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Carbon Scenarios - Blue Sky Thinking for a Green Future

Extracts relevant to Kyoto2

Carbon Scenarios cover image
By Paul Domjan and Gulya Isyanova, published by the Stockholm Network on 9 June 2008. The "Step Change" scenario investigated here is based on Kyoto2, and emerges as the most successful of the three scenarios considered as judged by both effectiveness at restraining emissions, and economic benefits.

The report has attracted the following media coverage:

  • Climate chaos is inevitable. We can only avert oblivion - by Mark Lynas for The Guardian, 12 June 2008. "The third scenario - called "step change" [based on Kyoto2] - is worth a closer look ... A clear long-term framework puts a price on carbon, giving business a strong incentive to shift investment into renewable energy and low-carbon manufacturing. Most importantly, a strong carbon cap means that global emissions peak as early as 2017."
  • Burning down the house - by CNN, 11 June 2008.

You are strongly recommended to read the original report, available as a .pdf, complete with graphics.

"For the policy solution offered in Step Change, an upstream global cap, we drew extensively on the work of the Kyoto 2 Project (www.kyoto2.org) and are particularly indebted to Oliver Tickell."

Like the other two scenarios, Step Change also takes the current policy context as its starting-off point and assumes that developments already in motion continue until 2009. Unlike the other two scenarios, however, this one looks at the possibility of developments taking a radically different course.

The Fourth IPCC Report (Nov 2007) indicates that the most perceptible manifestation of climate change that we are likely to witness in the short term is an increase in the severity and frequency of what is termed ‘extreme events'. In other words, weather events such as heatwaves, hurricanes, floods and droughts, which are statistically rare, will become less so.This prediction is taken as the impetus for a radical policy step change in the scenario.

It is important to remember that scenarios are not predictions or elaborate statements of likelihood.They are rather exercises in plausibility and of carefully thinking through what is possible in causal terms.They aim to map the space of possible futures, not identify the most likely ones.The other two scenarios are very much teased out of present developments.This scenario, however, is more a case of blue sky thinking.We are not saying that the events in this scenario are probable. Rather, we would argue that they are possible and provide a useful exercise in thinking through the causal implications of two statistically-unlikely but not impossible occurrences - firstly, the simultaneous onslaught of several extreme events, and secondly, a quick and straightforward international response. In other words, we are considering the best possible solution to the worst possible problem.

This scenario arose because, having developed the outlines of Kyoto Plus and Agree & Ignore, we stepped back and asked ourselves: ‘Are either of these scenarios likely to deliver a greater than 90% chance of less than 2 degrees of warming?' The answer, sadly, was probably not. As such, we set out to try and construct a scenario that would meet this goal and that everyone in the scenario-building workshop would agree was plausible, if not probable. Step Change is the result.

Thus, this scenario answers a very different set of questions than the other two scenarios:

From the Press Release ...

The Stockholm Network, however, argues that only a new approach in policy will deliver even the 3°C goal. So what is needed?

  • A simple policy of a global cap on the production of carbon (in other words an upstream cap). This will lead to a reduction in the amount of carbon produced and will make clean technologies more commercially attractive;
  • This upstream cap, as found in the Stockholm Network's Step Change scenario, delivers transparency about carbon pricing to business and more importantly, provides substantial revenue to incentivise developing countries to come on board;
  • As it allows markets to allocate carbon globally through the price mechanism, this system would be both much cheaper to administer than existing proposals (individual national emissions caps), and will lead to a much more efficient allocation of carbon. It is therefore likely to lead to higher economic growth than the current approach of national emissions trading would achieve.

"When the panel of experts set out to develop a set of scenarios about climate change, the general public thought there was a trade-off between economic growth and carbon reduction. In fact, the scenario that delivers the most carbon reduction, also, delivers long-term economic growth by replacing a pick 'n' mix of complicated, confusing and opaque policies with a clear, long-term carbon price", concludes report author Paul Domjan.

Step Change

As the December 2009 conference at Copenhagen comes to a close, the international community is relieved.The conference is deemed a success as it has resulted in an international agreement on a global cap. While the agreement resolves the issue of differential economic development with a graduation structure, a series of meetings needs to take place over the following years to establish the details and the practical side of the agreement. However, these meetings are increasingly framed by a series of accentuated climatic developments.

Having already experienced a particularly hot summer in 2009, Europe goes on to have another scorching one in 2010 - hotter than in 2003, with wildfires worse than those of 2007. Emergency services struggle to cope and low rainfall leads to serious water rationing, especially in the Mediterranean and some of the newer EU Member States.

