Select Committee on Economic Affairs Second Report

Chapter 8: United Kingdom Policy and the international Negotiations on Climate Change

119.  Our inquiry was primarily concerned with the projections of economic activity that underline the IPCC forecasts of climate change, with the costs of tackling climate change and the benefits that would accrue to the world as a whole. Difficult and controversial though it is, we believe that conscious efforts must be made to weigh up the costs and benefits of climate change policy at every level. Because of this focus we spent less time in our inquiry on current UK policy on climate change. Moreover, as we noted in the introduction, other Parliamentary committees have been examining these issues. Nonetheless, we did take the opportunity to explore some issues of policy. These are documented in this chapter.

UK and EU policy

120.  Boxes 9 and 10 summarise our understanding of the various climate targets that the United Kingdom and the European Union have signed up to. Some of these targets are legally binding and some are not. The original 1992 "Rio" target was a voluntary one and non-compliance carried with it no penalties. In the event, the United Kingdom was one of very few countries that complied with the Rio targets, though not through policy design—compliance was largely secured because of the choices of newly privatised electricity utilities to switch to natural gas and out of coal[93]. The UK "Kyoto" target is determined by the EU burden sharing agreement. In other words, it is the EU that has to comply with its overall target, compliance that is required in international law. Non-compliance by individual EU Member States with the burden sharing agreement is a matter for internal EU law. Targets that have no legal compliance requirements are the Government's 1997 Manifesto commitment of 20% reduction in CO2 emissions (relative to 1990) by 2010, and its long-term 60% reduction target for around 2050. Moreover, while the 2050 target is frequently referred to as a unilateral target, close inspection of the language used to describe it makes it clear that it is conditional on other countries pursuing similar goals. Some other EU states have confirmed comparable targets, but most have not. Thus the targets vary substantially in the extent to which legal compliance is required.


United Kingdom Climate Targets
Year agreed The gases covered The target Comment

Framework Convention on Climate Change, Rio

CO2 only 2000 emissions no greater than 1990 emissions: voluntary agreement Incidentally achieved very largely via electricity privatisation introduced by Conservative Government

Labour Manifesto

CO2 only 2010 emissions 20% less than 1990 emissions Language of commitment varies, e.g. Energy White Paper 2003 states it as "to move towards a 20% reduction".

Kyoto Protocol, agreed in EU 1998

GHGs2008-12 emissions 12.5% below 1990 emissions UK's share under the EU burden sharing agreement for the Kyoto Protocol

Energy White Paper

CO2 only c 2050 emissions 60% less than in 1990 "with real progress by 2020". Commitment is to be "on a path towards" the target. In absolute terms it equals around 65 mtC in 2050. Also stated as a global goal for the "world's developed economies"

BOX 10

The EU Climate Targets
Year agreed The gases covered The target Comment
1996, 1939th European Council Meeting, Luxembourg
Warming above pre-industrial level should not exceed +2oC: this is "an overall long-term objective to guide global efforts to reduce climate change risks".

Conforms to CO2 concentration goal of 550 ppm.

Note that this includes roughly 0.6oC warming in 20th century + additional warming already committed. Probably equivalent to +1oC compared to now.
1992 FCCCCO2 2000 emissions should be no greater than 1990 emissions EU over-complied with target (-3% on 1990) due to UK, France and Germany, Sweden, Luxembourg over-complying
1997 Kyoto Protocol CO2, CH4, N2O, HFCs, PFCs, SF6 2008-2012 emissions in EU-15 must be at least 8% below 1990 emissions.

This target then allocated unequally between Member States.

Slight relaxation of these targets secured at Bonn and Marrakech

121.  The absence of the United States from the ratified Kyoto Protocol is, of course, a serious deficiency and we are concerned that there are few signs to indicate how the ratifying countries intend to persuade the US to re-enter the negotiations. Just as important, the participation of Russia has been secured through political horse-trading in order to ensure the Protocol has the required minimum number of ratifiers. Yet Russia's emissions commitments constitute "hot air", that is, they do not correspond to any real reductions in greenhouse gases.

