Climate Change: An Ethical and Equitable Approach

Valedictory Remarks by Ernesto Zedillo Yale University, former President of Mexico. Delhi Sustainable Development Summit 2009

Excellencies, Dear Friends, Ladies and Gentlemen, I am very honored to again be part of this unique forum which has become a guidepost for the analysis and debate of some of the crucial challenges faced by humanity at large. This year’s central topic, Towards Copenhagen: An Equitable and Ethical Approach, is undoubtedly of enormous pertinence.

The fine contributions and rich debates that have taken place over the last three days should be considered seriously by those charged with political responsibility to make the Copenhagen meeting a successful one. The contributions of this conference are particularly relevant in light of the fact that at this moment the prospects for a successful outcome at Copenhagen, frankly stated, are not very promising. My own reading of where the process of consultations and negotiation stands is not optimistic. As suggested at the Poznan conference of last December, there has been little movement forward and deadlocks on the crucial issues are still pervasive. Admittedly, that there hasn’t been much progress towards Copenhagen shouldn’t be surprising.

For one thing, the last decade has not been one during which important international cooperation undertakings have been fruitful. In fact, it has been quite the opposite as shown by a string of failures, one after the other.

We have had major regional wars that would not have happened if the international community, and particularly its key players, had empowered the United Nations and its Security Council to effectively perform their duties and those members abide by the institution’s statutes. The 2005 World Summit, which aimed to reform the institution, landed practically nil results.

The nonproliferation regime is under dramatic stress, as shown by the proliferation threats in front of us, and the sad ending of the NPT Review Conference of 2005.

The WTO Doha Round, launched more than seven years ago, has produced disappointing results and is now in a practical state of hibernation, precisely when the risk of a protectionist wave is emerging worldwide. There’s also the high probability of failing to meet the MDG’s in many of the poorest countries of the world.

And of course we are now suffering the worst international financial and economic crisis the world has known in a long time, which to a significant extent can be attributed to the conspicuous lack of international macroeconomic coordination and lack of a system of global financial standards and enforceable supervision.

There is also the question that the post-Kyoto agenda in dealing, among many serious issues, with climate change mitigation faces not only the complications involved in a traditional global public good, but other additional issues of unique complexity.

In effect, since political borders cannot, of course, enclose climate variability there should be no question that mitigation of climate change is a global public good. In fact, more than any other international issue, mitigation poses questions of sovereignty, the temptation to free ride, differing preferences and priorities across societies, and the so-called summation problem. Unavoidably, collective action is a prerequisite to address this complex set of problems.

Given that the consequences of global warming will be felt locally, some people are inclined to believe that adaptation to this phenomenon does not really constitute a global public good. This may be true to some extent, but not to the full extent.

The local consequences of global warming will lead to adverse economic, social and political effects that irremediably will spill across borders. If those effects are to be prevented, or at least contained, then international cooperation will also be required.

Furthermore, the mitigation of climate change entails unprecedented uncertainties about costs and benefits, and these benefits have a term for delivery much longer than in any previous international undertaking.

Approaching mitigation as a global public good is further complicated by the possibility of catastrophic climatic change which could bring irreversible damages to the world’s human, natural, and physical capital, damages that could prove immensely asymmetric to the cost of preventing such disasters even if such prevention required front loading the necessary expenditures.

Yet to be justifiable, stronger action and a much larger expenditure early on would have to be seen more as a payment toward insurance on the human habitat than as an investment with a sufficiently attractive expected social and economic return.

Unfortunately, to think of climate change mitigation as insurance against an uncertain catastrophe does not make it easier to design, agree on and implement international emissions reduction policies.

Governments and the populations they represent must still grapple with tough choices under practically any policy strategy intended to modify the present trend of global emissions and warming. It is not possible to escape the fact that somebody, somewhere and soon will need to start paying the price for such a policy.

It is not useful or fair to represent mitigation to today’s citizens as a costless endeavor, least of all — as some have claimed — as “good business.” It can certainly be good business for some — but hardly for all.

