Emissions allocations and equity: are the CPRS and Garnaut scenarios fair?

Andrew Macintosh

CCLP Working Paper Series 2008/5

ANU Centre for Climate Law and Policy

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About the ANU Centre for Climate Law and Policy

The ANU Centre for Climate Law and Policy (CCLP) is part of the ANUCollege of Law. It was established in 2007 with the objective of providing a focal point for law and policy research related to climate change. The CCLP also runs courses in climate law and provides consulting services. Additional details of the CCLP can be found on its website:

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Andrew Macintosh

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Summary points

  • Treasury has analysed four mitigation scenarios (Garnaut-10, Garnaut-25, CPRS-5 and CPRS-15) based on three atmospheric greenhouse gas concentration objectives (stabilisation of the atmospheric concentration at 550 parts per million of carbon dioxide equivalents (CO2-e), 510 ppm and 450 ppm).
  • The scenarios incorporate different assumptions about the division of emissions entitlements amongst developed and developing countries. These assumptions affect the proposed abatement targets for Australia and other countries.
  • This article examines the equity implications of the CPRS-5 and Garnaut-10 (i.e. the two 550 ppm scenarios). The allocations under the CPRS-5 and Garnaut-10 are compared with two contraction and convergence (C&C) scenarios: C&C-2010 (which involves immediate per capita convergence at 2010); and C&C-2030 (which assumes linear convergence starting in 2010 and a convergence date of 2030). Both of the C&C scenarios assume a 550 ppm objective. They are presented as “initial equity benchmarks”.
  • The allocation of emissions entitlements under the CPRS and Garnaut scenarios are inequitable when compared to those under the C&C scenarios. Developed countries do not shoulder a fair share of the global abatement burden.
  • During the period 2001 – 2050, developed countries’ average share of the world’s population is 15 per cent. Developed countries’ share of cumulative global emissions entitlements over this period are:

under CPRS-5, 32 per cent;

under Garnaut-10, 28 per cent;

under C&C-2030, 25 per cent; and

under C&C-2010, 21 per cent.

  • Under CPRS-5 and Garnaut-10, developed countries have a collective abatement target at 2020 of 7 per cent and 15 per cent below 2001 levels respectively. The equivalent targets under C&C-2030 and C&C-2010 are 26 per cent and 57 per cent below 2001 levels.
  • Emissions entitlements are a valuable resource. The estimated differences in the dollar value of developing country entitlements under the scenarios are substantial. Over the period 2011 to 2050, they are as follows.

Between CPRS-5 and C&C-2010, US$5.5 trillion (1012) (US$140 billion per annum).

Between CPRS-5 and C&C-2030, US$3.2 trillion (US$80 billion per annum).

Between Garnaut-10 and C&C-2010, US$3.9 trillion (US$97 billion per annum).

Between Garnaut-10 and C&C-2030, US$1.7 trillion (US$41 billion per annum).

  • Both CPRS-5 and Garnaut-10 provide developed countries with a disproportionate share of global emissions entitlements when compared to C&C-2010 and C&C-2030. If the C&C scenarios are treated as a rough marker of fairness, CPRS-5 and Garnaut-10 appear decidedly inequitable.
  • If the Australian Government and other developed nations want the international community to pursue a target of stabilising the atmospheric concentration of greenhouse gases at 550 ppm or below, they will have to adopt more stringent emission limits than those proposed under the CPRS-5 and Garnaut-10. The allocations under these approaches are unfair and not do provide a sustainable basis for an international agreement.

