Policies to Counteract Global Policies to Counteract Global WarmingWarming

Financial Markets can Overcome Financial Markets can Overcome the China – US Impassethe China – US Impasse

Graciela ChichilniskyGraciela ChichilniskyUNESCO Professor and Director,UNESCO Professor and Director,

Columbia Consortium for Risk ManagementColumbia Consortium for Risk ManagementColumbia University, New YorkColumbia University, New York

UNCTAD Expert Meeting on Trade and Climate Change:UNCTAD Expert Meeting on Trade and Climate Change:Trade and Investment Opportunities under CDMTrade and Investment Opportunities under CDM

Geneva, April 27 2009Geneva, April 27 2009

Global Warming Signals Global Warming Signals

Antartica – Melting glaciers and ice Antartica – Melting glaciers and ice sheetssheets

Global Warming Signals Global Warming Signals

Permafrost melts - Alaska sinksPermafrost melts - Alaska sinks

Changing human Changing human settlementssettlements

Melting glaciers - Melting glaciers - AntarticaAntartica

Melting ice sheets Melting ice sheets AntarticaAntartica

Melting ice AntarticaMelting ice Antartica

Patagonia - Melting Patagonia - Melting glaciersglaciers

Global Warming SignalsGlobal Warming Signals

Outbreak of malaria in AfricaOutbreak of malaria in Africa

Global Warming SignalsGlobal Warming Signals

China’s industrial growthChina’s industrial growth

Global Warming SignalsGlobal Warming Signals

Desertification of 25% of China land Desertification of 25% of China land massmass

Global Warming SignalsGlobal Warming Signals

Australia’s longest draught on Australia’s longest draught on recordrecord

Global Warming SignalsGlobal Warming Signals

Solar farm in SpainSolar farm in Spain

Water WarningWater Warning

Colorado River dries up - 2002Colorado River dries up - 2002

Water WarningWater Warning

Lake Mead’s record low - water to Lake Mead’s record low - water to Las Vegas Las Vegas

Fires from drought - Fires from drought - 20062006

EndangeredEndangered

PrimatesPrimates

EndangeredEndangered

Sea mammalsSea mammals

EndangeredEndangered

DisappearingDisappearing

DisappearingDisappearing

SummarySummary The world today – the Kyoto ProtocolThe world today – the Kyoto Protocol Financial Markets Role: Carbon Market Financial Markets Role: Carbon Market

++ Energy Limits and Future Global NeedsEnergy Limits and Future Global Needs China - US ImpasseChina - US Impasse Organizing Principles: Three Building Organizing Principles: Three Building

Blocks Blocks Derivative Markets can Overcome the Derivative Markets can Overcome the

ImpasseImpasse Next Generation Kyoto ProtocolNext Generation Kyoto Protocol

The world todayThe world today

The The Kyoto ProtocolKyoto Protocol created the first created the first global agreement on energy use, 1997global agreement on energy use, 1997

International Law in 2005International Law in 2005 Industrial Nations agreed to limit their CO2 Industrial Nations agreed to limit their CO2

emissions and reduced targets by 2012emissions and reduced targets by 2012 Introducing KP Carbon Market - I helped Introducing KP Carbon Market - I helped

create a $30B carbon market in 2006, $50B create a $30B carbon market in 2006, $50B in 2007in 2007

$25-30 per ton: carbon price signal -- major $25-30 per ton: carbon price signal -- major economic incentives for Clean Energy economic incentives for Clean Energy

But But only a first steponly a first step

The Kyoto ProtocolThe Kyoto Protocol Has no limits on developing nations’ emissionsHas no limits on developing nations’ emissions that represent 30% of global emissions – China is 18%that represent 30% of global emissions – China is 18% KP KP Clean Development MechanismClean Development Mechanism (CDM) (CDM)

created major financial incentives for clean energy created major financial incentives for clean energy investment in developing nations investment in developing nations

$8B in CDM project in 2006 and $15B in 2007 – 20% $8B in CDM project in 2006 and $15B in 2007 – 20% reduction EU emissionsreduction EU emissions

China 60%China 60% Carbon market - the largest commodity market in Carbon market - the largest commodity market in

the world?the world?

