Does Northern Mitigation Affect the Developing World?

Marco Sakaiee08masd@leeds.ac.uk

Overarching question

“How mitigative actions undertaken

by developed countries could affect

development in developing and

emerging economies?”

Hans Opschoor (2010)

Overview

• Background on climate change mitigation.

• Consumption trends and consumption-based accounting.

• Trade and impacts to the developing world.

• Method• Results• Limitations and conclusions

Climate Change

• Strong evidence that rise in global average temperatures is due to the observed increase in anthropogenic GHG concentrations.

• Currently global warming is at 0.7 ° C above pre-industrial levels .

• Under a “business as usual” scenario, temperatures could rise 5 to 6°C by 2100.

Source: (IPCC, 2007)

Projected Impacts of Climate Change

Source: Based on Stern Review (2006)

Multilateral emissions reduction targets

• Kyoto protocol: Some Annex B countries agreed to reduce emissions by 2012 relative to 1990 baseline (e.g. EU15 and other European nations -8%).

• EU ETS: Cuts of at least 20% by 2020 and >80% by 2050 relative to 1990.

• Cancun Agreements: Industrialized countries proposed reduction targets, including some developing countries (e.g. Brazil, China, Indonesia, Mexico, South Africa).

What is mitigation?

• “Technological change and substitution that reduce resource inputs and emissions per unit of output” (IPCC, 2007)

• Strong focus on technological solutions.

• Low-carbon technologies• Renewable energy• Geoengineering• Energy conservation

Can technology save us?

• 90% to 130% emission intensity improvement is required (Jackson, 2010)

• 80% of projected 2020 emissions from the power sector are already locked in (IEA, 2011)

• Window for cutting emissions (to 450 ppm - 2°) is closing fast (Stern, 2011)

• Not enough just to rely on technology (HM Government, 2005)

Other mitigation actions

• Social and economic policies oriented towards emission reductions and enhancement of sinks (IPCC, 2007).

• Beneficial aspects of creating synergies between developed and developing nations

• Clean Development Mechanism (CDM)

• Reducing Emissions Reducing Emissions from Deforestation and forest Degradation (REDD).

Demand-side options

• Demand-side options seek to modify directly or indirectly consumption patterns in order to achieve emission reductions.

• Behavioural changes (business practices, individual lifestyles)

• Instruments such as carbon taxes, border adjustments, subsidies, carbon labelling, awareness campaigns, etc. can have an effect on demand.

• EU, US (Waxman-Markey bill) and Australia to implement BCA to address the issues of leakage and loss of competitiveness.

Consumption

• Climate change is the greatest symptom of excessive consumption levels.

• Consumption in developed countries is the main driver for increasing emissions (Sanwal, 2009)

• Consumption patterns also need to be modified (Agenda 21, 1992; Rio +20, 2012)

• Northern consumption causes environmental impacts in the South.

0

5

10

15

20

25

30

35

40

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Tri

llio

ns

of 2

005

US

D

Year

Source: Own graph based on data by UN Stats.

Final consumption expenditure(1970-2010)

High Income Countries(15% of world population)

Rest of the World

Consumption LevelPer Capita Income,

2005Biocapacity Used Per Person, 2005

Sustainable Population at this

level

(GNI, PPP, 2008 dollars)

(global hectares) (billion)

Low-income 1,230 1.0 13.6Middle-income 5,100 2.2 6.2High-income 35,690 6.4 2.1United States 45,580 9.4 1.4

Global average 9,460 2.7 5.0

Sustainable World Population at Different Consumption Levels

Source: The Worldwatch Institute

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1961 1970 1980 1990 2000 2006

Year

Num

ber

of P

lane

t Ear

ths

Source: Own graph based on data by the Global Footprint Network.

Humanity's Ecological Footprint(1961-2006)

World's Biocapacity

Ecological Footprint

Carbon accounting

• Production-based (territorial) approach: “Greenhouse gas emissions that take place within the national territory and offshore areas over which a country has jurisdiction” (IPCC, 2006).

