Climate Treaties and Models: Issues in the

International Management of Climate

Change

June 1994

OTA-BP-ENV-128

NTIS order #PB94-179991

GPO stock #052-003-01373-8
Recommended Citation: U.S. Congress, Office of Technology Assessment, Climate

Treaties and Models: Issues in the International Management of Climate Change,

OTA-BP-ENV-128 (Washington, DC: U.S. Governrnent Printing Office, June 1994).
Foreword

T

he Office of Technology Assessment has produced two major assessments related to climate change over the past three years.

Changing by Degrees: Steps to Reduce Greenhouse Gases,

which focused on ways to reduce U.S. emissions of greenhouse

gases, was published in 1991. Preparing for an Uncertain Climate,

which addressed the impact of climate change on natural resources, was

published in 1993. OTA prepared this background paper as a technical

addendum to those earlier assessments. The earlier assessments focused

on national policies and concerns. This background paper seeks to place

the issue of climate change within an international context. Specifically,

it addresses the feasibility of forging treaty agreements among countries

to achieve significant worldwide reductions in emissions of greenhouse

gases.

Concerns about climate change have led over 160 countries, including the United States, to sign a United Nations-sponsored world climate

treaty, agreeing to take steps toward stabilizing greenhouse gas emissions. Unfortunately, the treaty itself offers no clearly defined targets or

timetables. The potential difficulties in achieving agreements on worldwide reductions in emissions of greenhouse gases are striking. These

difficulties are perhaps most clearly illustrated by recent evidence of rapid increases in C02 emissions from several of the larger developing

countries as they pursue the goal of economic growth. Even within industrialized countries, there continues to be concern over possible economic costs of any limit on emissions. Yet, without wide participation in

a stronger cl i mate treaty, the steps the United States has proposed to take

under its Climate Action Plan could prove fruitless. Congress will face

these issues as it oversees the Climate Action Plan and considers future

climate treaties.

This paper was prepared for OTA by Edward Parson of the Kennedy

School of Government. It summarizes discussions from an OTA workshop on climate treaties and draws upon an earlier report prepared for

OTA by Jae Edmonds of the Battelle Pacific Northwest Laboratory.

ROGER C. HERDMAN

Director

. . .

Ill
workshop Participants

Edward A. Parson

Chairman

Harvard University

Dan Bodansky

University of Washington

Tony Brenton

Harvard University

Herman Cesar

Tilburg University

Joel Darmstadter

Resources for the Future

Hadi Dowlatabadi

Carnegie Mellon University

Jae Edmonds

Battelle Pacific Northwest

Laboratory

Howard Gruenspecht

Department of Energy

James K. Hammitt

Rand Corp.

Rick Piltz

U.S. Congress, House Committee

on Science, Space, and

Technology

Steve Rayner

Battelle Pacific Northwest

Laboratory

John Reilly

Massachusetts Institute of

Technology

Joel Scheraga

U.S. Environmcntal Protection

Agency

Dennis Tirpak

U.S. Environmental Protection

Agency

David Victor

Harvard University

John Weyant

Stanford Univcrsity

OTA PARTICIPANTS

John Andelin

Assistant Director

Rosina Bierbaum

Senior Associate

Michael Bowes

Senior Analyst

Joy Dunkerly

Senior Analyst

Robert Niblock

Program Director

Bill Westermeyer

Senior Analyst

William W. Hogan

Harvard University

iv
Clyde Behney Michael Bowes

Assistant Director, OTA Project Director

Health, Education and

Enviroment Sherry Showell

Analyst

Robert W. Niblock

Environment Program Edward A. Parson

Diector Contractor

Preject Staff

ADMINISTRATIVE AND

SUPPORT STAFF

Kathleen A. Beil

Office Administrator

Nellie Hammond

Administrative Secretary

Kim Holmlund

Administrative Secretary

Sharon Knarvik

Secretary

Jene Lewis

Administrative Secretary
contents

Issues in the International Management

of Climate Change 1

Context: Policy Models for Global Climate Change 2

Participation 4

Timing 8

Formulas and Feasibility 10

Uses of Models 13

Conclusions 17

Appendix: Summary of Edmonds et al.

Paper 19

The Model: Origin and Structure 19

Scenarios and Assumptions 20

Other Important Design Issues 21

Policies and Protocols Studied 21

Results 2 3

References 27

vi
I ssues in the

International

Management of

Climate Changel

A

s part of its assessment work on global climate change, the

Office of Technology Assessment (OTA) cosponsored an

analysis with the Battelle Pacific Northwest Laboratory to

examine various hypothesized international agreements

for limiting greenhouse gas emissions (5). The analysis, led by

Jae Edmonds of Battelle, applied a sophisticated international energy model to generate projections of the effectiveness (in terms

of reduced global emissions) and cost (in terms of losses in Gross

National Product, GNP) of particular agreements, to permit assessments of how feasible and politicall y sustainable such treaties

are likely to be. The goal was not to ask what level of global emission controls is justified, nor to estimate the effects of particular

treaties on the United States alone. Rather, the study examined the

effects of agreements on global emissions and on the economies

of major world regions, so as to permit a preliminary inquiry into

what kinds of agreements are desirable, and what kinds can be

achieved and maintained.

On April 23, 1993, OTA sponsored a workshop entitled “Climate Treaties and Models” to bring together experts in modeling,

environmental policy, and international negotiations and law to

examine these questions. The workshop participants considered

the implications of the Edmonds et al. analysis (5), and the prospects for other exercises of formal modeling to advance international policy debate on climate change. The Edmonds et al. paper

provided the backdrop for the workshop, but workshop discus–

sion ranged more broadly to consider a variet y of issues related to

1 Edward A. Pars{m (If the John F. Kennedy Schm)l of G(wemmwt, Harvard Unlvcrsi -

tj, chalrwl the OTA workshop” and is the author of this background paper.
2 I Climate Treaties and Models: Issues in the International Management of Climate Change

the feasibility and sustainability of international

agreements on climate change. At the workshop,

Edmonds summarized the major results of his

team’s study. Following his presentation, the

workshop’s four sessions were organized around

four major issues in international agreements to

manage global climate change. The first three issues concern the construction of international climate agreements—who joins, when they act. and

what they do-while the final issue is institutional. The first session, “Participation,” considered

what will determine who participates in climate

agreements, and how participation will affect the

cost and effectiveness of agreements. The second

session, “Timing,” considered when participants

are likely to act to control emissions, and how the

timing of action will affect cost and effectiveness.

The third session, “Formulas and Feasibility,”

considered what formulas participants are likely

to use in allocating responsibilities under a treaty,

and how the choice of a formula will affect cost

and effectiveness. Finally, the fourth session considered “Uses of Models,” institutional questions

of how modeling exercises such as the Edmonds

et al. work can inform most usefully the deliberations and negotiations involved in making international climate agreements and policy—and

limits to the usefulness of models in these processes. In each session, participants discussed both

the implications of the Edrnonds et al. project for

the specified topic, and broader related questions.

Each session opened with a brief presentation by

one participant, structuring major questions to be

addressed. David Victor opened the section on

Participation, Jim Hammitt on Timing, Herman

Cesar on Formulas and Feasibility, and Edward

Parson on Uses of Models.

This paper weaves together workshop discussion of these four areas with insights provided by

the Edmonds et al. project and other current 1 iterature. In effect, it is a survey of the current territory

of expert opinion on climate treaties, energy economic and policy modeling bearing on international climate agreements, and relationships

between the two. The paper reports in summary

form the major views and arguments aired at the

workshop, without attribution.

The paper is organized as follows. Section 1

introduces major issues in the design and use of

economic and emissions models for studying

global climate change, and provides a brief summary of the major results of the Edmonds et al.

work. Sections 2 through 5 discuss in turn each of

the four broad question areas that structured the

day’s discussion. Section 6 concludes by summarizing major points of consensus and disagreement among workshop participants. For readers

who wish a more detailed and technical summary

of the Edmonds et al. modeling project that animated the workshop, an appendix discusses the

approach, design, assumptions, and major results

of their work.

CONTEXT: POLICY MODELS FOR

GLOBAL CLIMATE CHANGE

A circular chain of causal relationships define the

human-climatic system. Human societies generate greenhouse gas emissions from such activities as energy use, industry, and land use. Once

emitted, greenhouse gases cycle through various

reservoirs and sinks, leading to changes in their atmospheric concentrations. Changed concentrations change the atmosphere’s energy balance, in

turn altering global, regional, and local climate.

Changes in local climate bring impacts on human

activities and welfare, and on managed and nonmanaged ecosystems, which may in turn lead to

changes in emission patterns.

Several classes of formal models seek to represent the causal relations driving each step of this

chain. Economic and energy models represent determinants of the activities that generate emissions, including the effect of policies intended to

change emissions. A second class of models represent the chemical and physical cycles by which

emissions change atmospheric concentrations.

These range in complexity from simple “airborne

fraction” models, which assume that a fixed fraction of current emissions are immediately reab-
Issues in the International Management of Climate Change | 3

sorbed while the remainder stays in the atmosphere, to complex time-dependent models of

diffusion and chemistry that include multiple

physical. chemical. and biological sources and

sinks.

A third class of models calculates the effects of

changed atmospheric trace-gas concentrations on

climate. These include General Circulation Models (GCMs), the large models developed for

weather forecasting that are now used, among

other purposes. to estimate the sensitivity y of global climate to various hypothesized increases in

greenhouse gas concentrations. Some GCMs involve coupled representations of the ocean and the

atmosphere. A fourth, less developed class of

models seeks to characterize the impacts on ecosystems, and on human societies and economies.

of specified changes in regional climatic regimes.

Each of these classes of models addresses a different set of questions. For example. the economic

and energy models could ask how much emissions

wil 1 grow by the year 2050, and how much will a

$20 per ton carbon tax reduce this growth? The

second class, the physical cycle models. could ask

what wil1 the atmospheric concentration of carbon

dioxide (CO2) be in 2050 if emissions follow a

specified path between now and that year? The

third class, the GCM models, can ask what will be

the resultant change in patterns of temperature,

precipitation, soil moisture, and storms if atmospheric CO2 concentration reaches a specified level

by the year 2050 and remains there subsequent y?

And the fourth class, the impacts models, could

ask what effect will result on regional ecosystems.

agriculture, health, and economic activity if mean

July temperature in the Midwestern United States

increases by 3oC and mean precipitation decreases by 15 percent?

