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CESP Weighs in on COP-26 in Glasgow

By: Michael Curtis, Richard D. Kauzlarich, Mark S. Langevin, and Joel Hicks

CESP faculty comment on the lead up to COP26 in Glasgow and what we should expect.

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A Pathway to Net Zero Must Pass Through the Developing World
 Michael Curtis, Ph.D.

Leading up to COP 26, much interest is focused on the major emitters, namely China, the US, India and Russia will do and say, and for good reason. However, developing countries and emerging economies also deserve equal attention for the part they play towards the goal of net zero greenhouse gas emissions by 2050.  

The developing countries and emerging economies now account for more than two-thirds of global CO2 emissions, while emissions in advanced economies are in decline. Emissions in developing countries and emerging economies continue to increase and, at the same time, investments in clean energy are falling. The countries account for two-thirds of the world’s population, but only one-fifth of global investment in clean energy, and one-tenth of global financial wealth.[1]  Avoiding a ton of CO2 emissions in developing countries and emerging economies costs about half as much on average as in advanced economies. Furthermore, these countries can often leapfrog to cleaner and more efficient energy technologies without having to phase out existing plants with sunk capital costs.[2]

The developing countries and emerging economies seeking to increase clean energy investment face a range of difficulties, including political will for change, perceived high risks for investors, locked in technologies, necessary policy and regulatory reforms, institutional capacity, financing projects, and more.

The question then is: How will developing countries and emerging economies achieve a transition to clean energy and help cut emissions towards a net zero goal by 2050?

Two responses are needed. First, the policy makers and leaders within the developing countries must exert political will, institutional capacity building, and policy reforms to address energy poverty, universal access, and scaling up clean energy infrastructure. Second, supportive international actions are essential to accelerate investments to support the transition to clean energy.  More specifically, the following actions are necessary:[3]

  • Scale up clean energy technologies, including renewables, hydropower, nuclear, improvements in energy efficiency (existing generation, transmission and distribution systems, buildings, air conditioning, and more) digitalization of the grid, cybersecurity, and more.
  • Build capacity of institutions, (e., skills and knowledge to institutions and staff), such as in reforming laws and legislation, market reforms, regulators, planning/modelling, system operators, etc.
  • Reform policies that create a more favorable investment environment. Such policies include elimination of fossil fuel subsidies, tariff reforms, independent power producers, energy service companies, privatization of SOEs, competitive procurements for clean energy, public-private partnerships, incentives (tax credits, accelerated depreciation, purchase power agreements,) and more.
  • Mobilize financing for investing in clean energy projects. Clean energy transitions will depend on reducing the cost and improving the availability of capital for investments. Starting at COP 26, the developing countries should commit to reforms that create an investment environment, and, at the same time, the developed economies should commit to mobilizing $100 billion per year in financing clean energy.[4]

An unprecedented increase in clean energy investments is required to put developing countries and emerging economies on a pathway towards net-zero emissions. The IEA estimates that, by the end of the 2020s, “annual capital spending on clean energy in these countries needs to expand by more than seven times, to above $1 trillion, in order to put the world on track to reach net-zero emissions by 2050. Such a surge can bring major economic and societal benefits, but it will require far-reaching efforts to improve the domestic environment for clean energy investment within these countries – in combination with international efforts to accelerate inflows of capital.”[5]

For the global community, the pathway to net zero without a clean energy transition in developing countries is not an option. A comprehensive approach offered here is a pathway towards achieving a net zero by 2050.

[1] (IEA 2021) “It’s time to make clean energy investment in emerging and developing economies a top global priority,” Press Release, June 2021.

[2] IEA (2021), Financing clean energy transitions in emerging and developing economies, IEA, Paris

[3] Delina (2018), Accelerating Sustainable Energy Transition(s) in Developing Countries – The Challenges of Climate Change and Sustainable Development, Routledge, New York.

[4] IEA (2021), Financing clean energy transitions in emerging and developing economies, IEA, Paris.

[5]. Ibid.