• Consumption-based emission inventories consider total emissions occurring from economic consumption within a country (Peters and Hertwich, 2008).

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1990 1993 1996 1999 2002 2005 2008

Per

cent

age

High-income countries ROW

Source: Own graph based on data by Peters et al. (2011)

Consumption-induced emissions as a percentage of territorial emissions

Consumer emissions as a percentage of territorial emissions, 2004

Source: Carbon Trust Analysis, CICERO/SEI/CMU GTAP 7 MRIO model (2004)

Income-Emissions Relationship

• Panel data regressions using fixed and random effects, between-groups and differences including 113 countries.

• From a consumption-based perspective, evidence rejects the EKC inverted-U hypothesis.

• CO2 emissions increase monotonically with income*.

Sakai and Hubacek (forthcoming)

higher income → higher consumption → higher emissions

50,000

150,000

250,000

350,000

450,000

550,000

650,000

1992 1998 2004 2010 2016 2022 2028 2034 2040 2046

Year

kt C

O2e

q

Source: Own graph based on data by SEI.

Projected CO2 UK Household EmissionsBusiness as usual (1990-2050)

Total (Δ50%)

Imports(Δ250%)

Domestic(Δ-20%)

50,000

150,000

250,000

350,000

450,000

550,000

650,000

1992 1998 2004 2010 2016 2022 2028 2034 2040 2046

Year

kt C

O2e

q

Source: Own graph based on data by SEI.

Scenarios for Total UK Household Consumption-Based CO2 Emissions

(1990-2050)Business as usual

80% cut

50,000

150,000

250,000

350,000

450,000

550,000

650,000

1992 1998 2004 2010 2016 2022 2028 2034 2040 2046

Year

kt C

O2e

q

Source: Own graph based on data by SEI.

Scenarios for Total UK Household Consumption-Based CO2 Emissions

(1990-2050)Business as usual

80% cut

80% additional cut in imports

Source: Carbon Trust

Impacts on the developing world

• Changes in consumption patterns (as mitigation actions) have been largely analysed from a developed-country perspective.

• The consequences of these actions in the developing world have not been sufficiently explored.

• ECLAC has recently expressed concerns in Latin America, especially to policies like border adjustments and carbon labelling.

International Trade

• Trade has grown three times faster than world GDP since 1990: increasing globalisation of markets.

• The geographical fragmentation of production has created a new trade reality.

• Rise of global production chains and the profound interdependency imply that exogenous changes in one country may induce effects in several other economies.

Fragmentation of production

Source: WTO (2011) and Meng and Miroudot (2011)

The Method

• Increasing use of environmentally- extended MRIO Analysis to understand environmental effects caused by consumption.

• Shows the underlying structure of several economies.

• Capture the interdependencies between different industries located in diverse regions.

• 113 countries and 57 sectors – GTAP7

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The MRIO Model

Technology matrix (6441*6441)

Value Added

Total Inputs

CO2 emissions

FD(6441*113)

Tota

l Out

puts

Import matrices

𝑋= (1− 𝐴)−1𝑌 𝑇𝐼𝑀𝑆= ሺ𝐶𝑂2𝑖𝑋𝑖−1ሻሺ1− 𝐴ሻ−1 𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑎𝑛𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠= 𝑇𝐼𝑀𝑆∗𝑌