There is a long-standing ambition among modeling communities to answer all policy questions

by modeling the entire world. This ambition can

be detected in the enthusiasm of the early 1970s

for “global models,” represented in the bestselling book The Limits to Growth ( 18). A parallel

enthusiasm is now present in the drive toward

“integrated assessment” of climate change. Integrated assessment projects involve coupling two

or more of the classes of models described above

to permit examination of more distant causal relations and follow the impacts of particular

decisions downstream through emissions to concentrations to climate to impacts—and possibly

then to changes in human activities and back to

emissions. The approach is in part motivated by

the desire to give practical answers to practical

questions, such as, “Who will suffer, how much.

when, from the ultimate climatic consequences of

our decision now to limit (or not to limit) emissions’?”

The utility of this approach is limited by the

complexity and uncertainty that pervades each

step of the causal chain. Simply propagating uncertainty through a set of cascaded models Suggests that the output of such a grand chain of models tells you nothing. On the other hand, many

analysts argue that integrated assessment models

can yield greater value than such a simple thought

experiment suggests. Even for models addressing

only one step of the causal chain, the essential value lies not in particular numerical results, but in

insights into causal structure and results that are

appropriate to wide ranges of input specifications.

The same arguments can be applied to integrated

modeling activities; they could provide great value in structuring thought, directing inquiry, identifying which uncertainties are important and unimportant, and suggesting robust conclusions, even

if the precision and accuracy of their particular numerical outputs are limited. This debate persists

active] y.

The modeling presented in Edrnonds et al. focuses on the first step in this causal chain. It projects global and regional fossil carbon emissions

and control costs under three economic growth

scenarios, and under various international agreements to control emissions. Its analysis extends in

a limited way to carbon concentrations by coupling one simple carbon cycle model, but it does

not seek to mode] climate, impacts, or the processes by which impacts may alter emissions. The

assumed levels of emission control are exogenous

rather than endogenous---specified externally to

the model. rather than calculated within the model. The controls examined are not assumed to have
4 I Climate Treaties and Models: Issues in the International Management of Climate Change

any particular optimality characteristics, neither

to represent a “correct” level of total emissions nor

a fair distribution of obligations internationally.

Rather, they are selected to be relevant to current

policy debate, representative of proposals now

discussed in international policy circles.

The following are the major results of the Edmonds et al. analysis. A detailed description of the

approach and assumptions of this project, and a

more detailed elaboration of its results, is presented in the appendix.

| The modeled distribution of costs among regions from any simple system for distributing

emission control obligations shifts dramatically over time; consequent] y, no such simple system is likely to remain acceptable through the

next century, and any system of international

controls with bite must be designed flexibly

enough to allow renegotiation as conditions

change.

■ Large savings, on the order of trillions of dollars, are available from distributing international abatement efficiently rather than using

naive allocations like holding regional emissions at current levels: these savings may be

particularly large for developing countries.

■ Several simple, plausible schemes for allocating tradable emission permits can have paradoxical effects, and may become infeasible as

time passes, For example, in the latter part of

the century, China becomes a net loser under

equal per capita distribution because its economy is projected to grow so much more rapidly

than its population.

■ Not all countries need to participate. The few

nations with the largest coal resources can limit

cumulative global carbon emissions themselves by controlling or taxing production. To

control atmospheric carbon concentrate ion, only

coal matters; there is not enough oil and gas in

the world to make a large difference.

● Modest variation in assumed rates of change of

technical end-use efficiency, and rates of dliffusion of techn ical progress among nations, make

large differences in the cost and effectiveness of

treaties. For example, plausible assumptions of

accelerated technology development and deployment can cut total cost of stabilizing world

emissions in half.

| Initial delays of 100 or 20 years in implementing

emission stabilization have little effect on ultimate atmospheric carbon concentrations.

PARTICIPATION

The fundamental questions about participation in

international climate agreements can be separated

into two broad classes: questions of the consequences of participation, and questions of the

determinants of participation. “Consequence”

questions consider the implications of who participates for the cost and effectiveness of agreements, or alternatively, whose participation is

necessary for an agreement to be negotiable and

sustainable. “Determinants” questions ask on

what each nation’s (or each important actor’s) decision to participate depends, and what factors are

likely to persuade or dissuade each actor from

joining. Each class of questions can be posecd either substantively or politically: in terms of the severity of climate change impacts and control

costs, or in terms of interactions between interests

and decisions of actors who favor or oppose participation.

What set of participants is necessary for an effective climate agreement? There are two answers, depending on whether the question is

posed substantively or politically. On the one

hand, only a dozen or two nations are big enough,

rich enough, or influential enough that their participation is substantively necessary. Confining

serious negotiation to these few may then offer the

best hope of agreement, since the complexity and

difficulty of negotiations grow with the number of

participants. On the other hand, if the entire endeavor is to be seen as legitimate, it must represent

a broad international consensus, possibly including most nations of the world. The Edmonds et al.

work focused on the substantive implications of

various groups of participants, not on questions of

political legitimacy. In these terms, its results are

persuasive: that limited participation can be highly effective if it includes the nations holding most
Issues in the International Management of Climate Change | 5

of world coal resources, and that agreements in

which nations not belonging to the Organization

for Economic Cooperation and Development

(OECD,) delay their participation by a few decades

make only small increases in resultant atmospheric carbon concentrations.

The tension between the pragmatic requirement for (and sufficiency of) small negotiations

and the political requirement for a broad consensus presents an apparent paradox. The paradox

may be resolvable, though, through the approach

of joint implementation, which allows enough

flexibility that all nations can be involved in the

negotiation of the overall framework, while each

specific emission reduction agreement would be

negotiated among the small group of nations directly affected.

What determines nations’ decisions to participate’? It may be impossible to understand participation without considering impacts as well as

emission controls. Impact assessment is of

course necessary to do benefit-cost analysis regarding the appropriate level of emission controls.

But impacts may also be central in determining

participation, because some nations’ participation

will depend strongly on their perceiving that climate change puts them at risk. One piece of

evidence of the role of impacts in determining participation is that the only new durable coalition to

appear in recent cl imtite negotiations was of island

and coastal states. whose shared interests are entirely impact-driven. One form of agreement likely to appeal particularly to such nations may be

one based on compensation for damages associated with climate change. Such a treaty, though,

would require either agreement on a basis for establishing causation of particular climatic events

(an unlikely development), or willingness to compensate for broad classes of climatic events regardless of causation.

Other nations’ reasons for- deciding to join an

agreement will differ. Some may decide to partci -

pate based on an ● ’insurance*’ heuristic; having decided to protect against the risk, detailed calculation of the risk’s magnitude matter less than

determining that the cost of protection is affordable. For these nations, participation will be

control-cost driven. Indeed, public concern in

OECD nations about the moderate, vague, but potentially (very low probability) catastrophic risk

that climate change poses may be so large that

electorates will force a level of early action that

now seems excessive in view of the available (admittedly very weak) benefit-cost estimates. Recognizing these two groups of nations would suggest the possibility of agreements that combine

global emissions limits with compensation, with

the emission limitation component attracting the

rich nations most willing to pay to protect against

the catastrophic tail of the climate change distribution, and the compensation component attracting the poorer nations less able to finance

adaptation measures to protect against the median

projected climate change.

Nations arc not the only actors whose paticipation decisions matter, though, and the Edmonds et

al. analysis may be misleading in considering only

agreements based on regional or global emissions

freezes, and hence in directing attention exclusively to national participation decisions. In other

plausible forms of agreement, it could be participation decisions by non-national actors that are

most important.

For example, an agreement could be expressed

in terms of best efforts or technical forcing to limit

emissions without including explicit national targets. In such an agreement, the crucial participants

are not national governments. but the industrial

actors that have control of, and resources to develop. the relevant technology. If these actors” incent ives can be structured proper] y, rapid gains can be

realized. Alternatively, an agreement could begin

with “international emission offsets” or some other informal measure to give credit for joint imple2 Da) Id Victor prcscntd the argument [hat (me must c(msder impacts to urdcrstand the dc(cm~]nan(s of part] clpa[i(m and the delineation of

different catcg(mes of p)tcntlal :lgrccvmmts and thclr participa[l(m impl]catl(ms, in his remarks to open the “Partlcipatl(~n” discussion.
6 I Climate Treaties and Models: Issues in the International Management of Climate Change

mentation efforts, from which point the agreement

could evolve into a full system of tradable emission permits. Crucial participants in this scheme

would include holders of the emissions property

rights that are created, who could be national governments or subnational or translational actors.

Proceeding by gradual expansion of an offset system would provide two important negotiating

advantages: first, it would avoid the difficult explicitly distributive negotiation over an initial distribution of permits; and second, it could be designed so as to avoid creating a constituency of

permit holders who resist emission reductions out

of concern for their asset values.3

As a third alternative, agreements could be

based on a carbon tax, as is now being pursued in

the European Community. The crucial participants in this case are the powerful domestic interest groups that lobby for advantages under the tax

system and would seek to exempt themselves

from such a tax; the agreement’s effectiveness

would turn on how effectively these groups can

gut the proposed measures.

Fourth, agreements could follow the example

of the General Agreement on Tariffs and Trade

(GATT), linking greenhouse emission controls to

other, possibly unrelated issues. Indeed, in such

agreements the GATT can serve both as an analogy—an example of a long-standing forum in

which a slowly evolving set of disparate issues

broadly related to trade are negotiated and traded

off-and as a particular instance of the kind of issues that might be linked to greenhouse emission

reductions. Given the magnitude of international

trade flows in energy and energy-intensive goods,

to be effective, greenhouse emission agreements

may have to both account for these flows and accommodate the norms of the international trading

system. This would suggest negotiations that explicitly address climate and trade issues, bringing

both sets of institutions and expertise together.

Such broader linkages would increase the chance

of meeting enough interests to obtain the nearunanimous participation required for legitimacy,

but the increases in both the number of participants and the range of issues and linkages considered can vastly increase the complexity of the

negotiation, risking a stalled negotiation among

everyone over the entire future of the planet (21).

Among national actors, it is the developing

countries (LDCs) who, because of their large

growth potential, will have the greatest impact on

the effectiveness of international climate agreements over a period of several decades, so assessing the determinants of their participation decisions over this period is of the utmost importance.

Thus far, LDC interest in climate negotiations has

been very high, higher than present understanding

of risks and costs would imply. This LDC interest,

likely originating partly in intellectual interest and

partly in general desire to participate in important

diplomatic processes, contributed to the rapid

movement of early climate negotiations. This level of interest may not endure, though, nor need it

indicate willingness to bear substantial emission

control costs, for other policy concerns—including other environmental issues—are of much

greater urgency in LDCS than climate.

