Summing it all up!

Well this is my final post as part of my masters degree. I've found this much more enjoyable than I had originally thought and thank you to everyone who went through this journey with me!

I thought it would be fitting to end by summing some of the things I've learnt over the course of this blog.

Moving beyond the 2 °C target

Attempts to drive mitigation through global target setting and strict numerical targets may have been useful focal points for policy, but have ultimately have achieved very little. Not only is it impossible to quantify dangerous climate change using a single metric, but ultimately the past few decades have shown that ‘abstract long-term targets usually don’t catalyse tangible short-term action’ (Geden and Beck, 2014).

There is a need to move beyond the target itself and the approach generally, even with the immediate and unavoidable deterioration of the climate science community’s reputation.

A bottom-up approach:

The question we therefore need to ask is, what next? What about a bottom-up approach:

"Rather than loading more and more issues onto the climate mitigation agenda, we should, as far as possible, divide climate into a series of more tractable problems (Rayner, 2011).

As difficult as it is to imagine, I do think we need to re-envision mitigation. If we continue to see it as a global problem which is only solvable through a global effort then it seems we will endlessly be waiting...

Strangely enough, I think a quotation from a video game sums it up perfectly:

‘Insanity is doing the exact same thing over and over again expecting (something) to change’ (edited slightly to keep this blog PG friendly (sourced from Far Cry 3)

The UNFCCC is now 20 years old, and this year will convene in Paris to once again discuss how best to deal with Climate Change. Yet, as Grubb (2014) points out, as the world and the issue itself has changed dramatically in the passing years, the UNFCCC has remained largely consistent in its approach. For a bottom-up approach to be successful, it needs to be supported by an international regime that ‘helps countries achieve progress domestically’ (Dai, 2010) and the UN’s approach is historically lacking in this respect.

The UN’s obsession with multilaeralism, fundamentally fails to address the divisions that occur on a national level (Prins et al., 2010)

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So then looking back on the aims I had with this blog I think I've taken a step in the right direction.

Am I still sceptical that we will be able to achieve a stabilisation scenario? The simple answer is yes. I think my blog has highlighted just how complex the issue is and the inadequacies in the present approach to climate change mitigation. But on a positive note, it has also established that there are solutions available! It looks like I’ve gained something from my scepticism then (and hopefully so have you).

Thanks again for reading my posts (and putting up with my poor taste in cartoons, YouTube videos and movies). Here’s hoping we can make a stabilisation scenario a reality! 

‘You can make history or be vilified by it’

In my last post I stated my own belief (and I’m not alone in thinking it!) that we can’t rely on a global mitigative strategy being formulated, agreed upon and kept to ((King, 2004). We need to accept the reality of a fragmented mitigative future and find ways to solve the problems this will ultimately create (Aldy et al., 2007)

Having solidified this viewpoint over the course of this blog, I decided to look back at my first post and see how things had changed. Immediately I was drawn again to Leonardo DiCaprio’s words:

‘the time to answer the greatest challenge of our existence on this planet is now. You can make history or be vilified by it’

When I first heard this statement I thought its intentions were to unite nations together under a collective purpose. Having thought about it over the course of this blog, I’m now not sure this what was intended at all. Perhaps because my views have changed, but I now think this is not a call for collective action, but a call for key states and individuals to stand up and take their place as the heroes in the climate change tale. As someone who has obsessively watched movie after movie, I feel as if I know what it is that makes a hero. In the word’s of Sylvester Stallone :

 it ain't about how hard you hit. It's about how hard you can get hit and keep moving forward'

As we have seen, reducing emissions requires compromising immediate economic priorities (Enkvist et al., 2007). But what makes a true hero is the ability to accept this compromise and continue none the less. It is no easy task to be a hero (just look at the Australian Carbon tax I discussed a few posts ago) but if it were easy then we wouldn't need one would we!