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

USA EU 15 Other high-

income

Other Annex I

China EiT G20 emerg

ing

Other Middle-

income

Low Income

Pe

rce

nta

ge

Agriculture, hunting, forestry and fishing Mining and quarrying

Light industry Heavy industry

Transport and communications

CO2 embodied in trade

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

USA EU 15 Other high

-income

Other Annex I

China G20 emerg

ing

Other Middle-

income

Low Income

EiT

Pe

rce

nta

ge

Agriculture, hunting, forestry and fishing Mining and quarrying

Light industry Heavy industry

Transport and communications

Value added embodied in trade

0

200

400

600

800

1000

1200

1400

1600

USA China EU 15 Other Annex I

Other high-

income

EiT Low Income

G20 emer-ging

Other Middle-income

Bil

lio

ns

US

D

Exports Imports

Value added embodied in exports and imports according to region

USA31%

China4%

EU 1528%

Other Annex I17%

Other high-income

3%

EiT2%

Low Income1% G20

emerging8%

Other Middle-income

6%

Share of consumption-based value added (domestic + imports)

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

USA EU 15 Other Annex I

Other high-

income

China EiT G20 emerg

ing

Other Middle-

income

Low Income

Pe

rce

nta

ge

Agriculture, hunting, forestry and fishing Mining and quarrying

Light industry Heavy industry

Transport and communications

Skilled labour embodied in trade

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

USA EU 15 Other Annex I

Other high-

income

China EiT G20 emerg

ing

Other Middle-

income

Low Income

Pe

rce

nta

ge

Agriculture, hunting, forestry and fishing Mining and quarrying

Light industry Heavy industry

Transport and communications

Unskilled labour embodied in trade

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Agriculture Mining L-industry H-industry Transport

US

D

Skilled labour Unskilled labour

Total intensity (wages/$), low-income countries, skilled and unskilled

labour

0

2

4

6

8

10

12

14

16

Agriculture Mining L-industry H-industry Transport

Kg

. C

O2

eq

/$

GHGs

Total intensity (GHGs/$), low-income countries, GHGs

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Agriculture Mining L-industry H-industry Transport

US

D

Skilled labour Unskilled labour

Total intensity (wages/$), other middle-income countries, skilled and

unskilled labour

0

1

2

3

4

5

6

Agriculture Mining L-industry H-industry Transport

Kg

. C

O2

eq

/$

GHGs

Total intensity (GHGs/$), other middle-income countries, GHGs

Limitations

• Static model. Data for only one year.

• Price effects, production functions, elesticities, etc. not included. (started working on CGE modelling).

• Developing countries are very heterogeneous.

• Additional factors not captured by the model (climate variables, extreme climate events, etc.).

Conclusions

• Need to lower consumption and change patterns, especially in wealthy countries, but this may cause alterations in the structure of global trade.

• Poor countries are vulnerable to changes in structure of trade.

• Negative consequences on welfare in the developing world aggravating adaptation costs.

• Need for financial and technological transfers and strengthening absorptive capacities.

• Policies should be regarded from an inclusive viewpoint that considers the needs of both developed and developing nations.

ee08masd@leeds.ac.uk

30% domestic and 15% import improvements in energy emission intensity Source: Own projections based on data by SEI

17.9% 16.5% 16.2%

42.2%34.6%

26.8%

11.9%

17.3%23.7%

5.2% 8.3% 10.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1992

2007

2025

Per

cent

age

Food & beverages Alcohol & tobacco Clothing & footwear

Water, energy Maintenance Health

Transport Communication Recreation & culture

Education Rest. & hotels Misc. goods & services

Projected structure of emissions for UK households according to consumption

category

0

1

2

3

4

5

6

7

8

9

Agriculture Mining L-industry H-industry Transport

Kg

. C

O2

eq

/$

GHGs

Total intensity (GHGs/$), China, GHGs

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Agriculture Mining L-industry H-industry Transport

US

D

Skilled labour Unskilled labour

Total intensity (wages/$), China, skilled and unskilled labour

0

1

2

3

4

5

6

7

8

9

Agriculture Mining L-industry H-industry Transport

Kg

. C

O2

eq

/$

GHGs

Total intensity (GHGs/$), emerging G20, GHGs

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Agriculture Mining L-industry H-industry Transport

US

D

Skilled labour * Unskilled labour *

Total intensity (wages/$), emerging G20, skilled and unskilled labour