What will determine LDC participation decisions over a several-decade period? Two factors

are widely cited: greater sense of risk from climate

impacts than has yet been evident; and agreements

structured to address LDC concerns beyond emission reduction, through financial transfers or linkage to other policy priorities. There is sharp disagreement on the relative importance of these two

factors. Some argue that broad issue linkages and

large financial transfers are politically infeasible

in industrialized countries, but that a stronger

view of climate risks could motivate LDCs to participate even in narrowly drawn emission control

agreements. Others contend that meaningful LDC

3 This problem is related to the so-called “Taxi Medallion” problem, but whether pem~it holders W(WM resist tightening (or relaxlng) [he

emissi(m limit would depend on how the change was implemented. If total emissi(ms were changed by varying the qumtity that each exist]ng

pemlit represented, (me would n(~mlally expect owners to fawm increases and (JppMe dccreascs; if emissi(ms were changed by auc[i(ming or

buying back Pemlits in (pm markets, (me would m)mlally expect the reverse.
Issues in the International Management of Climate Change | 7

participation will require a substantial sweetener:

cash, or major initiatives on debt, trade, technology, and finance.

It is difficult to understand the contribution of

perceived climate impacts to decisions to participate in international agreements, particularly

because impacts of the same climatic events in developing and industrialized countries can be so

starkly different. A striking example of disparities

in the character of climate impacts is provided by

two recent tropical storms of roughly equal force,

Hurricane Andrew in Florida and a similar storm

in Bangladesh. Andrew caused billions in monetary losses but took only 17 lives; the Bangladesh

storm, which caused much smaller monetary

losses, killed 200,000 people.

The significance and impacts of policies to restrict emissions can also be starkly different in industrialized and developing countries. In some

cases these differences arise from sharply different market conditions, such as the far-from-equilibrium energy markets prevalent in many LDCs.

For example, when energy systems are tightly

supply-constrained, investment in new low-emission technology does not displace existing capacity but adds to it, increasing rather than decreasing

emissions. Similarly, when noncommercial fuels

that contribute to greenhouse emissions and other

(locally more serious) pollution problems escape

taxes and other policies. policies to restrict commercial fuel use have the opposite to intended effect: they drive people back to higher-emitting

traditional fuels that escape the policy. An even

more serious limit to our understanding of the

global effect of emission control policies may lie

in fundamental inter-cultural differences in what

people value, and how they act and make decisions. The widespread, naive assumption of industrial country analysts that what moves them

moves others is embedded in economic models

that assume equilibrium markets and familiar responses to price, income, and policies across

broad classes of countries. Similarly restrictive

assumptions are embedded in “bottom-up” modelers’ assumptions that seemingly attractive technical innovations to reduce emissions, such as

high-efficiency household cookstoves, will be

adopted as a matter of course. Seemingly innocuous introduced technologies can violate strong un -

remarked preferences for traditional ways of doing things; one culture dirty smoke from an open

cooking fire may be another’s valuable fumigant.

That present economic and emission models

fail to capture these variations may be decisive

limitations. The largest component of variance in

projected global emissions in the next century

comes from LDCs—their development paths,

technology choices, and policies-and it is clear

we do not know how to model the development

process. We do not know what happened in the

Asian “Tigers,” nor whether and how it will happen elsewhere; nor do we know whether and how

technology developed for the capital-rich, laborconstrained industrial world can be transferred to

the labor-rich, capital-constrained developing

world, or the impacts of doing so. These limitations of present modeling may be particularly

severe in projecting effects of an international

emission trading system, which requires consistent market behavior to realize its attractive cost

minimization results. Indeed, there remains some

question whether the required market conditions

are met even for domestic emissions trading in the

United States. A fundamental challenge for modeling international emissions paths is to find useful, consistent representations of noneconomic

behavioral variables, including, for example, the

determinants of technology adoption and acceptability.

This picture of determinants of LDC participation is mostly gloomy, relying either on major climatic events to demonstrate a serious risk, or

seemingly implausible political movement in

industrialized countries toward major changes in

foreign aid or other policies. In contrast, optimism

about LDC participation may arise from two

sources. First, a recent OTA study (22) has shown

there is large technical potential for improving energy system efficiency in developing countries.

Many cost-effective technologies to save energy

and money are now freely available (though the

question of the cultural and social determinants of

the acceptability of particular technologies must

be addressed very careful] y). Second, the joint im-
8 I Climate Treaties and Models: Issues in the International Management of Climate Change

plementation measures of the climate convention

allow advocates of global emission reductions to

seek out advantageous, cost-reducing arrangements, requiring less faith in the homogeneity of

markets and values than would a system of uniform emissions controls. Joint implementation can be both a precursor to an ultimate international market in emissions and a device for education or advocacy, through which those persuaded

of the merits of the system can seek converts,

even among those whose prior disposition is unsympathetic.

TIMING

What are the implications of acting earlier or later

to control greenhouse emissions? If particular nations, or the whole world, consider varying the

timing with which they undertake emission controls, several kinds of consequences can result.

Some of these are captured in present modeling

and some are not. If there is delay in control] ing

emissions, the same decisions will be faced later

in a world that is more populous, although probably wealthier. In the interim, there will have been

more emissions, imposing a higher cumulative

burden on the atmosphere and hence requiring

stricter controls on future emissions to achieve

any specified atmospheric -concentrat ion or radiative-forcing goal. Depending on whether “waiting” meant doing absolutely nothing or doing a

few low-cost marginal measures, nations will either have continued to invest in the wrong capital

for an emission-constrained world, or gained

some cheap emission reductions by modifying the

characteristics of capital turnover at the margin.

They will have learned more about the climate

system and the risks of climate change through

continued research and monitoring. They will

have experienced technological advance. And finally, they will have lived through some time path

of the noisy evolution of climatic, social, and

political events.

The strongest “timing” result of the Edmonds

et al. work is that delays of 10 to 20 years in enacting emission controls make little difference in atmospheric concentrations at the end of the next

century. A simple back-of-the-envelope calculation demonstrates the plausibility of this result.

The atmosphere presently contains about 740

Gigatons of carbon, while present emissions from

fossil fuels and deforestation are about 7 Gigatons

annually, half of which accumulates in the atmosphere. Consequently, a delay of 20 years controlling to a specified level will increase atmospheric

concentration by about 70 Gigatons, or 10 percent. 4 Beyond the Edmonds et al. work, there is

broad consensus that the consequences of delaying controls by 10 or 20 years are likely to be

innocuous.

Waiting also reduces the cost of controls. In the

Edmonds et al. work this savings is anomalously

large, because of their assumption that controlling

emissions later means stabilizing at higher levels.

But there is broad consensus that even given a specified control level, phasing in controls over several decades would be much cheaper than a faster

program due to lower adjustment costs, technological progress, and discounting.

Omitting impacts and adaptive policies from

models is particularly problematic, though, when

considering timing questions. If small changes in

concentration bring only small damages, then the

conclusion that action can be costlessly delayed

remains valid. But if impacts are a sharply nonlinear function of concentration, then a 10 percent

difference in concentration can represent a large

increase in damages and delay can be costly. In

models that include uncertain future impacts, delaying typically means waiting for the resolution

of uncertainty and then undertaking both emissions abatement and adaptation as necessary. If

the information we gain by waiting tells us to act,

the required action is both stronger and more sudden than we would undertake under uncertainty

~ Jin] Hamnlitt Presented ~ls ~al~u]ation, and the argun]en(s (m [he act-wai( dccisitm and the two fomls of intcracti(m bet~’Cen nations d~ciding whether to act, in his remarks (o t)pcn the “Timing” discussi(m.
Issues in the International Management of Climate Change | 9

today. Consequently, costs of both abatement and

adaptation are higher, since both increase with the

speed at which they are undertaken (11). Aside

from the possibility of sharply kinked damage

functions, there are two other possible grounds to

question the consensus that delays of 10 to 20

years make little difference. First, if developing

countries are now making large capital investments whose emission and efficiency characteristics could be influenced cheaply but would later be

much more costly to modify or abandon, then the

benefit in acting now to influence these choices

may be great. Second, if there are long political

lags in negotiating and implementing a broad international agreement to limit emissions, enacting

emission limits 20 years hence may require serious political activity now. It is possible, though,

that these concerns could be addressed by developing broad political support now for a program to

phase in controls over several decades, including

early action when it is demonstrably high-leverage and cheap.

Timing questions have a political dimension.

through which they interact with participation

questions. If several nations are considering undertaking emission controls. are there advantages

either to going first or waiting? Various plausible

specifications of trade flows, market structures,

and the spread of information, technology, and

learning, could generate advantages either way.

These two possible relationships can be modeled

with two basic two-person, nonzero-sum games.

In one form, parallel to the game of ‘-chic ken,” it is

terrible if both wait (neither abates), but each prefers that the other do the abatement. Under an alternative structure, which might be called “firstmover advantage,” it is better to be the first to

control emissions, perhaps due to learning curves

or economies of scale that give the leader commercial advantages in markets for abatementrelated products or technologies. Even if basic

control costs and impacts are the same, the problem of negotiating an emission control agreement

differs sharply between these two situations. In

the first, agreements are like] y to be difficult to negotiate and require close monitoring and enforcement. In the second. those who recognize the situation would race to act first, so agreements would

be easy to enforce but less significant, perhaps

largely serving as a forum to instruct parties in the

structure of the game. How easy it is to secure

broad participation, though, will depend on other

details of the parties’ interests. After one has

moved, does the second still have an interest in

moving, and does the leader advantage depend

on the second’s movement? Such details in

agents’ interests will determine the credibility of

various negotiating strategies, and whether agents

will in fact undertake controls unilaterally.

Formulating timing as a binary choice-act

now, or wait-is analytically convenient, but may

be quite misleading for real pol icy choices, since it

excludes both the apparently attractive option of

modest action now, and the possibility of path dependence, Modest action now may change the set

of later possibilities, perhaps in ways involving

technical innovation that present models do not

adequately capture. With continuously variable

policies, the optima] time path of emissions

depends strongly on the discount rate. Indeed. optimal modeled control paths ranging from essentially no control to very stringent controls can be

reproduced by varying discount rates between

zero and a real rate of 3 to 5 percent.