Plugging a Carbon Leak

Just as a heads up I’m stuck with effectively no internet for the next week (it took me over an hour to even upload this). Unfortunately this means that I can’t spend all my time looking up cartoons and youtube videos to spice up the content a bit. But don’t worry I’ll double up my efforts as soon as I can.

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In this post I’m going to look at some of the approaches available to counter arbitrage in climate change mitigation.

Firstly I thought it best to point out just how much of an issue this is:

The IPCC defines carbon leakage (a climate change specific type of arbitrage) as “the increase in CO2 emissions outside the countries taking domestic mitigation action divided by the reduction in the emissions of these countries” (IPCC, 2014). Based upon this definition, the IPCC stated that since the Kyoto principle, up to 20% of total emission reductions have leaked into non-participatory countries (IPCC, 2014).

So then, what can we do to prevent this from occurring? Well the most obvious solution is a uniform worldwide carbon price (Carbon Trust, 2010); arbitrage can’t occur where there are no differences to exploit! Proponents of this notion suggest that even though the largest 15 countries produce roughly 80% of total emissions, simply targeting these states will ultimately redistribute rather than reduce emissions around the world (Arroyo-Currás et al. 2015).

The big issue: climate change negotiations have highlighted just how difficult it is to get 180 countries to unite in a simultaneous effort. While fragmented mitigation creates the potential for arbitrage, a globally agreed upon and enforced mitigative strategy doesn't look to be on the horizon (King, 2004). In the Carbon Trust’s 2010 report on Carbon Leakage they therefore concluded that we need other methods to deal with the leakage issue.

And it just so happens that there are approaches available:

Compensation Measures

This approach involves states compensating their domestic industries for loss of competitiveness resulting from mitigation schemes. In fact the EU allows its member states to do just this as a part of the Emission Trading Scheme (ETS). This is known as leveling down, where States lower other taxes to compensate for a higher emissions tax.

The issue I (and turn out others) have with this approach is that it only really passes on the problem. In the EU, for example, the ETS is a Top-down EU-wide program whereas compensation is dealt with at the level of the member state. It has been criticised for fragmenting the internal market and creating internal competition (Marcu et al., 2013). It seems like in an effort to avoid leakage, the approach reduces the internal stability of the ETS itself.

Support Measures

Funding can be provided to sectors especially at risk to leakage (generally emission intensive industries), to aid in the transition into low-carbon emissions. In Kumar et al. 2003’s assessment of the potential to reduce emissions in the electricity sector, they concluded that although technologies are available their dissemination is restricted by high sunk costs and limited technological sharing between companies. State investment into low-carbon R&D, as well as the technologies themselves, can help support the transition necessary to remain competitive under higher carbon costs.

This approach seems reasonable to me. Technology sharing is extremely effective at promoting innovation in other sectors (The IT sector is probably the best example). Novel energy related technologies, by comparison, only become industry standards slowly (Kumar etal., 2003). There is certainly room for state support to help promote awareness of new technologies as well as supporting the cost of transition itself.

So then, in an ideal world we would avoid the issue of Carbon Leakage by simply standardising carbon costs. However, unless something amazing happens in the 2015 Climate Change Conference (in which case I will happily accept I was wrong), this doesn't look like a realistic possibility in the near future (Dröge et al., 2009). Luckily there are options available to help reduce carbon leakage in a fragmented mitigative future and that’s certainly good to know!

Reindeer to go extinct due to climate change!

Just thought I'd leave a post to say Merry Christmas! I was looking for someway to think this post back to climate change, but to be honest I think we all need a break from the doom and gloom. So take my advice and make this the last post you click on about how we will never see a white Christmas again, or how reindeer are going extinct (at least until the boxing day that is!)

Carbon Arbitrage

Well I'm back, time to delve into the intriguing world of arbitrage! 

