Better distribute the costs of climate policy

Without being a burning, the report sponsored by the economic analysis council to Jean Tirole on the issue of climatic policies nevertheless throws some pavers into the pond, not to say in the ambient slump. It constitutes an invigorating reading on the eve of the announced failure of the Copenhagen summit. The purpose of this review is to motivate the reader not only to read the Tirole report, but also to be interested in the climate question and to try to contribute to it.

Copenhagen’s economic issues

Titled Climate policy: a new international architecturethis report bears the brand of its author, director of the Toulouse school of economics and specialist in regulatory and incentive issues. One of the main problems associated with climate change is the absence of a global regulator capable of implementing an effective policy. We are therefore faced with an incentive deficiency problem. The question of climate change is also characterized by its long -term dimension (asking questions of intergenerational equity) and the strong uncertainty associated with it (generating an ignorance of the emission reduction options and future impacts). These three characteristics are not independent. The Tirolus report covers them all three, not only by the contributions of the author himself, but also by the welcome contribution of supplements and comments. The report begins by studying the most general questions (2. “” In search of efficiency “, 3.” Negotiation and compensation ”) And ends with local implementation issues (5.» Efficiency at each level of subsidiarity ), Going through a disturbing question for many these days (4. “ And if Copenhagen failed ? »). The pressed reader will find in chapter 1 a summary, while the last chapter offers a “ Roadmap ».

The Copenhagen Conference in December 2009 must follow up on the Kyoto protocol. Far from being a failure, as many advance, it was a success. That so many developed countries have legally committed to reducing their emissions, and that they have reached it, is the miracle. Will this miracle reproduce in Copenhagen ? For Jean Tirole, the contrast is striking between the ambitious objectives of certain governments, in particular of the European Union, and the advancement of preliminary international negotiations at the conference: should it be seen as the chronicle of a failed announced failure ? The author tries to imagine a more ambitious outcome. This requires implementation 1) of incentive economic instruments to minimize the cost of fighting climate change, 2) of mechanisms guaranteeing the sustainability of these commitments, and 3) the design of transfers mechanisms that make the main countries adhere to this agreement.

For Jean Tirole, the real risk is that of a “ bad »Agreement in Copenhagen, that is to say an agreement that would lead to repelling reductions in greenhouse gas emissions. Early action is therefore essential. The implementation of a win-win agreement is then necessary, so that each country has an incentive to join it. Long -term readability is also a key element, notably through a “ Carbon price signal ” pupil. Only a high carbon price would allow, according to Tirole, to achieve the objective of efficiency in a sustainable manner, by the development of clean energy, the modification of modes of transport and infrastructure and the reduction of deforestation in particular. In this regard, the use of negotiable emission permits, provided by the Kyoto protocol, is to be maintained, provided that these permits are auction. Finally, concerning the commitment of developing countries, Jean Tirole strongly criticizes the own development mechanism (MDP), which allows developed countries to obtain carbon credits by carrying out investment projects reducing greenhouse gas emissions in developing countries. He recommends the inclusion of developing countries in the carbon market, even if it means giving them a generous quota allocation. As for the proposed roadmap, it relates less to the long -term strategy than to the tactics to adopt immediately so that Copenhagen leads to an agreement.

The book, available at French documentation, also contains some 260 pages of supplements written by a series of specialized authors. Thus, most of the themes raised by climatic policies are discussed. Let us cite, without being exhaustive, the uncertainty, the place of economic instruments in international negotiations, national strategies (in particular are treated Europe, the United States, China, theOPEC), the role of sectoral agreements, the financing of adaptation in developing countries, etc. In short, a gold mine for the reader interested in the issues raised by climatic policies.

