Three Elements of a postKyoto regime

The elements of a post-Kyoto regime include a low-level price signal, straight-ahead deal making, and technology innovation.

A low-level price signal will be the least controversial element of a multipillar post-Kyoto regime because it involves only amendment and confinement of the Kyoto Protocol. Its reach would be essentially the same as those parties with current Kyoto mitigation commitments, supplemented by the United States and Australia, which could individually enact a comparable price signal within or beside the Kyoto agreements. There is a good likelihood that a low-level price signal would constitute a cooperative solution agreeable to the advanced industrial countries. Price signals have not yet been adopted by the industrial nations because there is no credible cap on the signal. In other words, the fear of continuous escalation of the initial signal to deal with climate problems (other than the no-regrets pool) deters empowered interest groups from accepting a climate price they would otherwise be willing to pay. While there are questions of how to set a constrained price signal and how to structure a trading market that precludes the perverse incentives of incipient CDM markets, these issues are hardly problematic for standard diplomacy.

There is only a limited number of emerging markets whose growth is fast enough to raise substantial concerns about climate-damaging infrastructure being put in place with long-standing effects. It seems futile either to count on these rapidly developing nations to undertake mandatory mitigation targets or to design a comprehensive trading scheme that can marshal the financial and regulatory capacity to induce sectoral policies more consistent with both development and climate objectives. Instead, it would make better sense to abandon the quest to build inclusive trading markets and just cut specific political deals, acceptable to the parties involved, that favor relatively climate-friendly technologies and that are consistent with national development and security priorities.24 Such deals could be focused on a package of policy changes, investment financing arrangements, risk-sharing measures to influence infrastructure, and other one-of-a-kind costs in restructuring markets in fast-growing economies. They would demand the engagement of sectorally knowledgeable actors from government ministries, government regulating bodies, and firms with industry experience.

Deals would not need to follow general principles of additionality or observe project baselines—which the CDM has revealed to be inevitably political— because the deal itself would define the programs to be undertaken by sectoral regulators, the nature of the external contributions from bilateral aid, international financial institutions, private firms, or climate-specific cooperation mechanisms, any of which would be needed to facilitate such choices. Deals that affect the development of markets with the potential for emissions reduction at large scale would foster industry and policy standards that could be emulated and made cost-effective in later-developing nations.

Nor should deals limit their scope to targeted sectoral policies or programs. Changes in macroeconomic practices, financial liberalization, security arrangements, international trade reform, or other indirect influences on important climate input markets could have a far greater impact on climate-relevant choices than more direct and obvious policy measures. It is not possible to say in the abstract whether the development of liquefied natural gas markets in East and South Asia, of biofuel and plantation agriculture in the Amazon or West Africa, of implementation of currently unenforced energy efficiency regulations in China and India, or of regional hydroelectricity in Southern Africa will be the stuff of game-changing deals. But it seems clear that reducing the number of self-interested players who explore, broker, agree, implement, and monitor such specific deals is a more practical solution to fast diffusion of proven technologies than the present architecture is.

The recent history of technology policies chronicles both successes and cautionary tales. Common pitfalls include premature selection of winners, underestimation of development costs, overestimation of the declining slope of learning curves, and failure to anticipate the tenacity of existing technologies, which undercuts the promise of new entrants. The usual difficulty with technology projections is not the engineering feasibility so much as the scale, speed, and scope in the commercialization and diffusion of innovations. Technology initiatives, especially at the international level, must contend with multiple national systems for research and development, patents, one-of-a-kind costs that impede market development, first-mover risk allocations, and the lack of a policy or institutional environment adapted to the issues posed by technology deployment. Although most national technology policies include all phases of development, from scientific conceptualization through demonstration projects, new noncommercial, climate-favoring technologies will still face delay and unforeseen costs. These will occur in later stages of the technology pipeline and can be worked through only by the industrial engineers, bankers, regulators, and lawyers in the trenches where commercial feasibility is defined and money is made or lost.

It is likely that the search space within a particular technology pipeline is as great as the search space between alternative technologies and that this search space is well downstream of publicly funded demonstration projects or even subsidized niche installations. This search space is also more likely to be explored by experienced industrialists, financiers, and policymakers than by pure scientists. An innovation that directly addresses the pace and scale of technology innovation must meet the expectations of these actors. Both across-the-horizon technology and the impediments to realizing this technology are predictable. The biggest challenge is institutional.

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