The Kyoto Protocol

122.  We also note that the compliance mechanisms in the Kyoto Protocol are very weak and even counter-productive. Essentially, any signatory that fails to comply receives a penalty target in the context of any post-Kyoto agreement. Thus, a country not achieving the 2008-12 target must not only make up the shortfall in the second compliance period (yet to be negotiated), but must also achieve an additional 30% of this amount. The obvious problem is that anyone who does not comply is unlikely to sign up to this form of self-punishment in the later rounds. As Professor Scott Barrett of Johns Hopkins University has pointed out, if anything, the compliance mechanism is a deterrent to further participation[94]. In large part, this kind of deficiency in the Kyoto Protocol arises from the international negotiators' preoccupation with agreements that set emission targets. Moreover, we heard from several witnesses that the Kyoto targets themselves were going to make little difference to rates of warming - see Table 11. In other words, Kyoto only begins to make environmental sense if it is the first of several, and maybe many, such future agreements. In his evidence to us, Professor Michael Grubb was insistent that this was always part of the design of Kyoto and that its own environmental ineffectiveness is not important since it is merely the first step in a longer run process[95].


The environmental ineffectiveness of the Kyoto Protocol

Business as Usual (BAU)

Kyoto Only = Kyoto + BAU 2010+

Kyoto + constant emissions 2010+

Kyoto + 1% p.a. emissions reduction 2010 to 2100


1990 ppm

2100 ppm






Increase in temperature oC by 2100





Sea level rise cm





Source: adapted from T. Wigley The Kyoto Protocol: CO2, CH4 and climate implications. Geophysical Research Letters, 25 (13), 1998, 2285-2288.

Notes: scenarios assume Annex B countries only (i.e. those countries with emission reduction commitments), but including the US, take action. BAU = business as usual. "Kyoto only" is the effect of Kyoto assuming no further agreements, with some BAU scenario following. "Kyoto+constant emissions" assumes Annex B countries stay at their 2010 emission levels once the Kyoto targets are achieved. "Kyoto+ 1% reduction" assumes Annex B countries reduce emissions at 1% p.a. to 2100 after 2010. SLR = sea level rise. ppm = parts per million by volume. All figures approximate and assume 2.5oclimate sensitivity - i.e. the temperature response to greenhouse gas forcing.

The analysis assumes that the US signs up to the Kyoto Protocol, so the estimates here overstate the effectiveness of the Kyoto Protocol if the US continues with its current policy of not ratifying the treaty.

123.  But if Kyoto is simply the first step on a ladder of agreements, the issue of devising compliance incentives looms even larger. If there is widespread non-compliance, which is what many observers suggest will be the case, it means that participants have experienced difficulties in reaching the targets. Those difficulties may be economic, political or other. But if there are difficulties in meeting the Kyoto targets, there are likely to be even greater difficulties meeting yet stricter targets. Non-compliance with the first rung of the ladder makes it far less likely that there will be participation in later agreements. Professors William McKibbin and Peter Wilcoxen have stated that "…the Kyoto Protocol is an impractical policy focused on achieving an unrealistic and inappropriate goal"[96]. Moreover, while China, India and Russia have ratified the Kyoto protocol, China and India do not have emission targets, and, as already noted, Russia's commitments constitute "hot air". One of our observations, therefore, is that the "beyond Kyoto" negotiations, which start this year, will have to take a far more innovatory approach than simply assuming that the Kyoto targets will be tightened[97].

Kyoto and the United States

124.  The environmental effectiveness of any future international agreements on climate change will depend critically on both the United States and the developing world adopting active programmes to combat emissions growth. As we note above, this may not mean adopting agreements based on further emissions targets—an alternative approach will be required. But if the US remains outside future agreements, as they have done with respect to Kyoto, then their effect will be seriously limited. The US currently accounts for just over 20% of the entire world emissions of greenhouse gases, and closer to 25% for carbon emissions from fossil fuels. After Australia (which has also declined to ratify Kyoto), the US has the highest per capita greenhouse gas emissions of any country.

125.  The developing world emitted roughly half the world's greenhouse gases in 2000. Whereas the developed world is likely to increase emissions by around 35% 2000-2025, the developing world's increase is likely to be over 80%[98]. It seems obvious to us that both the US and the developing world have to take on active programmes of reducing emissions with immediate effect, or the efforts of Europe and the rest of the world will be wasted.

126.  With this in mind, we sought some explanation for the position of the United States. It seems to us that scrutiny of the costs and benefits to the US provides invaluable insights into the US position.

