A Role for the G-20 in Addressing Climate Change?

Following the chaotic Copenhagen conference of the UN Framework Convention on Climate Change (UNFCCC), policymakers and pundits have discussed the G-20 as an alternative forum for advancing climate change diplomacy. This paper assesses the risks and rewards of tackling climate change in the G-20 and finds that despite its seeming attractiveness, the G-20, as structured, is not a suitable replacement for the UN-led process and has limited ability, at present, to advance climate change negotiations. There is much, however, that the G-20 can do to contribute to the goals of the climate negotiations outside of wading into the negotiations themselves. Building on its existing agenda the G-20 has the power to significantly reduce global greenhouse gas emissions, accelerate the deployment of clean energy technology, and help vulnerable countries adapt to a warmer world through the mobilization of public and private finance. Following through on the existing G-20 pledge to phase out and rationalize inefficient fossil fuel subsidies, establishing new green guidelines for multilateral development banks, coordinating green stimulus exit strategies, promoting open markets for environmental goods and services, and rebalancing global economic growth all fall well within the G-20's mandate and help meet the climate challenge.climate change, carbon, climate finance, UNFCCC, G20, green stimulus, macroeconomic imbalances, environmental goods and services, multilateral development banks, climate finance, fossil fuel subsidies

Energy Efficiency in Buildings: A Global Economic Perspective

At the 2008 summit in Hokkaido, Japan, G-8 leaders called for a 50 percent reduction in greenhouse gas (GHG) emissions by 2050 in order to avert the most serious dangers from climate change. An essential component of meeting this goal will be improving the energy efficiency of buildings, which has been heralded by some studies as the most cost-effective way of reducing GHG emissions. Until now, however, few studies have attempted to assess the cost of completely overhauling the building sector in order to meet this emission-reduction goal. Using a newly developed model from the World Business Council for Sustainable Development (WBCSD) [pdf], Trevor Houser studies the economics of improving building-sector energy efficiency. While improving the energy efficiency of the building sector would be more expensive than some studies have suggested, Houser finds that the GHG abatement costs of improved building efficiency are cheaper than the abatement costs in other sectors. However, significant barriers to investments in energy efficiency will make it difficult to take advantage of these lower abatement costs, even if a relatively high price for carbon is established. New financing approaches, improved building standards, government investment, and enhanced awareness of the energy cost savings from increased efficiency are all needed to reduce emissions from the building sector and thus to assist in meeting the 50 percent reduction target.

The Economics of Energy Efficiency in Buildings

At the 2008 summit in Hokkaido, Japan, and again this summer in L'Aquila, Italy, G-8 leaders called for a 50 percent reduction in greenhouse gas (GHG) emissions by 2050 in order to avert the most serious dangers from global climate change. Improving the energy efficiency of buildings is essential: The International Energy Agency (IEA) has estimated that meeting the G-8's emission-reductions goal will require reducing annual GHG emissions from the building sector by 8.2 billion tons by 2050 below business as usual. While previous studies have shown that the cost of emissions abatement in the buildings sector is cheaper than in many other sectors, few studies have attempted to model what policies will be required to reduce building-sector emissions in line with the IEA's calculations. Trevor Houser, expanding on his earlier PIIE policy brief, uses the World Business Council for Sustainable Development's (WBCSD) model to study the economics of improving building-sector energy efficiency. Houser agrees with previous studies that the GHG abatement costs of improved building efficiency are cheaper than the abatement costs in other sectors (though more expensive than previous studies suggest), but he finds significant barriers to investments in energy efficiency. A carbon price alone--a key part of any successful climate policy--will not be enough to overcome these barriers, and complementary measures, such as improved financing approaches and enhanced standards and codes for building energy efficiency, will be needed to incentivize long-term building-sector investments and to meet the emission-reductions goals outlined by the IEA. Failure to enact such policies, and thus to take advantage of lower cost GHG abatement opportunities in the building sector, will force greater emission reductions in other sectors and will carry a much higher price tag.