Arbitrage is a financial term used to describe the exploitation of differences between markets. The example I gave last week was British Columbian drivers crossing the border to refuel their cars in an attempt to avoid a state carbon tax (Elgie and McClay, 2013). This also represents a really important hurdle in implementing carbon taxes on a global scale (Withagen and Halsema., 2013)

Scaling the issue up, unless there is strong cooperation between states, competitive taxation can lead to a similar result as observed in British Columbia. In the globalised economies we live in today, capital is extremely mobile and able to exploit advantageous taxations schemes across the globe, at the detriment to less competitive nations (Drezner, 2002). This reasoning is often used by nations to justify their opposition to a carbon tax, making such a scheme difficult to implement. Take for example the USA. 

In August 2013, the House of Representatives passed an amendment requiring 'the administration to receiveapproval from Congress before implementing a carbon tax'. From my rather basic understanding of US politics (correct me if this is wrong), this effectively translates into a blocking of any attempt by Obama to implement such as scheme. So what was the justification? This is from a press release by representative Scalise:

“President Obama’s plan to impose a tax on carbon would cause household electricity rates to skyrocket while destroying millions of American jobs. … The House sent a strong bipartisan message to President Obama that a tax on carbon would devastate our economy and he needs to drop any idea of imposing this kind of radical regulation"

If this is the case with market leaders like the USA, what about emerging economies where competitiveness is even more important to their economies. Both India and China have refuted the notion of a strict Carbon Tax (Oster, 2010): arguing that the loss competitiveness would cripple the development of their economies.

Underlying this stance on Carbon Taxation is the ‘race to the bottom principle’ (Drezner, 2002). This is the socio-economic phenomena where competition between states in an increasingly globalised world results in a trend towards increased deregulation to remain attractive.

Simply, Carbon taxation schemes come at a cost to economic competitiveness. 

Australia : a recent example of a failed Carbon Tax

Australia was one of the first non-EU countries to adopt a Carbon Pricing strategy. First proposed in 2007 and implemented in 2011, the tax was repealed in June this year. Amongst the issues created during this period, a loss of industry competitiveness was pivotal to the tax repeal (Splashand Lo, 2012). In 2013, J.P Morgan estimated that the tax had reduced the trading value of major Australian Employers BHP and Rio Tino PLC by 6% (Taylor and Hoyle, 2014), losses that translated into growing unemployment rates.

Source

The short-term  costs of carbon taxes therefore can be substantial for states that try and implement them in isolation. And ultimately it is often short-term economic changes that translate into policy, as seen in Australia.

The issue of arbitrage also limits the actual value of carbon taxes as a means to reduce emissions. Carbon leakage refers to the spill-over of emissions to countries with less strict emission regulations (IPCC, 2007). Carbon taxes may provide an effective means to reduce an individual nation’s emissions, but arbitrage simply allows this reduction to spill-over into increased emissions elsewhere.

So then Arbitrage is clearly a substantial hurdle in the way of effective carbon tax implementation. In my next post I’m going to talk about some of the approaches we can take to meet this challenge.

Solution Aversion : motivated disbelief

So I just came across this new study in the Journal of Personality and Social Psychology (I'm starting to think I did the wrong undergraduate degree...) :

Solution aversion: On the relation between ideology and motivated disbelief. Campbell, Troy H.; Kay, Aaron C

The goal of the study was to examine whether the attractiveness of the solution offered alters the willingness to believe in the problem itself (focusing on environmental problems) (Campbell et al., 2014)

It makes sense if you think about it. Say you were diagnosed with serious illness. If on one hand you were advised to go through an intensive recovery program over a long period, odds are you would get a second opinion and question the diagnosis. On the other hand, if all you were advised to do was take a single pill you'd probably accept both the diagnosis and the solution without question (OK if you are a hypochondriac this analogy doesn't really work, sorry).

Well this study formally tested this behavioral trait in the context of climate change denial and found evidence of its existence. One of the questions they wanted to answer was why statistically more Republicans deny climate change than Democrats in the USA.