127.  There are several elements to the cost burden that the US would bear if it ratified Kyoto. First, it would have its own domestic emissions reduction programme and the costs of that would fall on industry, transport and households. The US judged early on that these costs would be unacceptable, but had always maintained that the prospect of acceptability would exist if there was widespread emissions trading[99]. In the event, the Kyoto Protocol enabled various forms of trading: trades between rich nations based on allocated permits (cap and trade), project-based trades between (roughly) OECD countries and East Europe and Former Soviet Union ("joint implementation"), and project-based trades between OECD countries and developing countries ("Clean Development Mechanism"—CDM). Moreover, the US had already sponsored major efforts at joint implementation in order to learn how to operate such projects. Arguably, the limited prospects for extensive cap and trade systems (which is what the EU has developed), and the comparatively small role playable by joint implementation and the CDM, persuaded the US government that compliance costs to the US would be higher than they hoped.

128.  Second, the US has been insistent that developing countries must quickly assume targets of their own. We noted above that this is a rational position to take since rates of warming cannot be adequately affected without this happening. The developing countries have always maintained that warming was not their responsibility. If the rich countries want to bring the developing countries on board, they might therefore have to pay for developing country reductions as well as their own. The Kyoto Protocol does have "flexibility mechanisms" which permit reductions in developing countries to be credited to developed economies provided the latter pay for them. But what the US may have feared was the prospect that the developing countries would maintain their "you not us" stance and eventually the US would have to become a major contributor to the costs of reducing emissions in developing countries, without emission credits being secured.

129.  Third, "relative" cost matters, i.e. the burden on the US relative to the burden borne by others. Apart from any feelings about "unfairness" if others did not appear to bear as big a burden, there are concerns about competitiveness, and about impacts on specific sectors of the economy—not least oil and coal producers.

130.  A fourth factor relates to the Integrated Assessment Models (IAMs) that influenced the US government. These were primarily those that showed comparatively small global benefits from Kyoto (the work of Professors Nordhaus, Mendelsohn, Manne and Dr Richels). Thus the US was being asked to bear a "big" cost (as they saw it) for uncertain global benefit. The climate models themselves were showing little or no effect on rates of warming from Kyoto. However, a dominant feature of the minor impact of the Kyoto Protocol on warming is also the fact that developing country rates of growth of emissions are the fastest. President Bush clearly stated: "I oppose the Kyoto Protocol because it exempts 80% of the world, including major population centers such as China and India"[100].

131.  We offer this brief analysis of the position of the US not because we wish to defend that position, but in order to argue that there is an economic rationality to the stance taken. Failure to understand that rationality will misdirect efforts to bring the US into future negotiations in a more positive way. Again, we believe that if the "Kyoto plus" negotiations simply attempt to impose stricter emissions targets on the world—what Professor Scott Barrett of Johns Hopkins University has called "the Kyoto only" approach—the position of the US will not change[101]. Indeed, if the US has been unwilling to sign up to the Kyoto targets, we do not see how it will sign up to even stricter targets. In our view, there is a real risk that the international negotiators will render their own efforts fruitless if they persist in an exclusive adoption of the targets-based approach.

132.  Finally, the US has repeatedly stressed the role of technological change in securing greenhouse gas emission reductions. While the Kyoto Protocol should, in principle, encourage technological change, we are not convinced that it has sufficient focus on this central issue. We return to this point when considering how the "Kyoto process" might be taken forward.

Alternative architectures for "Kyoto Plus"

133.  We argue above that the "more of the same" approach to emissions targets may not tackle the global warming threat. We urge the UK Government to help broaden the debate through its membership and current presidency of the G8 and using its position of being internationally respected in the scientific world. While we have not investigated the alternative means of tackling warming in any detail, we draw attention to two alternative approaches to international negotiations.

134.  Any "Kyoto plus" treaty has to provide incentives for long run emissions reductions. This means there must be changes in technology and/or behaviour that can be sustained through time and, importantly, that there must be effective compliance mechanisms. The Kyoto Protocol is essentially a legal regime that attempts to punish short-term non-compliance but, as noted above, does so with an enforcement mechanism that is so weak it is likely to be counter-productive, i.e. it will encourage reduced participation in the future, not the widening participation that is required. At the moment, it is hard to see how countries will sign up to a stricter target-based regime than already exists with the Kyoto Protocol. One possibility is that Kyoto-plus should adopt stricter targets but with much more effective enforcement. One of the few international environment treaties to be effective is the Montreal Protocol which controls ozone-depleting chemicals. This treaty can be enforced using trade sanctions. One possibility is that Kyoto-plus could introduce trade sanctions as a non-compliance penalty. However, the chances of this succeeding seem to us remote. Controlling climate change is not like controlling ozone depletion—in the latter case alternative technologies were already being advanced and the costs of "buying in" the developing countries were small. Taking ozone depleting chemicals out of economic systems is trivial compared to taking carbon out. In contrast, the benefits of reducing ozone depletion are enormous. It is a mistake, therefore, to assume that any Kyoto-plus treaty should simply copy the format of the Montreal Protocol.