Market Solution with Equity Market Solution with Equity Two sides of the Coin Two sides of the Coin

The Kyoto Protocol The Kyoto Protocol Only a First StepOnly a First Step

KP’s provisions end in 2012KP’s provisions end in 2012 Like Cinderella, it turns into a pumpkinLike Cinderella, it turns into a pumpkin By designBy designAdditionally:Additionally: As the USA does not participate KP lacks As the USA does not participate KP lacks

control on 31% of global emissionscontrol on 31% of global emissions Lacking limits on developing nations’ Lacking limits on developing nations’

emissions hinders US participationemissions hinders US participation US - China ImpasseUS - China Impasse

Progress in USAProgress in USA Economic incentives of Kyoto Protocol are Economic incentives of Kyoto Protocol are

enormous. Many in the US want part of them, enormous. Many in the US want part of them, Obama wishes to ratify Kyoto.Obama wishes to ratify Kyoto.

California wants to participate in KP emissions California wants to participate in KP emissions markets – and hundreds of cities and townsmarkets – and hundreds of cities and towns

US Supreme Court agreed Fall 2007 that US Supreme Court agreed Fall 2007 that Federal government can enforce emissions limitsFederal government can enforce emissions limits

It is generally accepted that global businesses It is generally accepted that global businesses (e.g. automobile industry) may benefit from KP (e.g. automobile industry) may benefit from KP guidelines, and could suffer economic losses guidelines, and could suffer economic losses without the benefit of KP economic incentives at without the benefit of KP economic incentives at homehome

The FutureThe FutureGlobal NeedsGlobal Needs

Emissions Limits for Developing Emissions Limits for Developing Nations?Nations?

USA participation in the Kyoto USA participation in the Kyoto Protocol processProtocol process

A US led Climate Agreement?A US led Climate Agreement?

The world needs more The world needs more energyenergy

To move forward inTo move forward inthe global negotiationsthe global negotiations

Must overcome China – US ImpasseMust overcome China – US Impasse

The interests of the industrial and The interests of the industrial and developing nations are so opposed developing nations are so opposed

thatthat

Once again, we need Once again, we need a two - sided coina two - sided coin

Organizing PrinciplesOrganizing Principles

A way forward that involvesA way forward that involves Clean Technology TransferClean Technology Transfer Future Emissions Reductions by Future Emissions Reductions by

Developing Nations, China + India: Developing Nations, China + India: Article 4 UNFCCCArticle 4 UNFCCC

CDM as a foundation of a major CDM as a foundation of a major technology - driven financial technology - driven financial investment 60% benefits to China investment 60% benefits to China

Two Building BlocksTwo Building Blocks Modest extension of CDM Modest extension of CDM – New Negative – New Negative

Carbon Technology - Efficient Carbon Capture Carbon Technology - Efficient Carbon Capture + Storage Technology specifically favorable + Storage Technology specifically favorable for developing nations with low emissions for developing nations with low emissions (Africa & LA) (Africa & LA) NatureNature 2008- 2008- ScienceScience 2009 2009

Powered by renewables (solar CSP power plants)Powered by renewables (solar CSP power plants)

New Financial Mechanism New Financial Mechanism modest extension modest extension of carbon market can reproduce in financial of carbon market can reproduce in financial terms Article 4 of UNFCC -- while providing terms Article 4 of UNFCC -- while providing the equivalent of limits on developing nations the equivalent of limits on developing nations emissionsemissions

Blueprint for Sustainable Blueprint for Sustainable DevelopmentDevelopment

Clean and Abundant Energy available worldwideClean and Abundant Energy available worldwide Supporting sustainable growth in developing Supporting sustainable growth in developing

nationsnations Providing a global market for industrial Providing a global market for industrial

technologytechnology Transforming fossil fuels into a clean alternativeTransforming fossil fuels into a clean alternative Solar thermal sources of energy that Solar thermal sources of energy that reducereduce

atmospheric carbon concentrationatmospheric carbon concentration Investment to renovate the $43 trillion power Investment to renovate the $43 trillion power

plant industry worldwide (IEA)plant industry worldwide (IEA)

Global EnergyGlobal EnergyTodayToday

89% fossil – gas coal, oil89% fossil – gas coal, oil 10% nuclear, geothermal and 10% nuclear, geothermal and

hydroelectrichydroelectric Less than 1% solar power – photo-Less than 1% solar power – photo-

volteic and solar thermal.volteic and solar thermal.