Choppy Waters Heading into COP 26
 Ambassador (ret.) Richard D. Kauzlarich
Co-Director, Center for Energy Science and Policy (CESP)

I have two concerns about COP 26.

First, the short-term global winter energy crisis will be the enemy of the best outcome for COP 26 Climate Summit. The perfect storm of unanticipated winter heating and power shortages will divert public attention from the necessary focus on achieving low-/no carbon-based energy in the shortest (realistic) time. While renewable energy is a small (but growing) element in the hybrid energy mix we rely on, it is large enough to be disruptive when, as in the case of Europe this year, the wind doesn’t blow. Add to this supply chain disruptions from North America to Europe to Asia.  The storyline is around a global scramble to find enough coal, natural gas, and heating oil to compensate for the reduced reserves for all fuels – fossil fuels at that.

Second, rather than an opportunity to show global solidarity on achieving progress beyond the ambitions demonstrated at the 2015 Climate Change Conference in Paris, COP 26 may create disunity between developed and developing countries. (I’m setting aside the apparent goal of Russia and China to disrupt any outcome at COP 26 the US and the West hope to achieve.)  In one sense, this concern is connected to the first.  OPEC and oil-producing states enjoy pointing out that carbon-based energy sources (coal, natural gas, and oil) are vital to meet immediate energy needs and support economic growth in the short run. Other observers also emphasize that a hybrid energy system is necessary as we transition to a low-carbon future.  Some critics add that a no-carbon goal is impossible. Developing countries of the South believe the COP 26 ambitions are for the rich, developed countries, not the poorer ones. The North is responsible for the state of the climate today and would sacrifice opportunities for economic growth in the South for reduced carbon emissions.  The North will be stingy in its foreign aid commitments to help poorer countries meet the COP 26 objectives.  Finally, developed world proponents of a no-carbon future ignore the impact of the measures under consideration on two-thirds of the world’s population without access to basic electricity.

The Glasgow climate summit will require deft leadership to meet these concerns, especially from the United States. It will also need India and China to take concrete action to reduce coal consumption in their electric power sectors. Climate change is a global challenge requiring global steps. No country is immune.


Brazil: Bolsonaro Withdraws From Global Climate Governance, But Environment Minister to Pitch Carbon Credit Program at Glasgow 
Mark S. Langevin, Ph.D.

President Jair Bolsonaro’s environmental policy has been controversial around the world and his former environment minister, Ricardo Salles, is under criminal investigation for alleged involvement in deforestation and illegal lumber exports. Bolsonaro has been widely criticized for his disinterest in global efforts to confront climate change amid his enthusiastic promotion of expanded agriculture and mining in the Amazon Basin, which has seen the highest deforestation rates in 12 years. The Bolsonaro administration’s environmental record also already prevented the EU’s ratification of a trade treaty with the Brazil-led Common Market of South America and will likely play into next year’s presidential election.

Domestic and international stakeholders have ratcheted up their criticism of Bolsonaro during the run-up to the 2021 UN Climate Change Conference (COP26). In September, over 100 CEOs of Brazilian companies and multinational subsidiaries urged the president to reverse course and take a leading position at COP26. The CEOs warned that Brazil could be “excluded from a new economic-climate order that is unfolding before our eyes.” They claimed that the administration’s failure to address deforestation and aggressively pursue a low-carbon development policy had cost the country much-needed foreign investment and market openings abroad.

On 14 October, 63 Democratic members of the US Congress signed a letter addressed to US President Joe Biden, castigating Bolsonaro for a number of controversial actions and policies, including his approach to the Amazon and climate change. The letter claimed that the Brazilian president had “gravely endangered the bio-diverse Amazon rainforest by dismantling environmental agencies and weakening enforcement mechanisms” and cautioned that “the US government should reject any environmental deal with Bolsonaro that is not conditioned on tangible results.” Moreover, a group of Democratic and Republican senators have sponsored legislation that would expand the Lacey Act to cover six commodities – palm oil, soybeans, cattle, rubber, pulp and cocoa – and prevent their import if their production was associated with deforestation.

