Awareness about the devastating impacts of climate change is on the rise. Recent statements from individuals as diverse as the Pope and the actor Leonardo DiCaprio recognize that our climate is already changing and it is time to act. In his recent encyclical, Pope Francis addresses the implications of climate change and calls for immediate global action. "Climate change is a global problem with grave implications: environmental, social, economic, political and for the distribution of goods," he wrote. "It represents one of the principal challenges facing humanity in our day." At the UN Climate Summit, Leonardo DiCaprio warned ""This disaster has grown beyond the choices that individuals make. This is now about our industries, and governments around the world taking decisive, large-scale action." But how do we actually make a difference? And how much of a difference is necessary?
The Intergovernmental Panel on Climate Change has stated that a maximum cap of 2C on the average temperature increase from pre-industrial levels is necessary in order to avoid catastrophic effects from climate change. The consequences of surpassing the 2C cap are so detrimental that it is necessary that all countries (developed and developing) convert to low carbon infrastructures immediately, both to meet the 2C target and also to realize the goals of sustainable development.
The good news is that this low carbon future is possible. The bad news is that current regulations do not facilitate the transition to a zero-carbon economy. The difficulty is that the existing system of incentives allows for the perpetuation of existing carbon-intensive technologies by sending markets a misconstrued signal of the true costs of carbon-based technologies, making green technology relatively more expensive. For example, G20 governments are spending $88 billion every year subsidising oil, gas, and coal exploration. Ideally, the system of incentives would instead account for the wider benefits of green technologies; for example, you would not only seize the economic value of the technology per se, but also build know-how that can be transferred to other market participants. Furthermore, the ideal system of incentives would build in the external costs (such as effects of pollution and health costs) of traditional, more polluting technologies, which in turn reduces the relative cost of green tech.
There are already real world examples demonstrating that with policy adjustments to account for the external costs of carbon, renewables can contribute a significant percentage of domestically produced energy. Germany now produces 27% of its electricity from renewable sources, although their renewables policy is not free of controversy. Due to state investments, China now leads the world in renewable energy production (in absolute terms), but lags behind the EU and US if excluding large hydropower production. Based on existing technology and natural resource availability, researchers at Stanford University have developed plans for each of the 50 States in the USA to achieve 100% renewable energy by the year 2050. Although the tech exists to reach these goals, the existing policy and incentive structure do not support such developments on large scales. We need a regulatory push, and history demonstrates that global concerted regulatory schemes can provide the push to transition us to a better world.
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In the 1980s, the Montreal Protocol established a cap system on CFCs responsible for depleting the ozone layer. Thirty years later, CFCs production is almost nil and some studies estimate that due to the agreement, 1.6 million skin cancer deaths were avoided in the US alone. The success of this international agreement demonstrates the possibility of success for a similarly designed system for carbon. The Montreal Protocol achieved success because of its design: universal ratification, an effective cap that decreased over time to recognize technological developments that made it easier to meet the cap each year, effective burden sharing recognizing the financial difficulties levied on some developing countries in meeting the cap, and the establishment of a multilateral fund to assist developing countries in training and patenting of new technology to replace CFCs. On the other hand, design is not the only key aspect of an international agreement, it is also essential to identify the root of the problem; for example, in the last two decades Spain has shifted the focus of its water management policy from ensuring sufficient access to water to reducing demand for water. Through this shift in perspective and the use of public awareness and education campaigns, Spaniards have achieved significant water savings.
Other regulation systems that support the adoption of new and "socially better" technology, include cap and trade systems that have already been in effect for decades, most notably in sulfur dioxide emissions. The Acid Rain Trading Scheme reduced sulfur dioxide emissions by 50% in just 20 years, and the RECLAIM program in Southern California has reduced nitrous oxide emissions by 60% and sulfur dioxide emissions by 50% since 1994. These programs allowed for the adoption of, and transition to, new and cleaner technologies that had significant impact on improving air quality, reducing air pollution, and saving human lives. As research suggests, there is a significant analogy to carbon markets, since health benefits are important co-benefits of greenhouse gas reduction.
Advantages of a global carbon cap and trade system include the great flexibility with which it allows countries to meet their cap. Global ratification will ensure there is no "leakage" of emissions to countries not party to the agreement. However, the scope of these regulatory instruments is still limited in practice. For example, there are no cap-and-trade systems in agriculture, transportation, or commercial fishing. It is not simple to construct an appropriate regulatory scheme, but with careful design and consideration for the broad economic environment, an effective mechanism will allow success in adopting necessary and viable technology that will transition us to a low carbon future. Although the technology exists and is improving, the unfortunate truth is that current policy lags behind. The good news: we have the power to change it.