1

Introduction

On 30 October 2008, the Commonwealth Treasurypublished Australia’s Low Pollution Future:The Economics of Climate Change Mitigation.[1] The report presents the results of Treasury’s analysis of the costs associated with four greenhouse gas emissions mitigation scenarios (Garnaut-10, Garnaut-25, CPRS-5 and CPRS-15). Two of the scenarios were developed by the Garnaut Climate Change Review (Garnaut-10 and Garnaut-25);[2] the other two are new (CPRS-5 and CPRS-15). Garnaut-10 is based on the assumption that the international community agrees to pursue a target of stabilising the atmospheric concentration of greenhouse gases at 550 parts per million of carbon dioxide equivalents (CO2-e). Garnaut-25 assumes an agreed target of 450 ppm. Both scenarios use a modified version of the “contraction and convergence” (C&C) approach to distribute global emission limits amongst countries. Under C&C, global emissions contract and national per capita emissions converge at a specified date. The approach is intended to embody the egalitarian notion that everybody has an equal entitlement to the property rights created in relation to the absorptive capacity of the Earth’s climate system. Adherence to this ideal is modified by the delay in convergence, which is supposed to account for existing pollution patterns. The longer the delay in convergence, the greater the proportion of global emissions entitlements that will be allocated to countries with high per capita emissions and vice versa.

The two new scenarios developed by Treasury were structured around the proposed Carbon Pollution Reduction Scheme (CPRS). CPRS-5 assumes an international atmospheric greenhouse gas concentration stabilisation objective of 550 ppm. Under the CPRS-15, the concentration objective is 510 ppm. Both scenarios use a “multi-stage” approach to distribute emissions entitlements amongst countries. With the multi-stage approach, national emission limits are based on allocations of “mitigation effort”, or divergence from a business-as-usual trajectory. Entitlements are determined using a formula that accounts for responsibility for emissions, capacity to act and the global emissions limits. The global emissions limits are supposed to be consistent with a specified climate objective, commonly an atmospheric greenhouse gas concentration objective.

The CPRS and Garnaut scenarios have been criticised on the grounds that they lack environmental credibility. A number of political institutions, scientists, lobby groups and others have argued that the threshold for dangerous anthropogenic interference with the climate system is an increase in the global average surface temperature of approximately 2°C above pre-industrial levels (~1.2°C above current levels).[3] Beyond 2°C, there is an increasingly significant risk of major disturbances to human and natural systems, including the collapse of the Greenland and West Antarctic Ice Sheets.[4] In order for a sub-2°C outcome to be likely, the atmospheric concentration of greenhouse gases would have to be kept below 400 ppm CO2-e (in 2005, the concentration was approximately 455 ppm).[5] At 450 ppm, there is a 50/50 chance that the increase in the global average surface temperature at equilibrium will be around 2°C.[6] By adopting concentration objectives above 450 ppm, the CPRS and Garnaut-10 scenarios accept a significant risk the 2°C threshold will be exceeded.

In addition to lacking environmental credibility, the four CPRS and Garnaut scenarios arguably involve an inequitable division of the global emissions entitlements between developed and developing countries. The equity-dimensions of these scenarios have attracted little public attention, but they are of considerable importance. If developing countries are asked to shoulder an inequitable share of the abatement burden, an environmentally credible agreement is unlikely to be reached. An unfair agreement, if it could be finalised, is also likely to be unstable. Economic development amongst the world’s most vulnerable and deprived communities would be unjustly delayed. In such circumstances, there is a substantial risk that climate considerations will be subordinated to more immediate economic concerns. Ensuring an equitable distribution of emissions entitlements is in the long-term interests of developed countries. There is also a moral argument it is the right thing to do.

This article looks at the equity implications of the CPRS and Garnaut scenarios. A brief overview of applicable ethical and legal frameworks is provided. This is followed by an analysis of the distribution of the abatement burden under the two 550 ppm scenarios (i.e. CPRS-5 and Garnaut-10). Although there is no direct discussion of CPRS-15 and Garnaut-25, the same types of distribution issues arise in relation to these scenarios.