Perhaps the most serious timing questions bear

on the usefulness of economic models as predictive tools over a time of a century or more, nearly

as long as has elapsed since the American Civil

War. In addition to the obvious unpredictability of

major discrete historical events such as wars, and

the difficulty of making relible population forecasts over such periods, the most fundamental

limit of prediction may be the inability to project

long-run technical change. The most fundamental

social changes over the last century have arisen

from technological change, but present ability to

model the determinants and consequences of technical change are extremely limited. In particular,

over a century time-horizon technical change will

be substantially endogenous to policies adopted,

particular] y as they affect long-run rates of capital

formation. Present knowledge of these processes

is extremely 1 imited.
10 I Climate Treaties and Models: Issues in the International Management of Climate Change

Moreover, the utility and resilience of international agreements over periods of a half century or

more is as questionable as the utility of models

over the same period. The few existing international agreements that have endured so long all

fall into three categories: bilateral agreements,

such as the United Kingdom-China arrangement

for Hong Kong, which has stood for 100 years and

will soon be replaced by another 50-year agreement; agreements that create an enduring functional institution, such as the International Labor

Organization (the only major extant multilateral

institution that pre-dates the formation of the

United Nations); and agreements that were dead

letters from the day of their signing, such as the

Kellogg-Briand pact, which outlaws war. The influence of international agreements is necessarily

limited. While treaties do create a changed political reality, empowering constituencies within

each government and nation that support the aims

of the treaty, it is ultimately impossible to enforce

a treaty on a major power that chooses to break it.

The image of treaty enforcement drawn from enforcement of domestic laws maybe seriously misleading, as may the image of an international

“contract,” because the long-term resiliency of an

agreement depends on the possibil ty of flexibilit y

and adjustment. The principal immediate problem

may be the construction of flexible resilient institutions that can serve as vehicles for making the

kinds of future decisions that are required, incorporating a potentially varying set of political

stakeholders over time.

FORMULAS AND FEASIBILITY

In addition to deciding who will act and when,

parties to an international climate treaty must decide how to define national obligations and contributions to the shared endeavor. Negotiators of

multiparty agreements always use relatively simple formulas to distribute obligations, to keep

negotiations manageably simple, and to limit opportunities for cheating at the margin (19). The

questions of what kinds of formulas are feasible to

negotiate and 1ikel y to endure over time are central

to the problem of crafting an initial agreement.

The Edmonds et al. work considered a small set

of formulas. The first was emission stabilization

in each region, though the definition of stabilization employed (in which stabilizing later means

stabilizing at a higher level) makes this seemingly

restrictive formula quite flexible. Other formulas

include equal carbon taxes, and emission entitlements distributed according to various standards:

present emissions, population, Gross Domestic

Product (GDP), blends of these measures, or finally, so as to restore certain regions to their income

in the absence of controls. Because of the timedependent definition of stabilization, in all these

cases the precise meaning of each distribution formula (who emits and pays how much, when)

depends on nations’ accession dates. The most

significant results of the work concerned unexpected changes in distribution of costs over time.

Most striking are four results.

●

m

■

■

The OECD does better under regional emission

freezes than under a common global tax, because a common tax requires the OECD to decrease emissions and shifts emissions from the

OECD to the developing world;

Grandfathering 1990 emissions leaves Eastern

Europe and the former Soviet Union as net sellers of permits for 30 to 50 years, because of the

huge drop in emissions projected to result from

their present economic contraction and restructuring;

Equal per capita distribution of permits benefits China only in the short-run, while in the

long-run its projected high economic growth,

low population growth, and abundant coal will

leave it a net buyer of emission permits;

Compensating the developing world for all its

control costs through distribution of permits

alone is not possible.

Various authors have suggested other approaches to the development of formulas derived

from ethical principles. For example, a strongly

egalitarian perspective, following Fujii (7), would

suggest an egalitarian system that gives equal per

capita entitlement not just to all presently living

people, but to all people at all times. This ap-
— ..— —

Issues in the International Management of Climate Change I 11

preach introduces the concept of the “carbon

debt,” the burden of cumulative past emissions

borne by citizens of past and present high-emitting countries. A weighting of different ethical

principles might yield formulas that blend different criteria in defining obligations or entitlements.

Edmonds et al. blended status quo and GDP

change; other formulas might blend either of these

with population or other measures.5

Some simplifying formula is clearly necessary

to reach agreement in broad multiparty negotiations, but developing a v i able formula for distributing obligations can be one of the most difficult

aspects of negotiating an agreement. Relevant

considerations in defining obligations clearly include current emissions, history, growth needs,

population and economy. Finding a viable formula depends on developing a shared sense that

(most) nations are bearing a fair or proportionate

burden, and that none bears an unfair or disproportionate one. Because treaties cannot coerce major

nations, a formula must be minimally acceptable

for all. The United Kingdom blocked an acid rain

agreement in the European Community (EC) for

five years because the proposed formula that

worked for everybody else was too costly for

them.

But developing an agreed sense of what is fair

or proportionate poses two major challenges.

First, the many possible bases for comparison of

burdens yield greatly different senses of what is

fair. This difficulty is further compounded by the

existence of unequal prior distortions in energy

and other relevant markets. Moreover, for a problem as large and long-term as climate change, it is

even difficult to develop a clear sense of what it

means for a cost to be large or small. Defining

“cheap” can be surprisingly difficult, because over

the long times involved the apparent size of a cost

can depend strongly on how it is expressed and

what it is compared to. For example, a typical estimate of the cost of stabilizing world carbon emissions over the next 20 years can be expressed in

three alternative ways: as a reduction in average

GNP growth over the 20-year period from 2.5 to

2.45 percent per year; as a reduction of 2 or 3 percent in future-year GNP; or as a present-value loss

of $300 to 400 billion. Most observers agree that,

informally, the first of these numbers looks small,

the second moderate, and the third large—but they

are all just different ways of describing the same

number. Which way of expressing the effect

comes to be political] y most salient will likely determine whether it is possible to enact the corresponding measures. Whether a number looks

large or small also depends on what you compare

it to, and present industrial country expenditures

provide ample opportunity for both kinds of comparisons. For example, the $15 billion transferred

to LDCs through permit sales under the “hold

harmless” scheme, described in Edmonds et al. as

“smal1,“ can be expressed either as one-third of total present development aid from OECD countries, a seemingly large expenditure difficult to

achieve politically; or as one-twentieth of present

OECD agricultural subsidies, a small fraction of

funds presently spent on wasteful and misguided

programs, and so surely easy to realize.

In the face of these two difficulties, it can be argued that denominating agreements in terms of

national emission targets or funds donated may be

the wrong way to proceed. An alternative approach suggested at the workshop would turn negotiations on their head, denominating national

action in terms of the taxation of environmentally

harmful activities and discarding any expectation

that levels of national participation on this dimension will be equal or fair.

The argument proceeds as follows. All countries must raise revenue to run their governments.

Officials from many countries are liable to find

persuasive the argument that it is better to tax bad

things (e.g., pollution and greenhouse emissions)

than good things (e.g., labor and capital), and that

5 Hcmlan Ccsar presented the arguments about deriving ftmmulas fr(~m fundamental ethical principles, and the argument that ftmnu]as arc

rmw (i Itllcult to Mine In the ctmtcxt of unequal prior market dist(mlfms, in his remarks t{) (qxn the “Fommlas’” discussi(m.
12 I Climate Treaties and Models: Issues in the International Management of Climate Change

there may be national advantages in shifting the

total tax burden from the latter to the former. Such

tax-shifting is likely to be persuasive and feasible

at modest levels (e. g., $20 per ton of carbon), but

infeasible at high levels (e.g., $200 per ton), because of adjustment costs and many other reasons.

Some modeling studies that include impacts suggest an optimal path of carbon taxes consistent

with this level, though these results are controversial. Consequently, both good domestic arguments for improving the efficiency of the tax

system, and international arguments about contributing to global environmental public goods,

support the proposed tax shift. And if the correct

level is indeed as low as $20, this approach is less

likely to be blocked by domestic opponents or

large adjustment costs. Other taxes would of

course still be needed, since a carbon tax this low

would only raise a small fraction of government

budgets. 6

Such a scheme could be agreed in international

negotiation, but the negotiations would have a

completely different form and purpose than present climate negotiations. In effect, climate negotiations would become a forum for instruction and

advocacy in the benefits of reforming tax systems,

and a dialog on how well each is doing in achieving such reform. The taxes would not be viewed

purely as national responses to an agreed common

emission target, but as a way of simultaneously

helping the economy and the world. Since this approach would presume that countries act for their

own benefit as well as the world’s, it would eliminate the requirement—and hence the difficulty of

determining-that all act to equal or comparable

levels. It would consequently eliminate a broad

class of negotiating difficulties associated with

defining fair formulas for the distribution of obligations, and may have a greater chance of actually being implemented than common emission

stabilization targets. It would, though, pose a distinct set of negotiating difficulties, also associated

with the problem of persuading LDC governments to participate.

First, this scheme would not involve international transfers, except those resulting from the

impacts of different tax levels on trade flows. This

would have obvious implications for LDC participation. If such tax shifting were to represent a pure

gain for every country enacting it, then this approach would completely separate negotiations

over emission control from negotiations over

transfers. Modest levels of emission control—

which are optimal if you believe the low damage

estimates—would be realized at a small cost or

none in every country, and development assistance would be a separate negotiation. There are

obvious tactical reasons that LDC governments

might resist such a reformulation of climate

negotiations.

Second, the disparity of existing institutional

arrangements among countries may well call into

question the ease with which this reframing could

take place. Since many developing countries levy

most of their taxes not on labor and capital income, but on imports and property, a separate argument for the superiority of taxing emissions

must be made, and a separate set of difficult internal political-economy issues addressed ( 1). Moreover, some existing energy market distortions in

LDCS serve important welfare functions, such as

distribution of subsidized kerosene. For regions

6 me basis for [h is tax.shl ftlng argurllen[ is as fol]ows,” It is WC]] known that taxes imp)se COSIS, or CXCt!SS burden, (m the economy by distorting agents’ decisi(ms between lalx)r and leisure, between savings-investment and current-period c(msumpti(m, and am(mg ctm]rmdities. A

particular tax “s burden depends (m how much it dist(mts each of these margins, and on what other taxes are prcstmt. There is rcas(m to be] ieve tha[

taxes related tt~ crwrgy (such as carkxm, Btu, {w gast~linc taxes), principally because t}f their narrower base, impose larger burdens than inctmw t~r

profits taxes. But greenh(mse gases and othm energy-related emissi(ms represent an initially unpriced negative externality, which is mitigated

by taxing them. If the envir(mmental welfare gain of shifting taxes fr~m] profits to emissi(ms exceeds the accompanying increase in ctmventii mreally defined excess burden, then the shift benefits the ec(m(m~y. Whether this is the case for a particular tax shift of course depends tm the details,

and much analytic work in this area remains to be done. These issues are discussed in detail in Goulder (9). In ecfmt)nlic emissi(ms models,

whether a gain fr(ml such tax shifting can be detected depends (m how cartxm tax revenues are recycled (among other things). Many models,

including Edm(mds w al., usc lump sum recycling and so do not represent this effect.
—

Issues in the International Management of Climate Change | 13

where people’s alternative to subsidized kerosene

is traditional biomass, reducing the subsidy may

be environmentally harmful.

