Emissions Targets in Cap-and-Trade: Choosing Reduction Goals Compatible with Global Climate Stabilization

The history of international environmental politics and its implications for the development of a negotiated agreement are outside the scope of this paper.[1] However, an important starting point for this analysis is the assumption that a consensus climate stabilization target will ultimately emerge as a result of ongoing political discussions. This target will most likely take the form of a number that expresses the maximum acceptable deviation of the global average surface temperature from its preindustrial value. For example, at the most recent G-8 meeting in June 2009, leaders from the industrialized countries committed to limiting the long-term temperature increase to 2 degrees Celsius (3.6 degrees Fahrenheit) above its preindustrial value. Although this particular goal has not been endorsed by major developing countries, it does have the virtue of being broadly consistent with scientific developments showing that the risk of dangerous climate impacts, such as the disintegration of polar ice sheets, increases significantly above ~2 degrees C.

Assuming scientific information is successfully coupled with political judgment to yield a consensus target such as the one suggested above, science can be employed once more to translate this goal into a corresponding greenhouse gas concentration target and a global emissions reduction pathway. Although significant uncertainty remains in the climate sensitivity (the relationship between the equilibrium temperature change and the global greenhouse gas concentration), as well as in the abatement potential of non-CO2 gases (the relationship between the overall greenhouse gas concentration and the CO2 concentration) and in the response of the carbon cycle (the relationship between the total CO2 concentration and the CO2 emissions path), we will show that a 50% global reduction of CO2 emissions by 2050 relative to 2005 levels, another often stated policy goal, is plausibly consistent with the 2-degree C temperature target. However, this response is on the low end of what might ultimately be required, given the nature of the scientific uncertainties involved.

In light of the many known uncertainties associated with the climate system response, policymakers may wish to revise the global emissions path in order to improve the likelihood of attaining the 2-degree temperature target, or they may decide to adopt a different target altogether. In either case, when considering the implications for the design of a US cap-and-trade system, we will take the 50% reduction in CO2 emissions by 2050 relative to 2005 levels as the basic policy goal to be explored in this paper. Assuming that this target is widely recognized and shared among the "major emitters" (a group that typically refers to those countries who participate in the US-led "major emitters forum"), a potentially more difficult problem involves dividing up the implied abatement burden among nations whose historical responsibility, vulnerability to climate change, adaptation capacity and economic resources to devote to environmental improvement vary considerably. [2]

In order to examine the sensitivity of US policy choices to international action, we consider several possible approaches for determining what might constitute "comparable effort" or an "equitable distribution" of burden. Combining basic scientific information with a set of plausible burden sharing rules allows us to define a range of US targets broadly consistent with global climate stabilization. An important conclusion from this analysis is that the specification of US targets is relatively insensitive to the choice of comparability metric, at least in the near-term, provided that the notion of "common-but-differentiated" responsibilities envisioned by the UN Framework Convention on Climate Change (UNFCCC) is incorporated in some way. [3]

In addition, we find that the amount of new technology needed to satisfy US emissions targets generally falls within the range of plausibility, given current information about the pace of future technological deployment. This implies that uncertainty related to future technology is probably not sufficient to warrant ex ante revision of the emissions targets derived from a topdown analysis, as some have suggested. Rather, to hedge against worst case outcomes, cap-and-trade policy could be designed flexibly, in a way that would allow targets to be adjusted ex post if technology deployment turned out to be much weaker (and the associated costs much higher) than anticipated. Such flexibility could be directly incorporated into the design of policy through explicit cost containment provisions, a subject that is discussed at greater length in a related paper (Mignone, 2009).

In this paper, we consider each of these issues in greater detail. Section 2 examines possible global temperature and concentration goals, making use of the guidance provided by the UNFCCC and subsequent technical and political judgments about the meaning of "dangerous interference" with the climate system. Section 3 discusses how available scientific information could be used to translate any such concentration or temperature target into a single global emissions reduction pathway. Section 4 considers various proposals for dividing up the global abatement burden, given different notions of "comparability," and discusses what this implies for the design of emissions reduction targets in the US Section 5 considers the implications of these emissions reduction targets for the transformation of the US energy system and examines whether top-down emissions goals derived from a global disaggregation of abatement are consistent with bottom-up technological constraints on the future energy system. Section 6 concludes with a recap of the major issues and with appropriate policy recommendations.

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