Decarbonization Strategies: How Much, How, Where and Who Pays for Δ ≤ 2°C?

Urjit R. Patel
Urjit R. Patel Former Brookings Expert, Governor - Reserve Bank of India

March 23, 2010


At a panel discussion at the London School of Economics (LSE) in early October, I said in my concluding remarks that while I was not optimistic about the likelihood of a robust global climate deal at Copenhagen, “there seemed to be a strong consensus in world capitals for a weak agreement.” Well, I was more or less right. We ended up with something rather ineffectual: a less than unanimous declaratory announcement (of feeble aims), although they call it an accord; and, in any case, it is neither a treaty nor even a binding commitment underpinned in law. In fact, domestic politics and the recession have probably put paid to hopes for a precise emissions quota-focused treaty in the near term. At any rate, a legally binding multilateral document is hardly sufficient: emission outcomes even under the formally binding Kyoto Protocol with a built-in enforcement mechanism are widely perceived to have been inadequate.

An address of this sort has the advantage that it is not entirely out of place to share expansive thoughts, which is, of course, another way of saying that I can take some liberty or that this is a work in progress and therefore bits of the paper are, “cognitively speaking”, unsettled. Nonetheless, I shall be forgiven since I was a guest.

Regardless of what has transpired in Copenhagen, the sheer scope and longevity of the challenge of climate change will be impacted by and impinge on four factors:

  1. Coordination among nations: Without further engagement, the amount of global abatement realized, due to the free rider problem, will almost certainly be undersupplied relative to the magnitude of the global “public bad” threat (if the scientists are right, and the balance of probabilities warrant action commensurate with the “precautionary principle”).
  2. Technology transformations: Highly capital intensive ones, in part because of more demanding “target & regulate” national policies.
  3. Instruments for pricing carbon: These may change, for instance, from cap and trade (CAT) to a carbon emission tax (CET). Also, there are likely to be multiple prices; as it is, there is a spread between EUissued tradable allowances and Clean Development Mechanism (CDM)-generated offset permits; and, if CETs are imposed, then (international) harmonization will inevitably be a long drawn affair.
  4. Institutions and capacities, both domestic and multilateral: New ones may have to be created and existing ones will have to be strengthened for funding, facilitating transfers, monitoring, implementing, etc.

The paper has been motivated primarily to outline and delve into what is entailed—along key dimensions—in bringing about emissions reduction for climate stabilization. In some way, this tack, inter alia, may help to implicitly explain why it has been so difficult to agree on sharing responsibilities and confront other challenges. The plan of the paper is as follows. In the next section, I briefly review the desired quantum and possible timeline for global carbon abatement for minimizing the likelihood of irreversible climate change. The subsequent two sections explore promising approaches in the transport and power sectors that are likely to be at the crux for halving energy-related emissions by 2050. Also in these sections, the indispensable technologies are described and the obstacles in the way of routine commercialization are explained. I analyze the “well-to-wheel” strategy for curtailing use of liquid hydrocarbon fuels and associated discharge in the transport sector in the context of rising incomes driving increasing aspiration for personal transport in the coming decades. The role of decarbonizing the electricity sector is underscored, and the chasm that has to be crossed in reaching emission targets in this area is critically drawn to attention. Next, I evaluate the relative merits of worldwide carbon policy mechanisms that are crucial for incentivizing a low-carbon outcome. Specifically, we look at how best to dynamically price emissions through markets-based instruments. A case is made for establishing explicit rules rather than unfettered discretion for policy makers. In the absence of other credible instruments for helping developing countries with costs of mitigation, suggestions are made for widening the scope of the CDM, as also strengthening its integrity. Following on, the subsequent section assesses the scope for financial help for developing countries from the rich nations towards mitigation. The final section has conclusions.