Third, the viability of this alternative approach

depends on $20 per ton being a roughly correct estimate of the marginal environmental damage of

carbon emissions. Since the proposal achieves its

domestic political attractiveness by recycling revenues, it raises no funds to compensate for residual environmental damages. Compensation and residual damages are likely small problems if the

$20 per ton figure is roughly correct. If climate

change damages are much larger, though, this approach neither realizes the required reduction in

emissions nor solves the major problems of impacts and compensation.’

One should not be naive about the ease of negotiating such a scheme. While it is not yet clear

whether the EC proposal for a shared carbon and

energy tax will include the parallel reduction of

capital taxation necessary to support the argument

of domestic economic gains, the difficulties this

proposal has encountered illustrate how hard it

can be to negotiate such a scheme. Originally the

EC’s developing countries. led by Spain, argued

that they need energy to grow and refused to tax it;

more recent proposals that exempt these countries

have been blocked by the United Kingdom.8

Moreover, tax policy is a field in which domestic

interests are expert at shading measures to their

own advantage. Even in the context of tax shifting, domestic political actors may load a carbon

tax with so many loopholes that it becomes utterly

ineffective, the equivalent of “an energy tax for

those who don’t use energy.”

Still. the argument is not that such a tax-shifting scheme would be easy to negotiate and implement, but only that it may be easier than an agreement based on emissions stabilization. While

many argue that the OECD will soon agree to stabilize carbon or greenhouse emissions, this taxbased scheme addresses the contrary argument:

that pursuing emission stabilization is overreaching, and that such a commitment, even if nominally adopted, would be rapidly eroded by slippage in

implementation and redefinition of goals. The tax

scheme is more 1ikel y, because it is modest and defensible on solid environmental and economic

grounds. It may also be easier to implement in a

wide variety of political environments. Tracking

fuel accounts for quantity-based controls requires

good national statistics and monitoring of economic activity and transborder flows, which many

countries lack; in contrast, prices remain observable even in chaotic economies in transition such

as the former Soviet Union.

USES OF MODELS

Decisions about participation. timing. and formulas will be made by a long, progressively revised

process of negotiations among national representatives, influenced and informed both by their

domestic constituencies and by transnational

net works and organizat ions of ind ustrial, environmental, and other nongovernmental interests.

Because the questions to be resolved in such negotiations are so complex and difficult, it is reasonable to expect that formal modeling of the cost

and effectiveness of proposed agreements can

help to inform the deliberations.

But how can they do so most useful] y? How can

formal energy, economic, and climate models

most constructively support the international

processes of negotiation and renegotiation. institution building, and implementation that are involved in management of the global climate

change issue? While there is 1ittle directly applica7 These difficulties include rccf)gniz]ng c1 imatc change damages (or agrcc]ng not I(J care); raising funds for c(~mpensati(m: maintaining

appri~priatc’ lnccntik es ftw avert lrtg bchav it~r w hile c(mlpcnsating for damagc>s , and defining a c(mlpensatl(m system based (m differences in

impact amtmg grt~ups, since under the nlore scri(ms scenarios of c1 im:itc change there may hc net global lt~ssc~. rendering it i n fcas i ble to c(mpensatc all losses.

x /nfcrnatlona/ Enilr(mmenf Reporter 16 13, June 30, 1993, p. 470, 474. The C~jn~nllssi(m’s pr(~p~sal of a tax of $10 per harm] of (~il is

equ ]Y alent to atx)ut $80 per [(m of carb{m.
14 I Climate Treaties and Models: Issues in the International Management of Climate Change

ble experience, three kinds of evidence are plausibly relevant: the kinds of uses of models that are

possible in general policy discussions such as this

workshop; and prior experience with formal modeling, and with similarly complex technical advice from experts, in processes of domestic and

international policymaking.

In this workshop, the group used the Edmonds

et al. model principally in three ways. First, they

tested particular results of the modeling against

their intuitions, looking particularly at those

instances where the model result was not obvious

ex ante; in some of these cases, the result was plausible ex post, so the model served to point attention to unanticipated but persuasive results. Second, they used highly schematic summaries of

particular results to draw out unmodeled political

implications of particular agreements. Third, they

talked around the model, using the model results

to identify important analytic omissions. These

are three instances of ways models can help one

think through policy problems, independent of the

political setting in which they are used.

In many ways, the potential uses of models in

domestic and international policymaking are

quite parallel. In both settings, there are some

things models cannot do. They cannot provide answers with certainty; they cannot resolve political

and value choices; and they cannot be demonstrated secure against error or bias. They can

explore and demonstrate causal relationships,

characterize and identify key uncertainties; show

what pieces of information matter and what ones

do not; and provide instruction in the behavior of

complex systems and decisionmaking under

uncertain y.

Polic ymakers ask models for robust answers to

policy-relevant questions (if they ask them for

anything). What are the costs of waiting? How

much more costly is it for nations to control emissions separately? Can a subset of nations control

emissions effectively, and at what cost? If we 1 im it

emissions, what happens in the regions that are

not limiting emissions? Are there economic

advantages or disadvantages in undertaking emission controls before others do? Sometimes models can provide reasonably plausible, wellsupported answers to such questions. When such

answers are not available, or are not robust, then a

useful stopgap would be information about what

uncertain parameters matter, and how much. For

example, modeling work by Edmonds and by

Nordhaus and Yohe has argued that for projecting

emission control costs, neither fossil fuel resource

constraints nor backstop technology prices matter.

Rather, the most important uncertain values include income elasticities, growth rates of labor

productivity in the LDCs, ease of substitution

away from fossil energy in national economies,

and the autonomous rate of energy efficiency

improvement.

In a policymaking setting, the most constructive role models can play is to reduce the set of

things that policy makers argue about, removing

from the table those factual matters that are either

well-known or insignificant for the decision to be

made, and leaving those things that are either truly

political, or important and uncertain.

The difficulty of communicating model results

and insights effectively to decisionmakers is an

old and sad story. An ideal description of communication between modelers and decisionrnakers

might follow the rule that “if you need the model

to explain the result, you’re in trouble”; modelers

would plumb their models not for mere numerical

results but for insights that make sense even when

examined apart from the model, and would seek to

convey those insights, or whatever subset of them

is policy-relevant.

Effective communication of model insights,

though, can be exceedingly difficult. Even those

significant, novel insights that arise from a modeling investigation are liable to be complex and subtle, perhaps even be most effectively expressible

in technical language. Such facts can easily be lost

in the noise of a political environment. Frequently

the most significant insights from a model will

concern the sensitivity of policy-relevant outcomes to particular parameters values, and the uncertainty in those parameters. These two concepts are

often confused (by analysts as well as by policymakers), and communicating them effectively is

difficult. Communicating information from some

models is harder than from others; some models
-. ——. . . . . — —

Issues in the International Management of Climate Change | 15

may be intrinsically enigmatic, with the structure

of their formulation making communication of

their results difficult. On some occasions the most

important insights may concern how results vary

across models, which can be particularly challenging to communicate clearly.

The difficulty of fully communicating models

and their results leads some to advocate expansive

roles for the policy advisors who lie between analysts and decisionmakers, distilling complex uncertain bodies of analysis into statements such as,

“Minister, if we impose a $20 per ton carbon tax,

we will meet our carbon emission target,” or even

answers to the question, “HOW should I vote?*’

—and willing to take the accompanying risk. The

role for such expansive intuitive expert judgment

may be further increased by considering foreseeable ways that a particular piece of technical information will be used in political settings. For example, the result that waiting 10 years to curb

emissions costs little may promote a political

complacency leading to ignoring the issue completely. Under these conditions, the technical

message may be “it’s fine to wait,” while the appropriate political message is “act speedily.”

It may be inevitable that intuitive expert judgment plays an important role in supplementing

formal modeling results. Relationships are often

“known” by expert judgment before they acquire

solid enough verification to be put into models,

perhaps including recent revisions of the indirect

radiative forcing of chloroflurocarbons (CFCs)

and of the effect of sulfate aerosols. Sophisticated

modelers may have to make subjective revisions

in interpreting model output to reflect these insights, thus providing better representations of,

for example, endogenous technical change or

cross-country differences in economic structural

parameters than the literal running of the model.

Such adjustments carry their own risks, though,

including both difficult y of validation and the possibility that modelers may fail to document and

forget their ad hoc adjustments.

In international policymaking, parties have diverse levels of technical expertise to use in pursuit

of their desired outcomes. Models could come

into the process in two ways. First, interested participants (national delegations or others) could

introduce models or modeling results to advance

the case for their preferred decisions. Alternatively, models could be introduced under neutral auspices: through a Secretariat, or by some other

clearly impartial vehicle.

There are a few striking instances of effective

and constructive uses of modeling, or of other

sources of technical expert advice, in international

policymaking processes. In particular, there are at

least two instances of multilateral negotiations in

which models played highly constructive roles in

advancing decisionmaking. In the financial negotiations related to seabed mining provisions in

the Third United Nations (UN) Conference on the

Law of the Sea, a financial model of the seabed

mining industry developed at the Massachusetts

Institute of Technology (MIT) and made available

to conference patirticipants offsite under the auspices of religious groups proved highly effective

in focusing debate, reducing disagreement to specific uncertainties, and eliciting a constructive negotiating atmosphere (20). The transport and

chemistry models developed at IIASA seem to

have played a similarly constructive role in European negotiations over acid rain ( 14). The

constructive role of these models seems to have

been associated with their accessibility—nonmodels could play with the models to test the

implications of altemative input assumptions they

may wish to specify—and the clear objectivity

of the source. The presentation of comparative

results from scientific climate models (GCMS)

to the recent climate negotiations by Working

Group 1 of the Intergovernmental Panel on Climate Change (IPCC) appears to have played a

similarly constructive, though limited, role.

International policymaking thus far on climate

change, and the related negotiations leading up to

the UN Conference on Environment and Development (UNCED), has made little use of economic

modeling. Essential] y no economic modeling was
16 I Climate Treaties and Models: Issues in the International Management of Climate Change

done under IPCC,9 and the only substantial use of

economic modeling in the negotiations was the

U.S. delegation’s use of early results of the Global

2100 model, which showed extremely high emission control costs, to support their position that no

emission controls were wamanted.