An ethical and legal framework

There are no universally accepted criteria for determining what constitutes a fair or equitable division of emissions entitlements amongst countries. People’s perceptions of an equitable outcome are likely to be influenced by cultural context and subjective values concerning development interests. International law is also relevant, as it sets out the agreed decision rules that are applicable to governmental decisions regarding climate policy. The legal principle that has attracted most attention in this context is “common but differentiated responsibility”, which suggests that countries have a shared responsibility for addressing climate change but that the level of responsibility must be determined having regard to their historical responsibility for the problem and capacity to respond. Article 3 of the United Nations Framework Convention on Climate Change (UNFCCC) states that, in their actions to achieve the objective of the Convention (i.e. avoidance of dangerous climate change), parties shall be guided by the following principle.

The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof. [emphasis added]

Another legal concept that is relevant in the distribution of emissions entitlements is the “no harm” principle. It states that countries have a “responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond national jurisdiction”.[7] This principle suggests that countries do not have the right to emit greenhouse gases that disturb the climate system. Those that do may be required to compensate countries that suffer harm as a consequence of polluting activities conducted within their jurisdiction.

Incorporating the applicable international law and differing perspectives on equity into a single emission entitlement allocation formula is a difficult task. One approach starts from the premise that the capacity of the climate system to absorb anthropogenic greenhouse gas emissions while remaining in a reasonably steady state is a shared global resource. Historically, this shared asset has effectively been an open access resource – everybody has been able to emit greenhouse gases without restriction. Developed countries have benefited most from this situation; contributing approximately 76 per cent of cumulative energy-related carbon dioxide emissions between 1850 and 2000.[8] The solution being negotiated under the auspices of the UNFCCC is likely to involve the creation of property rights over this resource in the form of tradable emission entitlements. In theory, the creation of tradeable entitlements should lead to an efficient outcome – entitlements will be traded until the equi-marginal principle is satisfied (i.e. the marginal abatement costs of all polluters is equal and all gains from trade have been exhausted). While efficiency can theoretically be assured, the creation of these entitlements will not guarantee an equitable outcome. The primary determinant of equity is the initial allocation of entitlements.

As the climate system’s capacity to absorb greenhouse gases is a shared global resource, an ethical argument can be mounted that everybody has an equal entitlement to it. From this stems the notion that allocations should be made on a per capita basis. The easiest way to do this involves using a C&C approach where the convergence date is set at the time of the agreement or soon afterwards.

This type of approach is egalitarian – everybody is treated as having an equal claim to the rights created in relation to the climate system. It is consistent with the no harm principle as it facilitates the payment of compensation to those who contribute least to global warming via the sale of emissions entitlements. Further, it is consistent with the common but differentiated responsibility principle in that it results in wealthy nations shouldering the greatest share of the global abatement burden and “taking the lead” in combating climate change.

Although there are a number of different models for distributing emissions,[9] and different perspectives on equity, a C&C approach with rapid per capita emissions convergence is ethically and legally appealing. It is also simple and easy to administer. This does not mean it is without fault or beyond criticism. Arguments could be made by both developed and developing countries that it is unjust. For example, developing countries could argue that it does not give adequate consideration to responsibility for the existing stock of greenhouse gases in the atmosphere. The “Brazilian Proposal”, for example, was designed to incorporate responsibility by making allocations for Annex I parties on the basis of the contribution of a nation’s cumulative emissions since 1840 to the change in the global average surface temperature.[10] By making allocations on a per capita basis with immediate or delayed convergence, the C&C method would effectively “excuse” countries for their past actions.

Another potential critique of a C&C approach with rapid convergence is that it would require developing countries to accept emissions limitations in the near-term. Depending on the stringency of the global emissions constraint, these limitations could be significant. There is a risk developing countries will resist the imposition of quantifiable emissions limitations on the basis that developed countries have not “taken the lead” in the global mitigation effort. The developed country emissions restrictions under the Kyoto Protocol were relatively weak and a number of countries will not meet these targets. Due to this, it is arguable that many developed countries have failed to comply with the spirit, if not the substantive obligations, of the UNFCCC. While this argument is not without merit, it is now widely accepted that avoiding dangerous climate change (i.e. keeping the increase in the global average surface temperature below ~2 – 3°C) will require developing country emissions to be constrained as soon as possible.