135.  There are many proposals for a changed approach to Kyoto-plus[102]. These include harmonised national carbon taxes, more rapid progress to world-wide emissions trading, a more forceful agreement on adaptation measures than is contained in the Kyoto Protocol, and what to us seem more fanciful ideas about allocating carbon budgets between nations so that per capita emissions converge at some future date.

136.  It could be argued that it is late in the day to be suggesting a significant change of focus in the climate negotiations. But we fear that the present "more of the same" approach, focusing on targets for emissions reductions, will fail. It is better to aim for cost-effective technologies, and the right balance between adaptation and mitigation.


137.  We reiterate our concern that adaptation measures have become the "Cinderella" of the negotiating process. The chances that a politically feasible set of emissions reduction measures along current lines will significantly alter the rate of warming are, in our view, small. Hence it is vital to look urgently at what can be done to diffuse technologies on, for example, water conservation, new water supplies, avoidance of the worst impacts of weather extremes etc. A sensible strategy is to have a robust adaptation strategy in place as well. While we acknowledge that the Kyoto Protocol discusses adaptation, there is little evidence that adaptation is being pursued aggressively. To some extent, current decisions are already being modified to take adaptation "on board", as with flood control decisions in countries like the United Kingdom. But much more needs to be done and climate adaptation should become one of the mainstream elements of investment decisions, particularly with respect to infrastructure, housing, coastal development and international development assistance. Of course, adaptation has its limits—it is not obvious what it would mean to adapt to the large scale one-off events discussed earlier. But before those limits are reached, there seems to us to be enormous scope for a global adaptation strategy on a par with the mitigation strategies that preoccupy the IPCC process and the national debate.

International carbon taxes

138.  One approach not based on setting further emissions targets would be an internationally harmonised carbon tax. The advantages of such a tax are:

139.  The arguments against international carbon taxes are well known. For example, taxes may fail to achieve quantitative goals if governments fail to estimate accurately the response of emitters. Varying the tax as information about such responses evolve is one option, but this may only reinforce the uncertainty that emitters face. However, the political prospects of a harmonised international tax may be remote. For example, the European Union was singularly unsuccessful in introducing an EU-wide energy/carbon tax. But this should not prevent unilateral action by individual nations or groups of nations.

140.  We share the criticisms expressed by some of our witnesses that the UK's current "climate tax", the Climate Change Levy, is anything but a carbon tax. It is an energy tax and the tax rate does not vary directly with the carbon content of fuels. It is not applicable to transport or households, and it offers electricity generators no incentives to switch between low and high carbon fuels. Further, it is associated with numerous exemptions and links to Climate Change Agreements which themselves may have secured illusory emission reductions due to "hot air" trading. We therefore urge a thorough review of the Climate Change Levy regime, with the aim of moving as fast as possible to replacing it by a carbon tax.

International technology agreements

141.  There appears to be growing support for the idea that Kyoto-plus should focus on technology and research and development. Professor Scott Barrett of Johns Hopkins University notes that such a technology-based approach has worked for ocean oil pollution where, after years of trying unsuccessful procedures, standards for ships to separate ballast water and oil were agreed[103]. These standards have been followed by others, such as double hulls for new tanker ships. The features of this approach are (a) that compliance is easily verified, (b) each state has an incentive to protect its own waters from pollution, and (c) as more countries ratified the agreement, the bigger the incentive tanker owners had to comply because of the need to have access to as many ports as possible. Professor Barrett asks if a similar approach cannot be adopted for Kyoto-plus. International agreement on
R & D in low or zero-greenhouse gas technology might help to lower future costs of these technologies at a rapid rate. In the same vein, the bigger the scale of the technological innovation, the lower the costs of adopting it. In some cases, adoption of the technology by a major player, for example, the US or Europe, will provide major incentives for other countries to adopt the same technology in order to gain access to the markets of the US and Europe. Vehicle technology is a case in point. As major purchasers, technological standards set by large importers would require that those technologies are adopted in the exporting nations. Moreover, technology standards are compliant with the WTO rules. Finally, incentives for technology transfer to the developing nations would be built into the agreement.

