According to the Rodium Group’s Climate Outlook, between now and 2100, the OECD nations will collectively emit a cumulative 616.2 billion metric tons of CO2, out of a global total of 2,734 billion metric tons. In other words, developing and emerging economies will be responsible for 82% of carbon emissions over the rest of this century.
The overall baseline scenario is, to quote the report, not ‘catastrophic’. Of course, whilst avoiding catastrophe is welcome, it is still a stretch to call it good news.
Obviously, any forecast for emissions and temperature changes over the coming 75 years is subject to a high degree of uncertainty – something Rodium is only too keen to acknowledge. But looking back into the past is always easier than peering forwards into the future. And looking back shows a very different pattern of emissions from the one expected in the coming decades.
Until around the year 2000, global emissions came disproportionately from the OECD and, between 2000 and 2025, China – and to an extent India – played a rising role.
That is now expected to change:
Going forward, we expect that to change considerably. China’s emissions have very likely already peaked and begun what we project will be a long, secular decline due to structural economic changes, falling population, and rapid expansion of clean energy technologies.
Emissions from OECD countries decline as well as a result of significant decarbonization investment and clean energy policy. The bulk of emissions growth in the decades ahead comes from Africa, the Middle East, India, and other non-OECD countries in Asia, driven predominantly by economic growth as these regions continue to develop. (Emphasis added).
As the Climate Outlook put it:
To see continued global progress toward net-zero emissions by around mid-century, levels of decarbonization progress similar to what we have seen in OECD countries and China— including increased access to investment and innovation—will be required across all regions.
Last week, the Clark Center’s US and European Experts Panels both turned to the question of how to encourage developing economies to reduce their own emissions profiles.
On some issues there was a great deal of consensus, but when it came to the really tricky policy call, things became less clear-cut.
To begin with, both panels were asked whether “The domestic net benefits of emissions reductions vary substantially across countries because of differences in income levels and exposure to climate risk”? Weighed by confidence 100% of US respondents either strongly agreed or agreed, as did 93% of European respondents – with the rest uncertain.
The panels were next asked whether “In the absence of incentives from developed countries, developing countries will not reduce their emissions substantially in places where the private costs of fossil fuels remain meaningfully lower than those of zero-carbon fuels?”
Weighted again by confidence, 88% of US panel respondents and 90% of European respondents expressed agreement or strong agreement.
This is perhaps obvious, as long as the costs of fossil fuels remain materially lower than those of renewables, then poor countries in particular will continue to rely on them. The rich world, after all, partially became rich by emitting CO2, and that is a model that many developing countries will seek to follow.
The real question then is how to provide the necessary incentives? What works best, carrots or sticks?
The panels were asked whether ‘Providing incentives for developing countries to reduce their emissions through penalties (such as a carbon border adjustment mechanism or carbon club) is substantially less effective than providing equivalent incentives through subsidies (such as payments for climate damages in exchange for emissions reductions)?’
Here, both panels were divided. Amongst US panel respondents (as ever, weighted by confidence) 17% strongly agreed, 17% agreed, 37% were uncertain, and 30% disagreed. For the European panel, the equivalent results came in at 8% strongly agreeing, 36% agreeing, 43% expressing uncertainty, 12% disagreeing, and 2% strongly disagreeing.
While the European panel leaned more strongly towards the idea that incentives worked better than penalties, uncertainty remained extremely high. The US panel was more split.
As James Stock of Harvard noted, the whole question is ‘complicated’. Much depends on the mix of sectors within an economy, ‘for mainly traded heavy industry CBAMs are… effective. For nontraded goods and services providing support for achieving GHG reductions combined with local pollutant reductions is promising, “subsidies” through international carbon markets can help in theory’.
That said, Christopher Udry of Northwestern argued that whilst subsidies or penalties may provide similar incentives, ‘it is crazy to penalize, say Niger, for emissions that would not be damaging but for the huge stock of carbon that we put in the atmosphere. So subsidize them to provide emissions cuts’.
That point was echoed by Michael Greenstone of the University of Chicago: ‘Bad politics of CBAM in emerging economies- rich countries largely responsible for climate change to date & now CBAM is stick imposing their policies on emerging Carrot would be to compensate emerging for damages caused by rich countries in exchange for adopting carbon pricing’.
Perhaps the answer, as Jean-Piere Danthine Paris School of Economics added, is not to favor either sticks or carrots but to employ both:’ I agree but would argue that it is best to combine the two tools, i.e., a CBAM with subsidies to compensate the cost for developing economies’.