In response to mounting international pressure against Bolsonaro, Agriculture Minister Tereza Cristina has emphasized Brazil’s key role in feeding the world while Mines and Energy Minister Bento Albuquerque has highlighted the country’s renewable energy record. However, the most important response has come from recently appointed Environment Minister Joachim Pereira Leite, who has discreetly reinforced the federal government’s environmental enforcement capacity and advocated for a national carbon credit market. Additionally, he has worked behind the scenes to obtain budget approval to hire an additional 1,659 environmental enforcement agents and support staff for IBAMA, Brazil’s environmental protection agency, as well as budget increases for firefighting, pledges that Bolsonaro had made to Biden at the latter’s Earth Day summit in April 2021.

Leite is set to reveal a plan at the COP26 aimed at making Brazil a primary exporter of international carbon credits. He explained that under the plan, called “Forest + Carbon,” Brazil will take responsibility for increasing agricultural and energy production as well as reforestation projects while also lessening carbon emissions to generate tradeable carbon credits. His approach has been heralded by one of the most important environmental organizations in Brazil, the Brazil Climate, Forest and Agriculture Coalition. While Bolsonaro will bear the brunt of criticism at Glasgow, Leite will try to restore Brazil’s credibility in global climate governance circles and deepen collaboration with his Chinese, EU and US counterparts. Unfortunately, the Bolsonaro administration has burned so many bridges around the world, that, for the first time since the 1992 Rio de Janeiro Earth Summit, Brazil will be isolated from the most important discussions at the COP26.

 


What have We Got to Lose?
Joel Hicks, Ph.D.

Kahneman and Tversky coined “loss aversion” in their development of Prospect Theory. Loss aversion is effectively reflected in one of my favorite faux motivational memes, “Hard work pays off in the long run, procrastination pays off now”. While Prospect Theory shows that people make decisions that are predictably inconsistent with their stated preferences, loss aversion provides predictable insights regarding tradeoffs between gains and losses. Over hundreds of controlled experiments across dozens of applications, it highlights that the marginal utility loss is most significant for EARLY losses. In other words, people work really hard to avoid even the smallest losses, much more so than the joy, or positive utility, they get from obtaining the EXACT SAME THING. Oddly, when individuals accrue significant losses, they tend to act risky to try to “break even”.  When I ask students whether they wished they had started earlier on their project, they invariably say, “yes”. I take them at their word.

This problem is significantly entrenched for people who do not anticipate the negative effects of climate change. “Why should I pay for mitigation or adaptation now when I’m unlikely to see the benefits for (potentially) decades?”.  Loss aversion is particularly acute for benefits that are long delayed, leading Kahneman to despair “I really see no path for success on climate change”. Discounting the future happens across a wide range of energy-related decisions, even ones much less latent than climate change, like the decision to purchase an energy efficient refrigerator. There are two reasons, 1) some people cannot actually afford the up-front costs of a more efficient appliance, and 2) people are generally not good at making optimal life-cycle cost decisions. They, instead, employ heuristics that are driven by “Bounded Rationality”. The fact that individuals severely discount the near future perpetuates this problem.

But what does this have to do with climate policy? Potentially a lot, especially if we need to relook at incentive structures. What if we used “loss aversion” to drive policy? One way we could do this is through “carbon mitigation escrows”. Providing subsidies that are contingent on climate mitigating action would use the power of loss aversion to incentivize action.  For instance, what if the federal government allocated windfall escrows for states that could only be reduced, never increased. The level of reduction would be commensurate with harmful mitigating activities. Nobody likes to see money left on the table. Remember the economist joke,

A hundred-dollar bill is lying on the ground. An economist walks past it. A friend asks: “Didn’t you see the money there?” The economist replies: “I thought I saw something, but I must’ve imagined it. If there had been $100 on the ground, someone would’ve picked it up.”

Maybe it’s time to put the $100 where everyone can see it.