The Indian subcontinent continues to experience a heavy and long monsoon season, leading to serious flooding and loss of life, especially in Bangladesh. High temperatures and low rainfall also cause several crops to fail in Africa, leading to tensions around water usage terms in the Lake Victoria and the Nile River regions. As a result, many parts of the Indian subcontinent and Africa experience famine.The combined demands on the UN World Food Programme are of an unprecedented level and it is unable to cope. Hundreds of thousands starve.

However, although these humanitarian crises receive media coverage in the West, they vie for attention with the much documented and highly-publicised acceleration in the disappearance of sea ice in the Arctic, which by this point has been projected to completely disappear by 2025. While these developments are in themselves highly problematic, they have in a sense already been accepted as the norm over the previous few years. What really brings a new sense of urgency to the agenda are events in the US and China, which this time round experience the brunt of nature's force.

Like the European continent, North America experiences an unprecedented heatwave that leads to deaths in the thousands and ongoing blackouts across the Eastern seaboard. Meanwhile, in China a super-typhoon severely damages the port infrastructure at Shenzhen, while the smaller port at Fuzhou is almost entirely destroyed by another.

At the same time, rain from the storm surges leads to flooding all the way up to Guangzhou, disrupting overland transport.The combined disruptions to the transport system caused by these events lead to significant interruptions and delays in China's exports, causing some Western firms to question whether Chinese components can be a reliable part of their ‘just in time' logistical chains. Of course, the super-typhoon not only damages the Chinese maritime infrastructure (consequently impacting on international trade), it also causes widespread damage to the region's coastal areas, with social and environmental consequences.

As the international community and the global economy struggle to adjust adequately to this series of misfortunes over the ensuing months, the summer of 2011 brings more of the same. Although the climatic elements are not as forceful this time round, the areas affected by the events of 2010 have only made a partial recovery.The destructive effect of further climatic chaos thus only serves to compound the problem.The social consequences of the two disastrous summers are felt globally, whether directly or indirectly. However, although the numbers affected are much greater in the Indian subcontinent and in the affected parts of Africa, it is the situation in the US, China and Europe that dominates the Western and international media.

The European and the US heatwaves claim many a vulnerable casualty. Hospitals are pushed over their capacity limits and healthcare budget deficits sky-rocket. Water shortages and wildfires have a major impact on agricultural production in many EU Member States, as well as the North American mid-West. As a result, meat and dairy production face a crisis and food prices reach new highs.

These very visible and consistent illustrations of a changing climate, their immediate social costs and the inadequacy of current policy all act as an impetus for governments, led this time by the US and China rather than the European Union, to take immediate and drastic action on national security grounds.

The US and China are motivated by two things. First, there has been a perceived failure by existing institutions and frameworks to both prevent and to contain the damage. Second, both want to focus on developing a framework for action that is simple and can be implemented quickly, especially given popular pressure on governments to act decisively.

Neither can afford to sit back and experience another summer like the previous two. While the EU is somewhat taken aback by the new interest from these two traditional foot-draggers, the push for action is broadly welcomed by international business, which now recognises that some form of major carbon regulation is coming and seeks a framework that is clear, universal and transparent. It also wants to avoid any further disruptions to trade.

On the basis of Sino-American cooperation, the December 2011 UNFCCC conference sees a major new climate change treaty signed, but the so-called International Climate Treaty (ICT) has a very different structure and a much greater reach than anything observers had expected.The ICT introduces a one-year phased transition from existing emissions-based trading schemes, including ETS, to a single global carbon production trading scheme.This scheme places a cap on the global production of carbon, whether in the form of oil, gas or coal, and shifts enforcement and permit auctioning from billions of individual emitters to a small number of firms that produce fossil fuels.This source-focused approach is expected to translate into changes on the demand side, with high energy prices acting to provide a very clear signal to business to invest in reducing demand and to provide alternatives.

There is a separate mechanism to deal with emissions from deforestation and industrial agriculture, modelled on the Montreal Protocol and funded by permit sales from the first mechanism. At the beginning of each year, after the amounts for the global carbon cap are agreed, a set share of the cap is allocated to this second mechanism. Countries that protect their forests and innovate in their agricultural practices, will effectively receive payments for doing so. Fossil fuel inputs in industrial agriculture, for example, diesel for driving tractors and gas for fertiliser, will of course already be priced through the first mechanism.