Developed countries are likely to oppose a C&C approach with rapid convergence on the grounds that it does not recognise the status quo and provide them with sufficient time to transition their economies. The deficiency with any approach that delays convergence is that it provides a reward for polluting activities. Rather than being required to compensate others for the harm they have done to the climate system – consistent with the no-harm and polluter pays principles – an allocation method that delays convergence would reward developed countries and other high per capita emitters by providing them with a disproportionate share of the rights stemming from the absorptive capacity of the climate system.

Noting the complexity of the equity debate, the remainder of this article uses two C&C scenarios as initial equity benchmarks, or starting points for analysis and discussion of the equity implications of proposed allocation methods. The first C&C scenario involves immediate per capita convergence at 2010 (C&C-2010). The second assumes linear convergence starting in 2010 and a convergence date of 2030 (C&C-2030).[11] Both assume a global objective of stabilising the atmospheric greenhouse gas concentration at 550 ppm later this century. The scenarios were derived using reproductions of the global emissions trajectories from Garnaut-10 and CPRS-5 (i.e. there are two sets of C&C-2010 and C&C-2030 scenarios).[12]

Are the CPRS and Garnaut scenarios equitable?

Details of the quantifiable emission limits for developed and developing countries under Garnaut-10, CPRS-5, C&C-2010 and C&C-2030 for 2020 and 2050 are provided in Table 1.[13] Developed countries are defined for these purposes as the countries with quantified emission limitation or restriction commitments in Annex B to the Kyoto Protocol. Developing countries are the remainder.[14]

Table 1 Quantifiable emission limits for developed and developing country blocks, Garnaut-10, CPRS-5, C&C-2010 and C&C-2030, relative to 2001 emissions (per cent)

2020 / 2050
World
Garnaut-10
CPRS-5 / 40
32 / -13
-9
Developed countries
Garnaut-10
CPRS-5
C&C-2010
C&C-2030 / -15
-7
-57
-26 / -76
-70
-75
-75
Developing countries
Garnaut-10
CPRS-5
C&C-2010
C&C-2030 / 91
68
115
87 / 50
48
53
53

Source: Treasury, n 1; Garnaut, n 2; and author estimates.

The near-term emission limits for developed countries under the C&C-2010 and C&C-2030 are significantly below those from Garnaut-10 and CPRS-5. At 2020, the emissions entitlements for developed countries under C&C-2010 and C&C-2030 are 57 per cent and 26 per cent below 2001 emissions levels respectively. The equivalent entitlements under Garnaut-10 and CPRS-5 are 15 per cent below and 7 per cent below 2001 levels respectively. The differences in near-term abatement targets suggest the Garnaut-10 and CPRS-5 allocations are unfair when compared to the C&C scenarios. Developing countries are required to pursue far more stringent targets under the Garnaut-10 and CPRS-5 scenarios than a more egalitarian approach would demand.

By 2050, the differences between developed and developing country entitlements under the scenarios have dissipated. The convergence of entitlements around the middle of the 21st century highlights the importance of the period 2010 – 2050. Due to discounting, abatement costs incurred during this period are likely to be of greatest importance to decision-makers. Election cycles also truncate the frames of reference of governments. Further, as these scenarios demonstrate, if an ambitious atmospheric greenhouse gas concentration target is pursued, the required contraction of global emissions by 2050 leaves little room for substantial differences in national allocations.

The fairness of the Garnaut-10 and CPRS-5 can be explored further by looking at the division of the world’s cumulative emissions during the period 2001 to 2050. Under both scenarios, approximately 70 per cent of the world’s cumulative emissions over the 21st century are released in the first 50 years (see Figure 1).

Figure 1 Reproduction of Garnaut-10 and CPRS-5 global emissions trajectories