Copenhagen, the Accord, and the Way Forward

Policymakers and the public had high expectations for the UN climate change summit in Copenhagen last December. Since the international community embarked on a new round of negotiations in Bali in 2007, elections in the United States, Australia, and Japan raised developed countries' climate change ambitions and a number of emerging economies--including China, India, and Brazil--announced their first ever nationwide climate change targets. Yet while political will to tackle climate change appeared to be building, international climate change negotiations were failing to deliver. The UN process launched in Bali struggled for two years to reach agreement on even the most basic issues between the Parties to the UN Framework Convention on Climate Change (UNFCCC). These two trends collided in Copenhagen, when ministers and heads of state arrived to find a negotiation process in disarray and no consensus text on the table. An eleventh-hour diplomatic flurry by leaders of a diverse and representative set of countries produced a political accord addressing the core issues of the negotiations. While attracting broad support among the 192 Parties to the UNFCCC, the accord did not receive unanimous approval. Instead, the UN "took note" of the agreement. This policy brief assesses the two-week conference, evaluates the Copenhagen Accord that resulted, and discusses key issues the international community will face moving forward. Author Trevor Houser argues that despite the chaos in Copenhagen, the accord is a significant step in addressing global climate change. The chaos in Copenhagen presents the international community with a unique opportunity to go back to first principles and craft a more suitable and sustainable long-term approach to this challenge. Houser calls for combining the UN process aimed at producing a legally binding agreement with a small-group process that would start work immediately on a politically binding basis--an approach that would prevent near-term substantive action from being held hostage to disagreements over legal form while demonstrating that meaningful international cooperation is possible and thus building support for a future treaty.

America’s Energy Security Options

As US gasoline prices approached $4 a gallon in spring 2011, energy security moved to the forefront of the American political debate. Politicians have been quick to offer silver bullet solutions to lower gas prices and make America more energy secure. Houser and Mohan analyze the various recent policy proposals, from expanded offshore drilling to new vehicle efficiency standards, and compare their effects on US oil imports, US oil demand, gasoline prices, and energy expenditures over the 2011–2035 period. They find that despite recent political rhetoric, when it comes to energy security there is no policy panacea. Current proposals vary widely in the time frame, magnitude, and nature of their impact. Rather than debate whether expanded domestic production, improved efficiency, or development of oil alternatives is the right course to take, the United States needs to start moving down all three roads simultaneously to significantly alter the country’s energy trajectory. An "all of the above" strategy is required, which combines increased domestic production (important in the near term) with long-term investments in energy-efficient vehicles and oil alternatives, whether electric, natural gas, or biofuels. A carbon tax, while still a long shot politically, would deliver further energy security gains and help reduce the US deficit in the process. But even if all proposals currently on the table are adopted, the US will remain dependent on the international oil market for decades to come. Therefore Washington needs a strategy for improving the stability and reliability of that market, something missing from the current policy debate.

Delivering on US Climate Finance Commitments

At the United Nations climate change conference in Copenhagen in 2009 and Cancun in 2010, the United States joined other developed countries in pledging to mobilize $100 billion in public and private sector funding to help developing countries reduce greenhouse gas emissions and adapt to a warmer world. With a challenging US fiscal outlook and the failure of cap-and-trade legislation in the US Congress, America's ability to meet this pledge is increasingly in doubt. This paper identifies, quantifies, and assesses the politics of a range of potential US sources of climate finance. It finds that raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington's best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks.climate change, carbon, climate finance, UNFCCC, Copenhagen Accord, Cancun Agreements, development assistance, adaptation, green fund, multilateral development banks, fossil fuel subsidies, emission offsets, bilateral credit agencies

Assessing the American Power Act: The Economic, Employment, Energy Security, and Environmental Impact of Senator Kerry and Senator Lieberman's Discussion Draft

On May 12, 2010, Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) released details of their proposed American Power Act, a comprehensive energy and climate change bill developed over the preceding nine months by the two senators, chairmen of the Senate Foreign Relations and Homeland Security Committees respectively, along with Senator Lindsey Graham (R-SC).1 With US unemployment just below 10 percent and the sunken Deepwater Horizon drilling rig's ruptured well pouring thousands of barrels of oil into the Gulf of Mexico each day, the senators promised that if passed the bill will: (1) reduce US oil consumption and dependence on oil imports; (2) cut US carbon pollution 17 percent below 2005 levels by 2020 and over 80 percent by 2050; and (3) create jobs and restore US global economic leadership. In this policy brief the authors evaluate the effectiveness of the proposed American Power Act in achieving those goals.