In an international setting, several institutional

questions related to the use of modeling maybe of

decisive importance. For example, it may be crucial that the scientific and technical advice received by various delegations matches; if so, this

suggests the great potential value of some legitimate external forum for international groups of

experts to determine the degree of their technical

consensus. Both the assessment panels under the

Montreal Protocol and the IPCC served this function. A related but distinct question is developing

indigenous technical expertise for use by representatives of LDCS. Dissemination of modeling

expertise from international bodies could help

bring this about by training advisors to LDC governments. Of course, the recipients of this expertise may legitimately and correctly decide that

they have higher priorities for its use than participating in international negotiations. A recent

foundation-funded program trained upper-middle

LDC officials in environmental science and economics to develop their capacity to participate in

international negotiations, but most of the officials have used their training to work on other environmental issues of greater local concern such

as air and water pollution.

It is not easy to obtain an objective, neutral forum for modeling and disseminating results. First,

opportunist use of models is easy. Changing five

parameters each by 20 percent, each change lying

within the uncertainty, may change a policy target

from trivially easy to impossible. Models may

also be biased by the need to match other unrelated

political goals. For example, U.S. modeling of

greenhouse emissions had to use the same extremely optimistic projections of economic

growth as had been used for budget projections,

which was partly responsible for high base-case

emissions and costs of control.

The extent to which issues of uncertainty in

modeling can be kept distinct from political disagreements in part depends on the character of

uncertainty in the modeling. A fundamental distinction in model uncertainty is that between parameter uncertainty and model uncertainty. The

ability of modeling to serve as a constructive aid

to decisionmaking may crucially depend on which

(or both) of these kinds of uncertainty are present.

There are conflicts in which parties disagree on

the parameters, but accept the same model. When

this is the case, i.e., when uncertainty or dissent

over model structure is limited, the modeler can

act as an impartial “friend of the court.” For example, in a political conflict within the United Kingdom over construction of the Sizewell B Pressurized Water Reactor (PWR), an analytical team

developed an economic model of the technology

that both the proponents and opponents accepted.

When extensive work with the model persuaded

the opponents that they could not challenge the

technology on economic grounds, they decided

instead to challenge it on safety grounds, which

were outside the scope of the model. The modelers

deemed this outcome a success, since advocates

had come to a common view of that part of the

world that was modeled (6). 10

In contrast, in economic, energy, and policy

modeling relevant to climate there is disagreement over both parameter values and model structure. Among participants in this workshop there

was disagreement over the representation of technological change, and the appropriate representation of economies in developing countries. Given

9 IPCC Wt~rking Gr(wp 3 (Respmse Strategies) developed three alternative scenarios for baseline growth of greenhouse emissitms, but

made m) attempt to model the cost or effectiveness of emissions control policies (14).

lo ]ronlca]]y, that common” view of the w(~rld turned out m be wrong. Neither proponents, opponents, nor modelers imagined that tk (Teal

uni(ms would be broken and coal prices would fall so low, rendering the PWR economically unviable.
Issues in

a particular model structure there may be some set

of results that remain sound despite changes in the

model parameter, but the set of results that are robust to changes in model structure will inevitably

be smaller. In the opinion of most workshop participants. the only candidate for a result robust to

variation in modeling structure is that modest delays in realizing emission controls are innocuous.

Not even on this did all agree. Still, one result of

the recent comparison of greenhouse emission

models conducted by the Energy Modeling Forum

of Stanford University suggests that structural

model uncertainty may not be a decisive obstacle

to estimating economic effects of emission limits.

When common boundary conditions were imposed on the 14 structurally diverse models participfating,, the project found that most variation was

explained by about five parameters, and that under

common input-parameter streams the models

generated consistent results (8,23).

CONCLUSIONS

The OTA workshop provided a review of the current distribution of expert opinion on economic,

political, and negotiation issues relating to international climate change agreements. This may

in fact have served a more valuable function than

an articulation of a definitive consensus would

have. While discussion ranged over a broad set of

modeling, economic. and political questions,

there was consensus on a few results, mild disagreement on many, and sharp disagreement on a

few, This concluding section seeks explicitly to

summarize the extent of convergence and divergence of opinion in major areas covered by the

workshop.

A few results achieved broad consensus. On

these points the bulk of workshop participants

agree with the results in the Edmonds et al. paper.

Significant reductions in atmospheric concentrations of greenhouse gases will require

large reductions in emissions.

Large emission reductions are likely to be costly, but phasing emission controls in over a long

period can reduce the cost substantially.

the International Management of Climate Change | 17

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■

●

Presently articulated emission targets have

been stated with little regard for analysis of impacts.

Delaying the implementation of emission controls for 10 to 20 years will have little effect on

atmospheric concentrations.

The small group of nations that controls most

of the world’s coal resources could, by controlling production, effectively control world

emissions.

Costs of controlling emissions are highly

dependent on assumed rates and determinants

of technological innovation, and this process

is not adequately understood or modeled at

present.

On many other policy-important questions,

there is no consensus in this workshop group, or

among existing models. There are differences on

the character and rate of technical change, on the

homogeneity of rationality assumptions across

nations, on the likelihood and impact of an early

industrial country agreement to stabilize carbon

emissions or agree on a common carbon tax; on

the relative advantages of tax, target, and permit

instruments; and on the relevance of a formal international agreement to control emissions.

While some participants argued that most present uncertainty comes from parameter uncertainty, agreement on this point is not unanimous. All

acknowledged that parameter uncertainty is easier

to deal with, but participants differed on how serious structural model uncertainty is likely to be in

understanding the economic effects of emission

limits. In this workshop, a great deal of discussion

focused on factors omitted from all present models, that most agreed could have dominant effects

on future emission trends: political and strategic

linkages; time dependencies in international negotiations; details of the process of domestic politics and implementation; and hypothesized differences in behavior and motivation among

countries.

Focusing on one line of the day’s discussion, a

slightly cynical summary of the workshop ‘climate treaties and models” could be that treaties are
18 I Climate Treaties and Models: Issues in the International Management of Climate Change

irrelevant and models useless. Treaties are irrelevant because measures adopted in particular countries for their own domestic reasons, plus informal

bilateral and multilateral arrangements, including

those animated by nongovernmental actors, will

drive essentially all of the emission controls that

are achieved. Models are useless because of the

important long-term driving forces that they omit,

and because they do not address the correct level

of analysis for examining looser agreements of

this sort.

While a few disagreed, most participants found

the most promise in smaller-scale agreements

negotiated under the umbrella of the framework

convention, with much involvement of nongovernmental actors and (in recognition of the inevitably voluntary character of national emission

controls) less emphasis on international monitoring and enforcement. This approach allows much

room for institution building, and presents the

umbrella treaty as a kind of “storefront”: explicit

negotiations occur not for their own sake, but to

provide a forum for the crafting and legitimation

of many constructive deals under the rubric of

“’joint implementation,” meanwhile engaging

people in thinking and talking about the problem

and persuading them it is serious.

Under such an approach, participants in agreements may all undertake different implementation

measures, for their own culturally or politically

distinct reasons. Those who like markets can use

them; while those who like command-and-control

measures can use them. Modeling can also be useful in analyzing international action under such an

umbrella, though the actors modeled would have

to be a broader set than nation states.

Perhaps the strongest conclusion of the workshop concerned the long time horizon of the problem, and the weakness of our present analytic and

institutional tools in the face of an issue so enduring. Participants returned repeatedly to the difficulty of understanding an issue evolving over

centuries, for predicting parameter values, designing sufficiently enduring institutions and commitments, and understanding what projections mean

for how people will live. Participants recognized

that they understand little about what long-term

differences between emissions of 1 and 3 tons per

capita actually mean for people’s lives, or about

how citizens of a societies with median incomes

of $100,000 would live and use energy. While current income variation within the United States

could provide insight into the latter question

through cross-sectional analysis, using today’s

richest decile as a proxy for future society, these

studies are at very early stages and one must be

cautious about generalizing their results. Moreover, understanding technical change over such a

period is a fundamental and daunting challenge.

Technology represents the dominant change in

people’s lives over the past century, but we have

limited ability to project how it will change over

the next.
. . .

Appendix:

Summary of

Edmonds et al.

Paper

THE MODEL: ORIGIN AND STRUCTURE

The Edmonds et al. study used version 4.01 of the EdmondsReilly -Barns model (ERB), which projects global energy, and related greenhouse gas emissions, through the end of the next century, 11 The model explicity represents (he energy resource base,

plus supply and demand in nine world regions,12 and includes international trade in fossil fuels, and fuel-specific greenhouse gas

emission coefficients.

The model consists of four separate modules representing energy demand, energy supply, energy balance, and greenhouse gas

emissions. The energy demand module begins with external assumptions of population and labor productivity growth in each

world region, and calculates total final-energy demand in each

sector from energy prices (world prices augmented by local energy taxes and tariffs) and incomes. The demand module also maintains a set of energy flow accounts for each region, determining

the mix of energy sources used to meet final-energy demands by a

S-shaped (logit) function of relative prices.

The supply module represents the fossil fuel resource base of

each region in detail, including several grades of resources with

increasing extraction costs, and limits on the rate at which production capacity can be expanded. Separate costs and capacity

I I A hrlcf dcscrlptl(ln of the Version of the mode] cmp]{)ycd for this pro@’1 is provid~d

In Edmtmds, Barns, Wise and Ttm (5). The original rmxlel is described In Edm{mds and

Reilly (2), and rr]aj{w early revlsilms arc docurrwrmxl in Edmtmds et al. (3).

12 The rcgi[ms nl[delcd arc the United States, OECD Wcs[ (Western Europe and Canad:i), OECD East (Jiipiin, Austriilia, and New Zealand): Eastcm Eur(~pc and the f(mncr

S()\ let Lln]on, China and other centrallj planned Asian ccon(~nlics: the M]ddle East; Africa, Lalin Anwr]can, and South iid Southeast Asia.

r“----- ‘–- fl

I

1
20 I Climate Treaties and Models: Issues in the International Management of Climate Change

constraints are presented for nuclear fission in

each region, and a nonfossil energy supply (solar

electric or nuclear fusion) is assumed available as

a “backstop technology ”-a technology that can

provide essentially any quantity of energy at a

constant, high marginal cost, which in this model

is also assumed to decline overtime due to technical advance.

The energy balance module represents international trade in liquid, solid, and gaseous fuels,

generating world energy prices that yield approximate equilibrium in each global fuel market,

Electricity is not traded. The greenhouse-gas

emissions module calculates regional and global

emissions of greenhouse gases from specific

emissions coefficients for each category of fuel.