The Long RunThe Long Run

Only renewable sources of energy will doOnly renewable sources of energy will do Wind, Biofuels, Nuclear, Geothermal, Wind, Biofuels, Nuclear, Geothermal,

Hydroelectric energy – all in limited Hydroelectric energy – all in limited supply cannot replace fossil fuelssupply cannot replace fossil fuels

Only solar energy canOnly solar energy can Less than 1% of the solar energy we Less than 1% of the solar energy we

receive can be transformed into 10 times receive can be transformed into 10 times the fossil fuel energy used in the world the fossil fuel energy used in the world todaytoday

Long Run v. Short RunLong Run v. Short Run

They require different policiesThey require different policies Long run strategies do not work for Long run strategies do not work for

the short runthe short run Yet any short term strategy must Yet any short term strategy must

accelerate renewable energyaccelerate renewable energy Or will defeat long run goalsOr will defeat long run goals

Short Run: the next 10 Short Run: the next 10 years years

No time to transform the entire fossil No time to transform the entire fossil infrastructure – it costs $43 trillion (IEA)infrastructure – it costs $43 trillion (IEA)

Negative Carbon: Reduce carbon in the Negative Carbon: Reduce carbon in the atmosphere nowatmosphere now

CSS works but does not sufficeCSS works but does not suffice ‘‘Air capture’ and solid storage – too Air capture’ and solid storage – too

expensive?expensive? Combine air capture with solar thermal Combine air capture with solar thermal

electricity: more electricity and reduce electricity: more electricity and reduce carboncarbon

Economic IncentivesEconomic Incentives

We need economic incentives for the We need economic incentives for the Short and the Long RunShort and the Long Run

The Next Generation Kyoto The Next Generation Kyoto Protocol post 2012Protocol post 2012

Bringing aboard US and the Bringing aboard US and the developing nations G77 – China and developing nations G77 – China and IndiaIndia

Innovative Derivative Innovative Derivative MarketMarket

A A derivative marketderivative market based on the based on the Kyoto Protocol carbon market – calls Kyoto Protocol carbon market – calls and putsand puts

Can overcome China – US ImpasseCan overcome China – US Impasse Based on 1992 Climate Convention Based on 1992 Climate Convention

Article 4Article 4 A market solution with equity A market solution with equity The two sides of a coinThe two sides of a coin

Blueprint for Sustainable Blueprint for Sustainable DevelopmentDevelopment

Private/Government approach, based on Private/Government approach, based on industrial technology and financial markets’ industrial technology and financial markets’ leadershipleadership

Self - funded and highly profitable derivative Self - funded and highly profitable derivative markets – carbon credits is the ‘underlying’markets – carbon credits is the ‘underlying’

Based on the Kyoto Protocol CDM - or Based on the Kyoto Protocol CDM - or successorssuccessors

Providing abundant Clean Energy to stave off Providing abundant Clean Energy to stave off impending Energy Crisis in developing nationsimpending Energy Crisis in developing nations

Mutually beneficial cooperation for industrial Mutually beneficial cooperation for industrial and developing nationsand developing nations

The two sides of the coinThe two sides of the coin

UNCTADUNCTADCapacity Building Capacity Building

MeetingMeeting Modest extensions of CDM - Accreditation Modest extensions of CDM - Accreditation

for for Negative Carbon Negative Carbon Technologies that Technologies that make CDM investments accessible to low make CDM investments accessible to low emissions nations – Africa & LA - emissions nations – Africa & LA - cogenerate electricity & carbon capture – cogenerate electricity & carbon capture – regional distribution of CDMregional distribution of CDM

Financial Mechanism - Financial Mechanism - modest extensions modest extensions of carbon market that resolves Impasse on of carbon market that resolves Impasse on Emission Limits from Developing Nations Emission Limits from Developing Nations - implementing Article 4 of the UNFCCC- implementing Article 4 of the UNFCCC