Can an effective, efficient and equitable global agreement be reached?

Can an effective, efficient and equitable global agreement be reached?

Second, efficiency would require a mechanism to establish some kind of uniform price for carbon, so that the reductions would be carried out in the ways and places that it could be done most cheaply, and much of this will be in developing countries. Third, equity considerations would call for developed countries to carry a disproportionately larger share of the cost burden.

Is it possible to build a “global deal” that could satisfy both equity and efficiency considerations? The answer is in principle a clear yes, by decoupling the cost of mitigation from the site of mitigation (Spence et al. 2008), but the task will not be easy. The delinking could be achieved in several ways. One option is to adopt an international cap and trade scheme, through which a common price on carbon would emerge even if countries agree on different levels of contributions to global efforts—that is, different caps on emissions. Resources would flow automatically to pay for emission reductions in countries that offer the lowest cost mitigation opportunities, thus potentially funding an important level of mitigation efforts. A similar outcome could be achieved with a carbon tax mechanism—and some authors argue that such a mechanism might even be easier to negotiate and easier for developing countries to administer (Aldy et al. 2008). But with a carbon tax, equity would require a parallel agreement on a set of international resource transfers aimed at ensuring that the share of the global “bill” of climate change mitigation that is paid by each county is proportional to its responsibility for generating the problem and not necessarily to the country’s actual contribution to its solution.

Considering the technical and political challenges associated with negotiating a global cap-and-trade scheme or a global carbon tax, however, it is worth considering other possible alternatives for decoupling the site of mitigation from its payment. While some of these alternatives may be more difficult to implement, some of them may constitute more acceptable outcomes from a political point of view. First, assuming that industrialized countries (including the United States) make deeper emission reduction commitments, expanded market-based instruments may play an important role. Second, complementary nonmarket financial instruments could help defray some of the costs of mitigation in developing countries, even if not serving to transfer emission rights to those who provide the funds. Finding the appropriate combination of these different types of instruments would be complex; it would have not only to adequately balance supply and demand within market mechanism(s), but also to balance, within the nonmarket mechanism(s), willingness to pay on the part of the industrialized countries and effectiveness to promote reductions in the south.

But if successfully negotiated, such a palette of climate finance instruments could bring all countries together into a common framework, and provide operational meaning to the phrase “common but differentiated responsibilities.” In particular, a global agreement could confirm most (small) developing countries as continued hosts of scaled-up market-based mitigation efforts.

But it could at the same time provide the necessary incentives for the larger developing countries to gradually move toward adoption of their own climate mitigation commitments, which do not necessarily have to be Kyoto-type commitments. One example of how to alleviate the trade-offs between economic development and climate change mitigation objectives would have some developing countries start with a focus on “climate-friendly” development policies, and transit over time, based on demonstrated capability (for example, as measured by per capita income) to commitments regarding the rates of growth of their emissions and, finally at some point in time, to some of them adopting emission reduction commitments (figure 7).

In order to uphold the integrity of the system, all mitigation efforts, whether based on climate friendly policies or eventually on targets, would have to be domestically measured and reported, and independently verified. In order to ensure fairness and equity, the gradual incorporation of developing countries could be linked to—that is, be conditional upon—industrialized countries’ verified performance (in terms of both the provision of financing for developing countries mitigation efforts and emission reductions achieved at home).
Figure 7. A Possible Scheme for Gradual Incorporation of Developing Countries



Source: Figueres (2008).

Moreover, an agreement would have to be reached on possible objective criteria for defining the thresholds that would trigger an increasing degree of incorporation of developing countries. In this respect, it is important to recognize the wide variety of country circumstances that are found not only across rich and poor countries, but also within the group of developing countries. In this context, we now turn to an analysis of how the specificities of the Latin America and Caribbean Region may affect its participation in a global coordinated policy response to the climate change challenge.

4. LAC’s Potential Contribution to
Global Mitigation Efforts