booth’s Stigler Center. “And the reason is probably apparent to most of you and certainly to anyone who thinks in economic terms. And that’s because this is a global commons problem.”
Because greenhouse gases uniformly mix in the atmosphere, the problem affects everybody. If an individual country, region, or state acts to curb greenhouse gas emissions, that entity “will bear the entire burden of the costs of taking action, but they will receive an exceptionally small share of the benefits because those benefits are distributed globally,” he said. This situation produces what economists refer to as the “free rider” problem.
While this means the problem must be addressed by more than one country at a time, global actions among all 192 countries aren’t necessarily required, because just “twenty countries and regions account for approximately 80 percent of emissions,” Stavins said. For this reason, the United Nations Framework Convention on Climate Change may not provide the best framework for moving forward, he said, as it requires unanimity among 192 countries. The UNFCCC met in Copenhagen in December and produced a three-page nonbinding accord.
On the other hand, the Kyoto Protocol was criticized because it left out key players —emerging countries including China, India, Brazil, Korea, South Africa, and Mexico. This, in effect, made the costs of achieving a reduction in greenhouse gas emissions about four times greater than what they would have been if all countries were controlling emissions at the same margin of abatement costs, Stavins said.
The Kyoto Protocol also was criticized for its limited five-year window, between 2008 and 2012.
“It doesn’t provide any long-term solution for what is very much a long-term problem,” Stavins said. “This is a stock, not a flow, externality. It’s the concentration — not the emissions at a moment in time — that is correlated with the damages.”
Because long-term technological change is needed, long-term price signals are needed, he said. Gradually ramping up severity of emission reduction targets provides the most cost-effective path.
It’s not a good idea to “render large parts of the capital stock prematurely obsolete,” Stavins said. “We don’t want to force you to sell your car. We want to make sure that the next time you buy a car, that you are pushed to some degree in a carbon-friendly direction.”
In the Kyoto Protocol, which the United States signed but didn’t ratify, the United States agreed to take on a seven percent emissions target, and Europe an eight percent target, relative to a 1990 baseline. The United States stands at a relative disadvantage at meeting its target because of economic and political reasons, compared to say, Germany, and Japan.
“Think about that baseline year,” Stavins said. “Think about the fact that one country in the world had unparalleled growth in the decade of the 1990s. The United States had an increase in gross domestic product of 35 percent.”
Increased economic activity brings about increased energy generation and increased carbon dioxide emissions, even as energy becomes more efficient.
In comparison, “Japan had its lost decade.” German unification after the collapse of the Berlin Wall meant Germany’s baseline included the former East Germany with “all that carbon-belching, inefficient, rust-belt electricity generation,” Stavins said.
Still, industry in Europe may become increasingly concerned about leading the world in efforts to cap greenhouse emissions without anybody else following in their footsteps, he said.
He said U.S. legislators likely will proffer a major cap-and-trade proposal, but it will carry a different name because of public unpopularity for cap-and-trade policies.
Marco Knauf, a first-year student in the Full-Time MBA Program, said he was intrigued by Stavins’s view of how the political process is working and the information he shared beyond what is heard in the media. Knauf, from Germany, said he particularly was interested to hear “the arguments behind American policy.”
He said the cost-effectiveness of political initiatives is not emphasized enough in the media. “As a future manager, one thing I care about a lot is how the emission trading schemes will be developed and what the impact will be on businesses in the future.” Based on what Stavins said, Knauf said, it became clear that “these emission trading schemes will become more prevalent, and that what we’ve been seeing already in Europe is going to become even more important as we go on.”
—Mary Sue Penn