Given specified input assumptions, the model

presents snapshots of the world energy system every 15 years from 1990 to 2095. In each of these

years, the model projects each type of energy

demand and supply in each region, the price of

each energy type, and resultant greenhouse gas

emissions. The model investigates the effect of

measures to limit greenhouse gas emissions by

imposing various forms of regional emissions

constraints or taxes, and comparing the resultant

projections of energy use and prices to those in a

base-case model run. In earlier versions of the

model, regional costs of emissions constraints

were calculated by a simple, region-specific energy-GNP feedback elasticity; a specified percentage change in world energy prices was assumed to

cause a related percentage GNP decrease (for net

energy importing regions) or increase (for net energy exporting regions). The authors drew their

estimated feedback elasticities from a literature

review of estimated energy-GNP interactions.

While this mechanism sought to capture macroeconomic effects of changes in energy markets,

critics suggested the assumed constant-elasticity

relationship was likely invalid for the large energy

price changes that would accompany serious

emissions constraints. Consequently, in the model

version presented to the OTA workshop, the

authors modeled regional costs of emission

constraints by a partial-equilibrium approach,

summing changes in consumer’s and producer’s

surplus in energy markets as the regional economy

shifts from the unconstrained to the emissionsconstrained equilibrium.

SCENARIOS AND ASSUMPTIONS

The study used three scenarios to specify different

plausible rates of emissions growth in the absence

of controls. All are based on the same regional

population projections, estimated by the World

Bank (25) and used in the first report of the Intergovernmental Panel on Climate Change (13).

Projected world population reaches 9.5 billion by

2050, and 10.4 billion by 2095.

The three scenarios represent variation in potential economic growth rates by different assumed rates of labor productivity growth. In the

first scenario, productivity growth in industrialized nations declines from 1 .5-1.6 percent per year

to about 0.9- 1.0 percent over the next century,

while China’s productivity growth remains

around 2.6-2.8 percent, and the rest of the developing world increases from 1.6 to 2.2 percent. The

two other scenarios, representing high- and lowgrowth futures, double and halve all these assumed productivity growth rates.

Other assumptions and parameters are maintained constant across the three scenarios. These

include the size of fossil fuel resources, the size

and cost of biomass energy resources, and the economic parameters that define market responses to

changes in incomes and energy prices. The income elasticity of energy demand in OECD

nations is assumed to be 1.0 through the next century. Income elasticities in other world regions

start higher ( 1.25 in Eastern Europe and the former Soviet Union, and 1.4 in the developing countries), and decline to 1.0 through the next century.

The price elasticity of demand for aggregate final

energy is assumed to be 0.7 in all regions.

I ~ mat is ~ I ~.rcent increase in inconlc is assurncd to generate a I percen( increase in energy demand, (Jlher things remaining equal.
Appendix: Summary of Edmonds et al. Paper | 21

Consequently, all variation between scenarios

in factors contributing to greenhouse gas emissions is subsumed into different labor productivity growth rates. The authors argue that this

simplification is reasonable, because prior sensitivity analysis with this model has demonstrated

the following to be true. While the cost of reducing emissions from any particular baseline level

depends on that baseline level (holding emissions

to 100 costs more if the unconstrained level was

150 than if it was 120): the cost depends very little

on the particular combination of assumptions that

generated the baseline level (reducing emissions

from a baseline of 120 to 100 costs about the same,

regardless of what combination of population and

productivity growth, resource availability, and

sensitivity to price and income change generated

the original baseline of 120) (4).

OTHER IMPORTANT DESIGN ISSUES

In addition to the price and income sensitivity

of energy demand, the analysis assumes a nonprice-driven, or “autonomous,’’ improvement in

end-use energy efficiency of 1 percent per year in

all regions. The authors argue that this value represents the long-term trend in energy intensity over

the past 70 years. This value is controversial,

though, with some analysts advocating values

both higher and lower than 1 percent, and others

arguing that the quantity is misspecified and

should, if employed at all, be negative ( 12, 17,24).

After a test of the ability of different values to replicate observed 1987 fuel consumption from historical data, Edmonds et al. reaffirm that within

the specification of this model, a value of 1 percent is appropriate.

To represent variation in technological progress, the authors include two mode] runs with

widely differing technological assumptions. The

first includes optimistic assumptions for improvement in fossil electrical generating efficiency

(reaching 55 percent by the year 2020), and solar

electric cost (dropping to 5 cents per Kilowatt

hour (KwH) by the turn of the century). The second focuses on technology transfer. assuming that

some fraction of the price-induced energy efficiency gains realized in regions that control their

emissions is transferred to noncontrolling regions

without requiring the higher price to elicit it. In effect, some fraction of price-induced efficiency

gains are assumed to take the form of innovations

that, once discovered, are cost-effective even at

lower energy prices. Originally implicitly zero,

this fraction is varied from 10 to 100 percent.

Other than the variation represented in the three

scenarios for labor productivity growth, the mode1

does not represent uncertainty. Each run of the

model generates a single future history. Other input parameters are not varied systematically, and

distributions of relevant output variables are not

generated.

The model uses a simple carbon-cycle model to

show the consequences of different emission

paths for atmospheric concentrations, the same

model as used in the 1990 IPCC report to calculate

global warming potentials (GWPs). This carboncycle model makes the common, but controversial, assumption of a “neutral biosphere”-

assuming that the unknown total carbon uptake by

terrestrial biota is equal to the atinthropogenic

source from land-use change, as was roughly true

between 1940 and 1980. Computationally, the

model splits current-year carbon emissions into

three shares, each of which decays in atmospheric

concentration with a different time-constant.

About 30 percent of emissions decay with a time

constant of about 7 years, 34 percent with a constant of71 years, and 36 percent with a constant of

815 years.

POLICIES AND PROTOCOLS STUDlED

The assumptions described thus far define how

the mode] represents the basic world energy system and its evolution in the absence of emission

controls. The bulk of the work presented to the

workshop, though, consisted of imposing various

international emission controls and examining

how they affect emissions, energy markets, and

economies in both participating and nonparticipating regions.

The paper examined five different emission

control protocols. All five protocols are expressed
22 I Climate Treaties and Models: Issues in the International Management of Climate Change

as stabilizing carbon emissions, but stabilization

is defined as a region’s holding its emission

constant at then-current levels when the region enters the protocol. That is, a nation joining in 1990

stabilizes emissions at 1990 levels, while a nation

joining in 2005 holds them at 2005 levels. While

this may be a reasonably accurate prediction of

how baseline emission levels would likely be defined politically, the approach differs from recent

national emission control pledges, most of which

pledge to hold emissions at 1990 levels beginning

in 2000 or 2005. Under the paper’s definition of

stabilization, a nation that delays its accession to a

stabilization agreement stabilizes its emissions at

a higher level.

Given this definition of stabilization, the paper’s five protocols differ only in the years that

emissions are stabilized in different world regions. In the first protocol, all nations stabilize at

1990 levels in 1990 (the first year represented in

the model); a second protocol delays worldwide

participation to 2005. Variants of these two protocols have staggered participation. in which the

OECD stabilizes emissions in the specified year,

while Eastern Europe and the former Soviet

Union (EEFSU), China, and the rest of the developing world delay their stabilization by 15, 30,

and 45 years respectively.

14 A final protocol variant delays OECD stabilization to 2020, with other

regions staggered at the same intervals.

In a separate examination, the paper considers

the effect of protocols that only ever achieve limited participation. A "Big Three” protocol includes only the three largest coal-bearing regions

—OECD, EEFSU, and China—all stabilizing

emissions from 1990. Separate analyses were also

conducted of the same protocol with only "Big

Two” (OECD and EEFSU), and OECD-only participation.

Each protocol is examined under three forms of

implementation: a uniform carbon tax; regional

emission targets; and tradable permits. Under a

carbon tax, all participating regions tax carbon

emissions at the same level, so as to stabilize their

total emissions joint] y. 15 

Taxes are in fact the only

policy that the model can represent directly; other

measures are represented by surrogate taxes,

whose effects are equivalent to the specified measure under the assumption of competitive en–

ergy markets in equilibrium. For example, under

separate regional emission targets, each region

imposes a tax high enough that it meets its own

target. Under this system, taxes—and hence marginal abatement costs-are unequal between regions, so total compliance costs are higher than

under a uniform tax. Since the model only represents multination regions, though (except the

United States), this system does assume joint reduction among the nations in each region, so is

less restrictive and more efficient than separate national targets.

A tradable permit system is also modeled indirectly by imposing a uniform tax on participating

regions, and assuming regions will trade permits

to reach the efficient distribution of emissions

from whatever starting point the initial distribution is defined. All trades are assumed to be at the

competitive price, equal to the marginal cost of

emission reduction and the uniform tax rate,

equivalent to assuming no market power in the

market for emission permits. Under these assumptions, the paper examined the consequences of six

different rules for distributing permits. Whatever

rule applies, permits are redistributed according

the rule in each 15-year modeling period. The six

distribution rules are as follows:

Is ~c re~enues fr{)rll carbon taxes are assunled [() I-JC retained within the tax in: regi~m, and recycled in S(MW manner that d(KS not affect the

rtitc of capital f(mnati(m. C{mscquently, the p)tcntial gains available from shifting the total tax burden away fr(m~ investment-deterring taxes (m

cap]tal toward carbon taxes arc not rcprcscmttxi in the model.
Appendix: Summary of Edmonds et al. Paper | 23

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■

■

■

■

■

“Grandfathered emissions:” permits are distributed to continue emitting at 1990 levels.

Equal per capita: permits are distributed in proportion to adult population each year ( 10).

Equal per GDP: permits are distributed in proportion to regional GDP in each period.

“GDP-adjusted grandfathered emissions:” an

original distribution by 1990 emissions is adjusted over time based on regional differences

in GDP growth.

“No harm (o developing nations:” developing

nations receive enough permits that their revenue from permit sales restores their GDP to that

of the noncontrol case. The allocation between

OECD and EEFSU is in proportion to grandfathered emissions.

“NO harm to non-OECD:” as above, except that

EEFSU is also given enough permits to restore

its unconstrained GDP.

