Quantitative Assessment of the Post-Kyoto Protocol Framework
October 1 (Monday) 2007
Tatsuyoshi Saijo
Professor, Osaka University Research Institute for Sustainability Science
Hiroshi Hamasaki
Senior Associate
Summary
- The United Nation’s Intergovernmental Panel on Climate Change (IPCC) observed this February that the average global temperature has climbed 0.74 degrees Celsius in the 100 years from 1906 and 2005, and basically concludes that global warming is escalating due to human activity. Given this, discussion regarding a post-Kyoto protocol, an international framework concerning the reduction of greenhouse gases after 2013, is intensifying.
Intensifying Discussion Regarding the Post-Kyoto Protocol
Looking ahead towards to the G8 summit held in Germany in June, Prime Minister Abe and the Japanese government proposed the “Cool Earth 50” strategy in May 2007. Regarding the post-Kyoto framework, Prime Minister Abe proposed that all of the major emitting countries including the US, China and India aim to create a framework that will accomplish a 50% global reduction by 2050. The specifics of this plan, however, have not been presented, and what is to come after the promised term of the Kyoto Protocol ends; in other words, the specific institutional design of the global framework after 2013 remains unclear. A major issue of the G8 summit to be held in Toyako Town (Hokkaido) in 2008 will be discussion regarding the international framework to replace the Kyoto Protocol after 2013, but the reality is Japan has not yet proposed a clear system.
United Nations Emission Trading Scheme (UNETS)
We propose the United Nations Emission Trading Scheme (UNETS) as a framework for the reduction of greenhouse gas that will replace the Kyoto Protocol, which will expire in 2012. Unlike the Kyoto Protocol, UNETS does not decide on a certain reduction percentage (6% in the case of Japan) based on a base-year (1990 under the Kyoto Protocol). Rather, it is a system where each country pays costs commensurate to their amount of greenhouse gas emission. First, with the aim of climate stabilization, a permissible amount of total global greenhouse gas emission is decided upon through international negotiation. Next, the UN or another such organization would sell emission rights to energy-providing companies, such as oil companies, of each country using an auction system. These energy-providing companies would be required to purchase emission rights commensurate to the amount of greenhouse gas emitted from the energy that they sell to a particular country, and could not sell energy in excess of these emission rights. Since energy-providing companies pass on the costs incurred from purchasing emission rights to the energy selling price, companies buying energy will have pay an even higher energy cost that reflects the price of emission rights. As a result, switching from coal to gas (in other words to energy with less carbon content), utilizing renewable energy such as wind power, and investing in energy-saving will be actively pursued, and a reduction in greenhouse gas emissions will be realized. In addition, this will lead to a mid to long-term cost decrease in technology in areas such as renewable energy that will dramatically reduce greenhouse gas emissions, as well as spur research and development investment into innovative low-carbon technology.
Quantitative Assessment from the General Equilibrium Model
Using the general equilibrium model, we calculated to see what would happen if UNETS was used under the condition that total global carbon dioxide emissions would be reduced to 90% of the current level. As the table illustrates, there are three levels in the return rate for purchased emissions (see PDF file). The smaller the rate, the more developed the country is considered to be. There are six levels in the GDP return rate, and here too the smaller the rate the more developed the country. Japan’s return rate is set at 0.25, the lowest of all rates. In other words, Japan is placed with the largest burden in this framework. The EU is given the next strictest rate at 0.3, and is followed by the US and Canada at 0.45. Under this system, the price of emission rights would be US$24.5/carbon ton. In comparison to not implementing UNETS, the country with the greatest reduction in emissions would be China. This is because a change in fuel from coal and an expansion of energy-saving activities would occur through the price effect. The same effect would be seen in India. Emissions would be reduced even in countries such as the US and the former Soviet Union, where energy efficiency is poor. On the other hand, emission reduction would be comparatively low in countries/regions with high energy efficiency, such as Japan and the EU. The net return amount, which is the reimbursement minus the purchasing cost of emission rights, is positive for Asian countries such as China and India. The burden is shared by countries such as Japan, the EU and the US. The total global amount of emission rights sales under UNETS would come to US$136.887 billion, which is not such a large figure if looked at from a global level. Moreover, we find the impact on the economic growth rate to be minor. This calculation shows the kind of economic change that would occur assuming a global UNETS requirement that emission rights be used as a factor of production. In other words, UNETS is a framework that will control total global emissions, and while it is necessary to remember that the effects of independent measures taken by each country/region are not factored in, there is no doubt that these various efforts towards preventing global warming would only strengthen UNETS. The most significant characteristics of UNETS in comparison with a framework such as the Kyoto Protocol, which sets reduction goals in terms of absolute quantity, are the following. 1. The participation of developing countries such as China is made possible by imposing costs commensurate to the stage of economic growth. 2. The wide participation of countries would curb cases of carbon linkage, where industry is moved to countries with no reduction goals, while increasing reduction efficiency. In addition, the economic impact would be marginal, and a strong environmental effect and economic efficiency would be realized.