Rethinking Equity and Efficiency in Mitigating Climate Change

Abstract The Kyoto Protocol represents the prevailing international consensus on climate control. However, the Kyoto Protocol fails to provide adequate incentives for forest preservation and carbon sequestration in the developing world. Any approach that focuses solely on emissions reductions to the exclusion of forest conservation generates unacceptable efficiency losses while foreclosing more equitable ways to combat global warming. Future climate treaties should provide incentives to all countries to reduce emissions and to preserve and enhance forest carbon sinks. Forests in tropical countries currently provide climate stabilization services valued between $36-$395 billion per year. An alternative approach to climate control that would facilitate payment for these services, either directly through carbon subsidies, or indirectly through the sale of emissions credits for verifiable changes in land use, could transfer substantial income to the developing world. In which case, fairness for developing countries could be achieved explicitly, rather than implicitly by temporary exclusion from emissions quotas. It is time to rethink equity and efficiency in mitigating climate change. Introduction The Debate In 1997 in Kyoto Japan more than 150 countries completed negotiations on the Kyoto Protocol, the prevailing international treaty on climate change that requires industrialized countries to reduce emissions of carbon dioxide (CO2) and other greenhouse gases (GHG) contributing to global warming. Implementation of the now four-year-old treaty has been stalled by debate over how countries can and will reduce emissions. Specifically, the controversy surrounds the inclusion of carbon sequestering forest sinks as means to mitigate global warming and the exclusion of the developing countries from obligations to reduce greenhouse gas emissions. Reducing greenhouse gas emissions from energy, transportation, and industry in the industrialized countries is critical to preventing future climate change. However, a successful climate change treaty must also provide incentives to developing countries to mitigate emissions, primarily by slowing deforestation and increasing carbon sequestration by forests. Implementation of the Kyoto Protocol, given its present emphasis on emissions reductions in the industrialized countries could generate unacceptable efficiency losses while foreclosing more efficient and equitable means to combat global warming. Indeed, the best approach for combating climate change would require all countries to cap emissions, but distribute the costs more equitably to correct for historical imbalance in greenhouse gas production. Subsidizing developing countries for carbon sequestration and forest conservation is key to this approach. Rethinking the potential efficiency gains and distributional effects of this strategy is necessary to inform future climate control efforts and avoid the predictable breakdowns in negotiations that have thwarted progress thus far. Climate Change Climate change refers to a change in the earth's climate in excess of natural climate variability that is attributed directly or indirectly to human induced changes to the atmosphere's composition (1). Atmospheric concentrations of carbon dioxide and other greenhouse gases warm the Earth's surface by trapping a portion of the sun's outgoing energy reflected by the Earth. Global warming is the result of the intensification of this "greenhouse effect" due to increasing anthropogenic emissions of greenhouse gases, most notably carbon emissions from fossil fuel burning and deforestation. As carbon sinks, forests play a key role in stabilizing global climate. Forests sequester carbon emissions from the atmosphere and store carbon long-term in vegetation and soils. Currently, terrestrial ecosystems and the oceans absorb roughly 1/2 of the anthropogenic emissions of carbon (IPCC, 2001). …