The real deal is that a sacrifice of some sort will have to be incurred by the present generation for the sake of people who will exist many years from now, in richer societies than ours, and most probably in countries that are not our own. Full transparency on this essential fact may not be good short-term politics, but it is indispensable if serious long-term policies are to be adopted.

It has been suggested that this dilemma has a rather straightforward ethical answer: we should not discriminate among individuals by date of birth. Yet the ethical question has several dimensions, not just one. The issue is not only about comparing the wellbeing of future generations relative to ours but also about comparing the well-being of richer and poorer societies, today and in the future.

Not surprisingly, the proposition that today’s relatively poorer generations should help richer generations in the future to live better is particularly hard to sell to the present citizens of poor developing countries.

It is also important to recognize that previous exercises resulting in effective coordination among members of the international community were undertaken to address issues for which the near-term cost of failing to act was relatively obvious to all the parties involved.

Think of the creation of the United Nations at the end of the monstrous Second World War; of the General Agreement on Tariffs and Trade (GATT) after the regression into impoverishing protectionism during the 1930s; of the International Monetary Fund after many years of international monetary chaos; and of the successes in preventing pandemics, even eradicating diseases like smallpox, which were scourges upon humanity for centuries.

In each of these examples, downright evidence on the immediate cost of failing to act proved crucial. Inconveniently, the case for collective action to mitigate climate change cannot be built for the time being on the same kind of manifest basis.

Whoever is willing and possessed of the authority to promote that action must rely on materially distinct arguments. This circumstance, among others, explains why organizing the indispensable international cooperation to deal with mitigation poses an unprecedented challenge.

I have no doubt that the principles inscribed in the UNFCCC are immensely befitting, and that, undoubtedly, the knowledge gathered by the IPCC should be the cornerstone for action. I do question, however, whether other parts of the available international structure can serve to build further the system that is needed.

The process of analysis, negotiation, implementation, and compliance of the post-2012 mitigation regime will be well served by entertaining seriously that such a regime should follow an approach substantially different from that of the Kyoto Protocol if it is to be truly effective in overcoming not only the challenges stemming from the sovereignty and free rider issues but also those posed by inter-country and intergenerational equity questions unique to climate change mitigation.

Specifically, with firm resolve I join others in insisting that an international agreement focused on adopting harmonized carbon prices — rather than on explicit emissions limits — makes eminent sense.

I simply cannot envision as negotiable and agreeable a framework of global quantitative emissions targets allocated among countries that could fulfill the conditions that an effective post-Kyoto agreement must meet. Among other conditions, the new regime must:

• Achieve universal participation with real and binding commitments to prevent free riding and leakage problems.
• Entail long-term commitments by all countries to the agreed mitigation policy.
• Provide clear and predictable market signals.
• Discourage high volatility in the market price of carbon.
• Be favorable to the generation of fundamental knowledge and new technology.
• Avoid significant wealth transfers among countries.
• Have low transaction costs.
• Be practically invulnerable to fraud and corruption.
• Be propitious for compliance, making less likely the introduction of the highly counterproductive expedient of trade sanctions.
• Lend itself to easy verification of compliance.
• Allow individual countries (or associations of countries like the EU) that so wish, to comply with the internationally agreed carbon price by means of their own national cap and trade systems.
• Be congruent with the principle of common but differentiated responsibility, for example, by allowing different speeds of convergence towards the agreed trajectory of harmonized carbon prices.

It seems to me that the only approach that would meet the above conditions, while also minimizing countries’ sovereignty concerns, would be one in which all countries would agree to penalize carbon emissions by committing to an internationally harmonized carbon price that would slide in a ramped up trajectory. Countries using carbon taxes to meet the harmonized carbon price trajectory would keep the respective tax revenues for themselves.

