1. Supply-side climate policy: Setting the stage
Will the ugly duckling become a beautiful swan or a dead duck? The political and economic case for a global moratorium on building new coal mines
A world that is tackling climate change requires fewer coal mines, not more. Yet since world leaders first agreed to reduce greenhouse gas emissions at the 1992 Rio Earth Summit, global coal production has risen by 70%. Despite promises made at the Paris Climate Change Conference, new coal mines are still being built. A global moratorium on building new coal mines, as called for by Kiribati, would seem to be an essential first step towards reducing emissions, but such calls are far from uncontroversial. Despite the relative political and policy success of global moratoria in other fields (nuclear non-proliferation, chlorofluorocarbons, whaling), economists and environmentalists have strongly favoured “market- based solutions” and demand-side strategies and seem ambivalent – sometimes hostile – to the role of moratoria. This paper outlines the benefits of a global moratorium on building new coal mines, including: 1) simplicity when compared with the global accounting and enforcement issues associated with international carbon pricing; 2) political benefits which flow from separating the economic interests of the owners of existing mines from those of the owners of new mines; 3) diplomatic benefits, as only a small number of countries are still planning to build new coal mines; 4) distributional benefits, which flow from delivering benefits to existing coal mine workers and owners while imposing costs on workers/owners in unbuilt mines; and 5) foreign policy benefits which flow from forcing the small number of countries seeking to build new mines to demand the right to do so, thus reducing their ability to undermine the climate negotiations. The paper ends by discussing the limitations of a potential moratorium on new coal mines. Drawing on the example of tobacco control example, it explores opportunities for a moratorium to augment rather than replace other policy instruments.
The case for coal supply-side policy: A coal tax
Frank Jotzo, Philipp Richter and Roman Mendelevitch
The shift away from coal is at the heart of the global low-carbon transition. Can governments of coal-producing countries help facilitate this transition to the advantage of their economies? This paper analyses the case for a tax on coal, including on coal exports. The argument is that coal-producing and -exporting countries can capture economic rents inherent in carbon constraints by taxing coal. Empirical analysis suggests that a broad coalition of large coal-exporting countries is needed for a coal export tax to materially affect global coal prices. Coal tax revenue can be used to help with the economic transition away from coal – for example, through public investment in infrastructure, research and education. Against this stand the interests of private owners of coal resources. Whether coal-exporting countries can be better off as a result of taxing coal will depend on who owns the rents from coal production and how the tax revenue is used.
Whose carbon is ‘burnable’? Equity considerations in the allocation of a ‘right to extract’
The prospect of supply-side constraints immediately raises equity questions: Who gets to extract their fossil resources, and who does not? Whose carbon is “burnable” and whose is not? We explore here possible bases for distributing a “right to exploit”. Various options have been raised. One possibility is a purely market-based distribution based solely on efficiency: the most cost-effective resources are identified by competitive markets. Another is to rely on an equity framework based on equity principles. Another may be a strict compliance regime based on political considerations (an example of which might be Eckersley’s “Coal Non-Proliferation Treaty”). Related considerations arise with respect to the institutional arrangements: a market in tradeable “extraction permits”, with a mechanism for international transfers? Might fossil fuel cartels, which currently appear to be groping for an exit strategy, play a role in developing and self-imposing restrictions? This paper explores the above questions and indicates some possible ways forward.
Unburnable carbon and biodiversity: A global fund for keeping fossil fuels in the ground in biodiversity hotspots of developing countries
María Rosa Murmis and Carlos Larrea
According to scientific evidence, about two-thirds of proven fossil fuel reserves must remain in the ground to stay within the limit of a 2°C mean global temperature increase and avoid catastrophic consequences of climate change. This has led to initiatives to “keep the oil in the ground” and divestment campaigns. It has also led researchers and policy-makers to consider supply-side climate policies addressing the production of fossil fuels, rather than focusing only on the demand side. Yet theory so far has not determined how to decide which reserves must be kept unburned and which can be extracted. This article proposes that supply-side climate policy must address the socio-environmental value of the areas lying on top of reserves in the critical decision to determine which reserves must be kept in the ground. We show that there is ample evidence of areas of exceptional conservation value worldwide lying on top of fossil fuel resources. Thus, we propose the creation of a global fund to keep fossil fuels reserves in the ground in areas of exceptional biodiversity in developing countries, capitalizing on the experience of the Yasuní-ITT Initiative. The fund is to finance projects to keep fossil fuels in the ground in developing countries, with fossil fuel reserves in environmentally and culturally sensitive areas, and to make the transition to a low-emissions, sustainable economy. Leakage and valuation options are addressed. Economic rents generated by the reduction of production under supply side policy could be captured to finance the fund. Establishing the fund through a global governance institution such as the UN, and in the context of the Paris Agreement, would increase its robustness. Download full paper PDF »
A question of balance: The world trading system and fossil fuels
World trade in fossil fuels nears 3 trillion USD a year, with oil remaining the No. 1 traded commodity in volume and value terms. Meanwhile, world trade in renewable-energy equipment is growing fast, but still lags far behind fossil fuels (about 400–500 billion USD a year. This presentation highlights several double standards that policy-makers (and the broader public) apply to the two sectors, and which generally favour fossil fuels. First, import tariffs on fossil fuels are often zero or very low, while tariffs on renewables are very high in several emerging economies (e.g. India). Second, local-content requirements imposed on renewable energy technologies have been under increasing scrutiny and often challenged under existing trade rules, while local-content provisions on drilling equipment for fossil fuels remain unchallenged. Third, subsidies benefitting renewables are being challenged and scaled back in many countries, while fossil fuel subsidies persist despite international commitments and increasing scrutiny. What these comparisons suggest is that the game is rigged from the start – and these double standards not only hinder the diffusion of clean technologies, but are also economically inefficient. A first practical step in solving this problem is for policymakers to guarantee a level playing field in the global competition between fossil fuels and cleaner alternatives.