Here is how the Study worked:

• Two groups of Republicans and Democrats were formed (between 120-188 participants in each)

• Each Participant was shown this statement

• "The Intergovernmental Panel on Climate Change (IPCC) reported that there would be an increase of 3.2 degrees Fahrenheit in worldwide temperatures in the 21st century and that humans are responsible for global climate change patterns." Campbell et al., 2014

• They were next asked to evaluate one of two policy solutions:

• A tax on Carbon emissions and government regulation

• Innovation into green technology

In reality the participants were actually being examined on their willingness to accept the IPCC statement.
And here is what the study found:

• When the solution offered was based upon regulation, only 17% of Republicans stated their belief that temperatures would reach the projections of the IPCC statement

• And guess what; when the solution involved profiting from being green technology market leaders, this figure rose to 64% (this strategy fits with a republican free market ideology)

What is interesting is that for Democrats the solutions solution made no real difference to belief in the statement. Neither strategy was designed to oppose their ideology in that case.

So what can we take from this: 

Well the way I see it, this really emphasizes the need to have a solution based approach to climate change mitigation. It is important to realise that targets, no matter how robust they are, are often only as believable as the solutions being offered to meet them. To combat mitigative inertia it is important to place a greater emphasis on developing solutions and examining why those those available at the present are not motivating change. 

Anyway, let me know what you think. Can you think of any examples of solution aversion in your life?

"I like to pay taxes. With them I buy civilization"

As much as I like a good tragedy story, I think we can all agree that they are best left to fiction. So then, let's talk about avoiding Hardin's tragedy from an emissions perspective. 

As I discussed in the previous post, the problem is pretty much caused by a shared damage and privatised profits scenario. This creates the Free Rider problem; individuals are encouraged to pollute as much as possible and take as little responsibility as possible for the shared environmental degradation (Hardin,1968). Solving this issue then requires the privatisation of the costs of environmental degradation to better reflect the environmental cost of consumption (Elkins and Baker, 2001).

How can this be done?

A Pigouvian Tax - "I like to pay taxes. With them I buy civilization"  Oliver Wendell Holmes

If you've ever studied economics at any level you will have seen this diagram, time to put it to use! A piguvian tax is essentially an attempt to incorporate the negative externalities (negative social costs) of consumption into the price of consumption itself. In this context, carbon taxes can be used to increase the cost of burning fossil fuels to reflect the environmental damage they cause. Given that demand for anything generally decreases with increasing price, the market equilibrium point where demand=supply is shifted to a lower consumption value and emissions are reduced (Q2). 

So then, what are the benefits of this approach:

Well one of the greatest advantages is that it is tried and tested. The welfare state is fundamentally built upon taxation and revenue recycling, it simply needs to be applied in an environmental context. The revenue recycling process itself is also vital. Funds are needed to subsidise less cost-effective energy sources, and promote adaptation to changing climate. Taxes can be used to not only privatise the costs of carbon emmission, and also lower the cost of cleaner energy sources (Roughgarden and Schneider, 1999).

British Columbia: a revenue-neutral carbon-tax case study -An Environmental (and Economic) Success Story (Elgie and McClay, 2013)

In 2008 BC implemented a tax which not only increased the cost of emissions, but also brought value to climate emission reduction itself. 100% of the revenue gained from taxation is returned directly to consumers through reduced income taxes. The results have so far been impressive:




Summarised, the data exhibits that Carbon Taxes can help reduce emissions, without an economic cost. 

Too good to be true?

Well I'm a sceptical person so I like to dig a little deeper when presented with information like this. An interesting criticism of the British Columbia tax is that there is evidence of arbitrage within the system. 

Take a look at this link: Tax gap has B.C.ers driving south for gas: watchdog

While this is just a small flaw in an otherwise successful system, it raises a key issue when attempting to tax carbon on a larger scale. How do you prevent cheating within an individual taxation system, and avoid taxation competition between states? These are key questions I will answer in my next blog so stay tuned! 

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