Architecture justifications CAP AND TRADE

When some offer to set standards or tax programs, Jean Tirole takes up architecture in his report CAP AND TRADE of Kyoto as a fundamental element of the desirable agreement in Copenhagen. This system is based on the creation of a certain amount of polluting rights relating to an overall objective of ceiling for greenhouse gas emissions (cap), the countries which can then modify the initial distribution of the rights to be polluted by exchanging them on the market for emission permits (trade). This thesis finds a solid justification in the theory of games and the theory of general balance, whose protocol offers an application that is both relevant and original. Another major merit of Kyoto architecture is to present a logically justified distribution of the respective roles of the public sector (States) and the private sector (markets). Indeed in this context:

• There is the cap (Ceiling objective) on global emissions, which quantitatively fixes the degree of collective rarity of the environmental resource. It is chosen by the States, which is in the logic of the economic good in question since it is a global externality having the characteristics of a public good ;

• And there is the trade which, by distributing the exercise of rights (which are, private property), carries out the minimum cost allowance of the environmental resource between its users.

As part of Kyoto, the signatory states can derogate from their commitments in terms of emissions in three ways: by buying rights to pollute, by the MDP and by a mechanism equivalent to MDP For investments “ green Within developed countries. Consequently, if the title of the Tirole report speaks of a “ new architecture »International, it seems to us above all to offer a Renovated architecturebased on a classic structure whose quality is proven, and to which it brings multiple complements.

Climate protection, a “ value »To share

Today, among the 189 United Nations who spoke on Kyoto, 188 have ratified the protocol and only one-the United States-did not ratify it. Nevertheless, the states that have ratified the protocol are not all supposed to observe the same behavior:

• For 38 countries, it is a question of respecting at the end of the 2008 – 2012 engagement period a terminal greater than their emissions, stated in Annex B of the Protocol, from which they can derogate by one of the three flexibility mechanisms mentioned above ;

• For the other 150 countries (mainly developing or emerging countries), there will be evolution of their programs “ as they see fit ” (in English, Business-US-USUALOr Bau) during the commitment period, as well as the possibility of participating in MDP.

In his report, Jean Tirole pleads for an increase in the participation of the countries within the framework of the new agreement, an increase which in our opinion relates to the second group of countries: the future evolution of the emissions of the countries which ratified the protocol of Kyoto outside annex B would no longer be that of the “ as they see fit “, But would follow a trajectory agreed in advance.

There is thus maintaining a large coalition “ at the Kyoto », Accompanied by an important change in strategy for countries outside Annex B. For them, the proposal is not to impose emission restrictions, but to make these emissions less uncertain. This last qualifier seems more important for the international community than for each country taken individually (everyone can deviate from the convenient trajectory via the purchase of rights to pollute to other states if necessary). Indeed, from a global collective point of view, the fact that the sum of emissions is known and respected over time is obviously a decisive factor for the quality of the global environment. In the vocabulary of economic theory, the quantity of public good to obtain will be well defined, when it was bad in the Kyoto protocol.

But how to suit the greenhouse gas emission trajectories in advance ? And how to convince countries to accept them as a reference ? Reading the report suggests some tracks:

• We can start by asking the countries what would be their trajectory Bau. If we adopt this one and if there is an amount of initial issues of issuance in exactly equal to what the trajectory is attributed to any Bau that he announces, Jean Tirole convincingly shows that the only existence of a positive carbon price already encourages the country to respect its trajectory ;

• The retained trajectories can to include a solid margin of safety, allowing what Jean Tirole recommends as allocations “ generous » ;

• Finally, and to strengthen an argument of compensation more than once used in the report on generous initial allowances, we can evoke the idea often advanced by emerging countries that developed countries are responsible for the current problem. Initial rights allowances with properties parallel to resource transfers, generosity in these allowances can then be presented as recognition of this historic responsibility.

In fact, the carbon price revealed that climate protection had a value. By being generous with emerging countries in the allocation of initial rights, they are offered to share this value. This would be the meaning of a generous attribution of emission rights to countries in which climate change damage is important, even if they do little. The sharing of value thus achieved their offer in fact, in addition to the possibility of alleviating their charge in terms of programs reduction, the prospect of the financial benefit of the sale of the rights they will not need.