I am aware that at least until recently, and among the governments of major emitters, there has been strong reluctance to consider carbon taxes on the grounds that they constitute a politically nonviable option. Political opponents of carbon taxes have failed to acknowledge that it is possible to implement a carbon tax policy that is both revenue and distributionally neutral. This feature will go a long way toward overcoming public resistance to a carbon tax. Actually, I am not even sure that revenue neutrality will continue to be an overwhelming consideration, even in those countries where there has been until now a strong political and even ideological rejection to new taxes.

The truth is that the fiscal situation of most countries, including the richest ones, has changed dramatically over the last few months. As one looks at fiscal deficits that are projected to become the largest in several generations in countries like the United States, it is hard to believe that the objective of revenue neutrality will be kept as a sacrosanct principle. Sooner rather than later, the new leadership of the United States will have to tell its citizens how the fiscal excesses incurred are going to be paid. Carbon taxes should top the list of policy instruments, for they not only can provide meaningful additional revenues, but also will make emitters pay transparently.

A global carbon tax has also been objected on the grounds that it will not be propitious to the clean development mechanism (CDM) instilled in the Kyoto Protocol and thus will forego an important instrument for engaging developing countries. The CDM, which certainly can help to give rich countries latitude to fulfill their emissions caps as well as provide incentives to developing countries to carry out interesting mitigation projects, will hardly ever serve the purpose of inducing emissions reductions in the amounts that eventually will be needed on the part of those developing countries, if effective mitigation is truly pursued.

This objective, in all honesty, requires significant emissions reductions not only on the part rich countries but also, at some point in the not so distant future, on the part of all the other members of the international community. The fact that a global cap has been the focal point of the mitigation negotiations has made of this undertaking a crystal clear zero sum game: one country’s gain in emissions permits is another country’s loss. This is exactly what makes it politically so unpalatable for many countries, developed and developing, to engage in the provision of the global public good of climate change mitigation.

For countries to tax carbon emissions and keep the respective revenues is a game changer. There remains, of course, the question of how high the tax should be. As we know, a number of tax rates can be entertained, depending on the particular model’s objective function and structure. I happen to believe that political feasibility for negotiating the carbon tax that should prevail during the initial post-Kyoto period — perhaps ten years — lies closer to the optimal tax rates rendered by the dynamic integrated models than to the rates suggested by exercises that aim at frontloading huge emissions reductions.

I fully agree with my colleague and mentor, Bill Nordhaus, when he submits: “A sure and steady increase in harmonized carbon taxes may not have the swashbuckling romance of a crash program, but it is also less likely to be smashed on the rocks of political opposition and compromise. Slow, steady, universal, predictable, and boring — these are probably the secrets of successful policies to combat global warming.”

A global carbon tax wouldn’t preclude the adoption of income transfers from rich to poor countries, which will certainly be needed to address the challenging issue of adaptation. Solid research has determined that the severest adverse damages will be felt in the low-latitude countries where most of the world’s poorest people happen to live. So it is not only that the existing accumulation of CO2 can be explained by the rich countries’ disproportionate historical emissions, but also that most probably those same countries would be less affected, and in fact favored in some cases, by global warming.

For equitable, ethical and strategic reasons, it is indispensable to build an adequately designed and well-funded international facility to address the challenge of adaptation to climate change in poor countries.

As we know, the generation of basic knowledge is also a public good that, if left to market forces alone, will tend to be under-supplied. Rich countries have a special responsibility to support research and development on low cost backstop technologies and must also contribute to close the huge gap in basic knowledge and technology that now exists between them and the poorer countries.

Dear Friends: Climate change can be slowed, its effects mitigated and — up to a point — societies can adapt to it. But all of this requires effective and practically unprecedented international cooperation. It is about time for all states to accept that it is in their national interest to construct such cooperation by means of the pertinent rules and incentives.

As this conference’s expositions and debates have shown, there is no lack of ideas to make of Copenhagen a success. The question is whether our political leaders will listen, decide, agree, and act in consequence.

Thank you very much.