142.  The International Energy Agency (IEA) has estimated that the R & D expenditure needed, if carbon-free energy is to become economically viable through the use of solar photovoltaics, biomass and carbon sequestration, is around $400 billion[104]. This is a little over 1% of current global annual GDP. This might be compared to the costs of the 1963-72 US Apollo programme that put man on the moon. The Apollo programme cost around 2.5% of US GNP in about 1970, or 1% of then global annual GNP[105]. The IEA renewable energy programme would therefore cost about the same now as the Apollo programme did then1% of world GNP. Spread over 30 years, this $400 billion would amount to around 0.03% of world GNP each year. Moreover, such an R & D programme would be a true global public good: one in which everyone would have a share of the benefits. An agreement of this kind would have the potential to overcome the major obstacles that currently inhibit further progress on tackling climate change—the need to find incentives to get the United States and the developing countries to join others in the quest for low carbon energy futures. The US is already investing heavily in such technology. The developing world would gain substantially by acquiring it. We offer these thoughts as an illustration of what international negotiators might now consideran agreement on technology and its diffusion.

143.  We do not pretend to have worked through in any detail proposals of the kind outlined above. The important issue is to wean the international negotiators away from excessive reliance on the "targets and penalties" approach embodied in Kyoto. We acknowledge that this approach could work, provided there was a powerful enforcement mechanism. The problem is that countries are not going to agree to such an enforcement mechanism, as the compliance negotiations over the Kyoto Protocol have already shown. Existing international institutions such as the United Nations simply do not have credible threats for participants to secure compliance. Hence there should be urgent progress towards thinking about wholly different, and more promising, approaches based on a careful analysis of the incentives that countries have to agree to any measures adopted.

93   Germany also complied with the Rio targets because reunification led to wholesale economic restructuring and the closure of many heavily polluting plants. Back

94   S. Barrett, Kyoto plus. In D. Helm (ed.), Climate Change Policy, Oxford: Oxford University Press, 2005. Back

95   Evidence from M. Grubb (Vol II, pp 165-177) Back

96   W. McKibbin and P. Wilcoxen, The role of economics in climate change policy. Journal of Economic Perspectives, 16(2), 2002, 107-129. Back

97   There is a growing literature on the limitations of the Kyoto Protocol and alternative means of achieving climate change goals. For example, see S. Barrett, Kyoto plus. In D. Helm (ed.), Climate Change Policy, Oxford: Oxford University Press, 2005; J. Aldy, S. Barrett and R. Stavins, Thirteen Plus One: A Comparison of Global Climate Policy Architectures, Working Paper RWP03-012, John F Kennedy School of Government, Harvard University, 2003; D. Bodansky, International Climate Efforts Beyond 2012: A Survey of Approaches, Washington DC: Pew Center for Climate Change. Back

98   All of these data come from K. Baumert and J. Pershing, Climate Data: Insights and Observations. Washington DC: Pew Center for Climate Change, 2004. Back

99   Emissions trading works by having permits allocated to emitters. Those who find it easiest to abate will sell their permits and abate emissions. Those who find it hardest to abate will not abate but will buy permits instead. In this way, emissions trading minimises the compliance costs. Throughout all the negotiations leading to the Kyoto Protocol, the US insisted on the substantive role of trading precisely because it would reduce the costs of compliance to the US. Back

100   This position somewhat reneges on the first President Bush's commitment to the Rio Framework Convention on Climate Change (of which Kyoto is the first Protocol) since that speaks of "differentiated responsibilities and respective capabilities" for combating climate change. Historically, the US accounts for around 30% of cumulative CO2 emissions and, as the richest country in the world, has more capability to reduce emissions than other countries. Back

101   S. Barrett, Kyoto plus. In D. Helm (ed.), Climate Change Policy, Oxford: Oxford University Press, 2005. Back

102   Most of these are very conveniently summarised and reviewed in D. Bodansky, International Climate Efforts Beyond 2012: A Survey of Approaches, Washington DC: Pew Center for Climate Change. Back

103   S. Barrett, Environment and Statecraft. Oxford, Oxford University Press. 2001. Back

104   Evidence from M. Grubb (Vol II, pp 165-177) Back

105   R.D. Launius, Proceedings of the 41st Aerospace Engineers Meeting 6-9 January 2003 Back

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