As this new trading scheme operates at the global level and with a much smaller number of participants, it is much easier to implement. Moreover, as it takes effect at the highest upstream point in the carbon value-chain, there is no opportunity to debate individual national carbon allocations. The responsibility for the initial setting of this new global upstream cap and the auctioning system for permits to extract carbon within it (as well as this system's verification and compliance) is assigned to a new ‘rapid response' task force - the Climate Security Task Force (CS-TF). It is to operate under the auspices of the United Nations Environment Programme (UNEP) and its ‘midwife' remit is to last three years. At the end of the three-year period the UNEP proper is to take over. The CS-TF is to operate from Geneva, Switzerland with its composition being modelled on the UN Security Council. During the initial three-year period, the CS-TF is constituted by a ‘party of seven' consisting of the US, China, the EU, India, South Africa, Russia and Brazil, but it is envisaged that after UNEP takes over, the CS-TF will rely on rotating representation.

With two summers' worth of damage, adaptation rather than mitigation is seen as the overwhelming priority among many countries, both developed and developing. Accordingly, beyond the actual mitigation effect of the carbon cap itself, the new treaty is sold to the world on the basis of the revenue it will raise (estimated to be circa $1 trillion per annum)1 as well as how it will be spent.The CS-TF passes the revenue raised from the scheme to the UNEP for distribution among UN members. Part of this revenue is handed out according to a fixed formula that funds mitigation and adaptation in developing countries based on a sliding-scale of need, rewards fossil fuel producers for foregone potential production and funds research into new energy technologies.The other part of the revenue feeds into the newly set-up Climate Emergency Fund (CEF), where any country experiencing adverse climate impact can obtain funding based on need.

This separation of the administration of the cap and the usage of the resulting revenue is designed to ensure that political competition will be focused on the revenue usage side, rather than the administration of the system.This structure is also designed to ensure that developing countries are assured of continued revenue transfer (as developed world consumers use more carbon, they would ultimately bear the brunt of the cost of the permits), but through a mechanism that is relatively immune to meddling by developed country legislatures.

A series of high-level emergency meetings is set up by the CS-TF straight after the December 2011 conference with fossil fuel producers and OPEC.The producers know that climate change policy is inevitable and decide that their best bet is to seek to influence it.They already face production difficulties and are therefore prepared to do a deal to keep prices high in the context of falling oil production. Ultimately they are after certainty and high prices. Producers are also placated by the payments from the new scheme.

Under the ICT, operators of Carbon Capture and Storage (CCS) plants can claim free permits equal to the quantity of carbon sequestered. This leads to an increased interest in CCS technology, as many natural resource producers see CCS as a potential way of hedging their carbon cost liability in the future. However, as CCS is still costly to adopt, most of these actors remain unwilling to take the plunge and start converting their plants. However, once the global production cap kicks in after the one-year transition period, some companies tentatively start to explore this technology.

For the first time, business is presented with a clear, long-term framework that promises a significant global carbon price in the present and in the future.This certainty about the increasing cost of carbon leads investors and entrepreneurs to focus even greater energy on developing technology for new energy sources and to increase the efficiency of existing energy usage. While the ICT creates funds for research, adaptation and catch-up mitigation in the developing world, it also creates incentives for innovation in mitigation in the developed world.

The combination of the trade disruptions of the summers of 2010 and 2011, along with the process of adjusting to the ICT lead to slower growth from 2010 through 2013, with some commentators worrying during 2012 that the global economy may be heading into recession. In fact, recession is narrowly avoided, as the long-term certainty about the future cost of carbon provided by the new Treaty actually leads to steadily increasing business confidence and a return to trend growth by 2013.

Global average temperature has a greater than 90% chance of rising by up to 2.89°C above pre-industrial levels by 2100.This figure is based on emissions modelling by the Stockholm Network and climate modelling by the Met Office Hadley Centre. (*)

Scenarios compared

These scenarios present three qualitatively different views of the future where differences in economic conditions, climate events and levels of popular concern affect climate policy choices. Kyoto Plus and Agree & Ignore explore two different outcomes stemming from present policies.

Kyoto Plus shows that current policy could deliver significant climate change mitigation, although this would still fall short of 'success' as defined by the UN and the EU, leading to 3.31 degrees of warming above pre-industrial levels by 2100. In contrast, Agree & Ignore shows that current policy could at the same time lead to insufficient mitigation due to non-compliance and backsliding.This would entail more than 4.85 degrees of warming above pre-industrial levels by 2100.

The final scenario, Step Change, departs from the current policy trajectory. This scenario explores the point of departure where an alternative policy is pursued, following the occurrence of a series of stochastic weather events that threaten economic security. Step Change suggests that despite the short-term economic and political costs, this new policy could lead to even greater levels of climate change mitigation than Kyoto Plus, with only 2.89 degrees of warming above pre-industrial levels.

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