RESULTS

The model’s three uncontrolled scenarios generate time paths of world energy and carbon emissions that roughly span the range of estimates in

the literature. World primary energy consumption

grows from 350 Exajoules (EJ) in 1990 to 750,

1300, and 1980 EJ in the year 2095 under the low,

medium, and high-growth scenarios, while global

fossil carbon emissions grow from about 6 Petagrams (Pg) in 1990 to 11, 20, and 32 Pg, respectively. Under all scenarios, primary energy is

increasingly dominated by coal, with oil and gas

contributions peaking in the first half of the next

century, then declining. Nonfossil primary en–

ergy provides shares up to about 30 percent. Regionally, the developing countries, especially

China, account for an increasing share of both primary energy and carbon emissions under all three

scenarios, with total carbon emissions from the industrialized countries flat or declining through the

century under both the low and medium-growth

scenarios.

Applying the carbon-cycle model to these

emission scenarios gives the range of atmospheric

carbon concentrations that result. Atmospheric

CO2 concentration passes 550 parts per million,

roughly double the pre-industrial value. in approximately the years 2095,2070, and 2060 under

the high, medium, and low-growth scenarios. In

all three cases, concentration is increasing at the

end of the modeling period.

Under the first protocol, emissions are stabilized immediately at 1990 levels and held there

through the century. Achieving this stabilization

through a common global carbon tax requires a tax

level that is initially modest, about $40 per ton in

2005, and grows to $400 to $500 by the end of the

century. (These figures are for the mediumgrowth scenario. Required taxes in the high- and

low-growth scenarios are roughly double and half

these values. ) Through the century, this common

tax Progressively redistributes emissions from the

industrialized to the developing countries. While

the bulk of the early cost burden is borne by

OECD nations, later in the century costs are increasingly borne by the LDCs, especially China:

the tax redistributes emissions toward China, but

not enough to keep its costs down. In terms of

GDP, costs of emission control remain below 1

percent in all regions except EEFSU (where they

reach 2 percent by 2095) and China (where they

reach 3 percent). Under the high-growth scenario,

costs of stabilizing emissions are higher in absolute terms, but are not in all cases higher as a

fraction of GDP (since GDP is also higher). Under

this protocol, per capita emissions converge to the

range of 0.5 to 1.0 tons in all regions except the

United States, whose emissions decline from about

5.5 to about 3.0 tons per person over the century.

Broadly speaking, the high and increasing tax

rates required to stabilize emissions are predictable consequences of a few model assumptions.

Energy demand is exponentially increasing, with

no technological miracle available to provide

large quantities of low-cost, low-emission energy.

Because the carbon tax is recycled in a way that

does not stimulate investment, it provides no offsetting macroeconomic benefit. Under these

conditions, holding emissions constant becomes

increasingly costly over time, and requires increasingly high marginal tax rates.
24 I Climate Treaties and Models: Issues in the International Management of Climate Change

The same global stabilization goal yields substantially different consequences when implemented by separate stabilization targets in each

region rather than by a common global tax. Because marginal abatement costs are no longer

equalized across regions, world abatement cost is

higher—in fact, more than double the cost under a

common tax. Cost differences vary sharply across

regions, though, with some regions paying less

under uniform targets than under a common tax.

EEFSU costs are zero under uniform targets

through the first part of the century; because unconstrained emissions do not surpass 1990 levels,

a regional stabilization constraint is not binding.

OECD costs start higher under uniform targets,

then become lower, because the uniform tax

eventually requires OECD nations to reduce their

emissions below 1990 levels.

When stabilization is realized by tradable carbon emission permits, total world costs and the

distribution of emissions are the same as under a

uniform tax (by assumption), but the various rules

for distributing emission permits yield wide variations in the distribution of costs. Since regions are

assumed to buy and sell permits at marginal cost

to move from the initial endowment to the efficient inter-regional distribution of emissions, a

distribution of permits uniquely determines a distribution of costs.

Under ● *grandfathered emission s,” the distribution of permits remains at 1990 emission levels

through the next century. Under this system there

is little trading in the early years, but as LDC

growth outstrips the OECD, LDCs buy permits in

increasing quantities. Since the OECD and EEFSU earn money by selling permits, their total cost

burden is very small (in fact, negative in EEFSU),

while transfers from the LDCs to the industrial

countries due to trading reach $1.2 trillion annually by the end of the century. These transfers clearly

render this scheme infeasible.

Equal per capita distribution of permits mostly

reverses the direction of trading and transfers.

LDCS receive the most permits, and their share increases further over time due to their higher rates

of population growth. Most LDCS sell excess permits while OECD and EEFSU buy them, but

China provides a surprising anomaly. China’s

share of perm its does not grow fast enough to meet

the demand driven by its rapid economic growth,

so it turns from selling to buying permits in midcentury. In effect, China’s projected rapid economic growth and abundant coal resources cause

its demand for emissions to exceed its entitlement,

which grows only with its modest population

growth. By the end of the century, China buys

$500 billion of permits annually and the industrial

countries buy another $500 billion.

Two other allocation systems are based on regional GDP. In the first, permits are distributed according to current GDP. Under this system trades

are initially small, while late in the century

China’s more coal-intensive resource base leads

them to buy permits from the OECD. The second

scheme begins with grandfathered emissions, but

modifies future shares in proportion to relative

GDP growth. Under this scheme, distributions

closely track the determinants of furture emissios,

so inter-regional trade is small. Total transfers

from trading remain at a few tens of billions

through the first half of the century, growing to

$200 billion by 2095. Most trade is from EEFSU

to OECD.

Two final allocation schemes investigate a

“hold-harmless” rule. These schemes give enough

permits to specified regions that their revenue

from selling excess permits precisely offsets the

costs of reducing emissions, leaving them as well

off as under an unconstrained growth path. In the

first of these schemes, only the developing countries are held harmless; in the second, the EEFSU

countries are added, in effect making the OECD

nations bear the entire world’s emission abatement cost.

The consequences of these schemes change

sharply over time, as the LDC economies grow.

Initially, it requires only small transfers to LDCS

to make them whole, so the allocation of permits

is close to the “grandfathered” scheme and transfers are only about $15 billion in 2005. But the

LDC losses that must be compensated grow rapidly through the century, so that by 2080 even giving

LDCS all the permits in the world fails to yield

transfers large enough. Consequently, this scheme
Appendix: Summary of Edmonds et al. Paper | 25

eventually requires that the industrial countries be

allotted “negative emission permits” and be required to buy their way out of the hole before they

begin purchasing emission permits. Total transfers to LDCs reach $1 trillion annually by 2080,

and $1.7 trillion by 2095. When EEFSU countries

are also “held-harmless,” the negative allocation

to OECD appears sooner (in 2065) and grows

larger; associated transfers reach $2 trillion in

2095.

A separate series of model runs examined the

effect of protocols in which only a limited set of

nations participate. In particular, a “Big Three”

protocol examined the effect of controls by only

OECD, EEFSU, and China, which together hold

96 percent of world coal resources. These regions

stabilize their emissions by a tax levied half at the

point of combustion and half at the point of extraction. This case exhibited a number of remarkable

results. Global emissions grew modestly through

the first half of the century through increases in

nonparticipating regions, but declined abruptly

near the end of the century as nonpm-ticipants exhausted their coal. Through the century, progressive exhaustion first of conventional oil and gas,

and later of nonparticipants’ coal, drive up world

energy prices, eventually bringing involuntary

price-driven emission reductions even in countries that did not intend to do so.

The ‘-Big Three” is the only scenario modeled

in which world emissions drop below 1990 levels,

and the only one in which atmospheric carbon stabilizes by the end of the next century, reaching

about 500 parts per million (ppm). Two subsequent runs tested the same form of controls in the

“Big Two” (OECD and EEFSU) and the “Big

One” (OECD only). These agreements were much

less effective at reducing global emissions, indicating that the strong results of this scenario depend on participation by nations holding the great

bulk of the world’s coal. The OECD-only protocol, for example, yielded global emissions that

differed by only a few percent from the reference

case.

The involuntary reductions in nonparticipating

nations that the “Big Three” protocol brings represent an interesting reversal of the well-known

“offshore effect,” by which controls in some countries induce adjustment in nonparticipating countries. The standard offshore effect dilutes the

effect of emission control measures that a subset

of countries enact through taxes or controls on

consumption. When such consumption measures

reduce world energy demand and hence prices,

participating countries’ emissions reductions are

partly offset by price-induced emission increases

elsewhere. The “Big Three” scenario illustrates

that when participants tax fossil fuel production,

hence reducing their energy exports or turning

themselves from exporters to importers, world energy prices can increase and so cause priceinduced emission reductions in nonparticipating

nations.

A final set of model runs explored the effect of

technology development and diffusion. One run

used optimistic assumptions of improved fossil

generation efficiency and solar-electric cost. With

these assumptions, unconstrained global emissions were 25 percent lower than in the reference

case (due to a 20 percent reduction in primary energy demand and a doubling of primary solar energy), while the cost of stabilizing world emissions

at 1990 levels was cut by half. A further series of

runs examined technology diffusion. varying the

fraction of price-induced technical efficiency

gains in participating regions that become available to nonparticipating regions for free. The

benefit from such diffusion is necessarily temporary, lasting only as long as some regions participate in a protocol while others do not. Under the

most extreme assumptions, in which all price-induced efficiency gains are transferred, world

emissions in some years can be 25 percent below

the reference case. These temporary reductions

yield atmospheric concentrations in year 2100 at

most 2 or 3 percent below the reference case, a significant reduction, though smaller than that generated by the optimistic technological] development

scenario.

The following are the major results of the Edmonds et al. project, as presented in the text of the

paper and summarized by Edmonds for workshop

participants.
26 I Climate Treaties and Models: Issues in the International Management of Climate Change

■

●

●

●

No simple system for distributing emission

control obligations and resultant costs is likely

to remain acceptable through the next century,

so any system of international controls that

bites must be designed flexibly enough to allow

renegotiation as conditions change.

The savings available from mechanisms that

distribute in ternational abatement efficiently

are large, of the order of trillions of dollars, and

these savings may be particularly large for developing countries.

Several simple, plausible schemes for allocating tradable emission permits can have paradoxical effects, and may become infeasible as

time passes. For example, in the latter part of

the century, China becomes a net loser under

equal per capita distribution.

Not all countries need to participate. The few

nations with the largest coal resources can limit

cumulative global carbon emissions themselves by controlling or taxing production. To

control atmospheric carbon concentration, only

coal matters; there is not enough oil and gas in

the world to make a large difference.

Modest variation in assumed rates of change of

technical end-use efficiency, and rates of diffusion of technical progress among nations, make

large differences in the cost and effectiveness of

treaties. For example, plausible assumptions of

accelerated technology development and deployment can cut total cost of stabilizing world

emissions in half.

Initial delays of 10 or 20 years in implementing

emission stabilization have little effect on ultimate atmospheric carbon concentrations.
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