Leveling the Carbon Playing Field: International Competition and US Climate Policy Design

As political momentum surrounding climate change builds in the US, policymakers are taking a fresh look at national climate policy and American involvement in multilateral climate negotiations. And as in years past, the potential economic impact of any US effort to reduce greenhouse gas emissions stands as a central question in the Washington policy debate. Of particular concern is the effect climate policy would have on carbon-intensive US manufacturing. Many of these industries are already under pressure from foreign competition, particularly large emerging economies like China, India, and Brazil that are not bound to reduce emissions under the current international climate framework. As the Congress takes up domestic climate legislation and the Administration reengages in multilateral climate negotiations, policymakers are looking for ways to avoid putting US industry at a competitive disadvantage vis-à-vis countries without similar climate policy, lest a decline in industrial emissions at home is simply replaced by increases in emissions abroad. * While this would be best achieved through harmonized international climate policy, the differences between countries in level of economic development, obligations stemming from historic emissions and responsibilities arising from future emissions, mean harmonization is still a long way off. The question then, in the design of domestic US climate policy today, is how to level the playing field for carbon-intensive industries during a period of transition, where trading partners are moving at different speeds and adopting a variety of policies to reduce emissions...and how to do so in a way that doesn't threaten the prospects of broader international agreement down the road. This book, a collaboration between the Peterson Institute for International Economics and the World Resources Institute, tackles these issues through an assessment of the economics and trade flows of key carbon-intensive industries. They evaluate a wide range of policy options, including those that would impose carbon costs on foreign-produced goods at the border (currently included in draft US legislation and under consideration in the EU) in terms of their effectiveness in reducing emissions and addressing competitiveness issues and their impact on health of multilateral trade and climate negotiations.

A Green Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination

As the new Congress and President Obama take office, enacting a fiscal stimulus program is at the top of the legislative agenda. Because the size of this program may limit the scope for other legislative priorities and because US consumers' new-found propensity to save makes government spending a more attractive approach for economic recovery, policymakers are hoping to direct government spending in a way that not only generates short-term economic growth and employment but also addresses long-term policy goals. Energy security and greenhouse gas emissions (GHG) reductions are chief among these goals, and smart government investment in these areas can both create jobs today and lower the future cost of implementing long-term policies such as a cap-and-trade program or carbon tax. Trevor Houser, Shashank Mohan, and Robert Heilmayr consider twelve proposed "green" stimulus programs and examine the economic, environmental, and energy-security costs and benefits of these proposals using the Energy Information Administration's National Energy Modeling System and the Bureau of Economic Analysis's RIMS II multipliers. These proposals fall into three basic categories: energy efficiency investments, such as programs to refit federal buildings and weatherize homes; power generation programs, including extension of the production tax credit for renewable energy and the installation of "smart" meters; and transportation proposals, such as hybrid tax credits, funding for battery research and development, and mass transit expansion. They find that their twelve programs create an average of 30,100 job-years per $1 billion in government spending, comparing favorably with an average of 7000 job-years for every$1 billion in temporary tax cuts or 25,200 job-years per $1 billion in traditional infrastructure investment. These proposals also have a favorable impact on US GHG emissions and reduce US imports of oil and natural gas, but these effects are not significant enough to replace long-term policies in these areas. Rather, these policies can lay the groundwork for long-term policy goals, reducing the cost of implementing such policies down the road while at the same time spurring employment and helping to reverse the continuing economic downturn.