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It is relatively cheap, it is abundant and its renaissance started before the Fukushima accident. In the future energy mix, gas and renewables will play an important role, but coal will be the most important source. That’s why we need to implement CCS and make it economically affordable if we want to meet our mitigation targets. Prof. Ottmar Edenhofer, in this interview conducted by Mauro Buonocore, talks about the future of energy, the opportunity of a European super-grid and proposes a two-track model for climate negotiations.

Prof. Edenhofer, how have climate negotiations been going since the last COP in Cancùn?  What can we  envision for the future of international negotiations on a post-Kyoto agreement?

It’s very hard to predict what will happen after Cancùn. By and large, I would say that the prospects for a quite comprehensive climate regime in the near future are not very good. And the likelihood that this would happen at the Cop 17 in Durban, South Africa, unfortunately is very low. Nevertheless people become aware of what happened in Fukushima, which has basically nothing to do with the climate change issue, but has a lot to do with the energy issue and will change things substantially in the energy market at the international level. I think that people are going to be a little bit more aware that energy security, human development, economic growth and climate change are all parts of the one integrated issue which deserves much more attention than we gave to these single topics in the last decade. So, I do not assume that the Cop in Durban will be a great success, but I think that in the next three years something will happen at the international scale, which will help us with the broader sustainability issue. The longer we wait, the more expensive mitigation becomes – and the risk increases that climate change reaches tipping points in the earth system like Greenland ice sheet melting.

Should the international community drop the project of a global agreement and should it concentrate its efforts on countries’ individual pledges without a legally binding framework?

I think that a legally binding agreement is important but this should not be the one and only target to camp on. Think about China, for example. China has recently presented the 12th five-year which is extremely ambitious, in some aspects. We don’t necessarily need legally binding agreements. What we need is some kind of international cooperation, which could be very effective as a starting point of negotiations and, with its new 12th five-year plan, China could be one of the driving forces for international cooperation.

After the conferences in Copenhagen and Cancùn the format of the COP was criticized and some experts said it was  not the most  effective way to get concrete results for climate negotiations. Do you agree with this assessment?

That’s probably true. The whole framework of the UNFCCC is good at getting a consensus in the end of a process, but it is not the best format to do real negotiations and therefore I would strongly propose to have a two-track model. On the one hand we could negotiate within the G20 and other international arenas about several issues. In the end if we have achieved any concrete results, the UNFCCC would be a very good framework to get everybody on board and to have the strongest legitimacy on the achieved outcomes.

Could you please make some examples of these other arenas?

G20 would be one of them, for example; or other arenas where you could achieve a bilateral agreement, let’s say between Europe and China, on climate and energy topics. Let me give  you a more concrete example. China intends to implement an emissions-trade scheme and the European Union,  which has great experience on this issue, could advise China on how to implement such a thing. This could be done at a bilateral level. There are so many opportunities for international cooperation and I would avoid the kind of negotiations where people are only focusing on the UNFCCC. I mentioned the G20 as a good arena to achieve outcomes because in the G20 we have already agreed to abandon fossil fuels subsidies. This kind of decision should be simply implemented and this would also be a very good starting point to do something at the international scale. So I think we have to combine different scales of cooperation, we should be aware that in the end we have to achieve an international agreement but there are many ways and many smaller steps that could have a strong impact on all the international negotiations.

Will the Fukushima nuclear crisis have any consequences on energy policy and on nuclear strategies around the world?

First of all, Fukushima has a strong impact on the European policy and I am quite convinced that in the end it will have a strong impact on the global energy policy. I would like to give you a number. Up to now, 14% of the  entire world’s electricity production comes from nuclear power. We have now about 455 light water reactors on the globe. And, given that the electricity consumption will double within the next 20 years, if we  would decide to stabilize the share of nuclear power on the electricity production, we will have to implement around 450 other light water reactors across the globe by the year 2030. I think that – independent of the question whether this is something to aspire to – at the international level we will simply not be able to stabilize the electricity production at 14% from nuclear plants around the world.  I also think that China and India will think about nuclear power again. I’m not saying that they would phase out nuclear power, but the speed and the race to build nuclear power plants might very well be much slower than the project many people anticipated before the Fukushima event. I would say that we could  expect a decline in the share of nuclear power in the global energy mix. From my point of view, in the global scale, the big issue in the future will be coal because it is relatively cheap, it is abundant and many countries will then substitute their nuclear power capacities with coal. Therefore, it is absolutely crucial for an ambitious climate policy, that we have Carbon Capture and Storage technologies available. I know that CCS is not available now at the commercial level and we have only a few pilot plans. People, particularly in Europe, think that CCS is not an important part of the mitigation portfolio. I think it is an almost inevitable part because coal remains the most important issue. Gas will also become important, energy efficiency also has to play a very important role. And the scenarios produced by IEA show that renewables will play an extremely important role and then we have to make sure that renewables really become competitive and cost efficient.

Are the European targets on mitigation achievable with an energy strategy with no nuclear plants?

It is an issue, which has to be analyzed very carefully, but I have the feeling that the European Union  can achieve its mitigation targets if we have a common and a unified European energy policy. If we would have a grid across Europe, we would be able to have integrated energy from the best sites for renewables. We could concentrate, for example, solar power in Spain, wind plants in the North Sea, and so on. With this perspective, I think that we could achieve the ambitious climate protection goals even without nuclear power, but admittedly a   European super-grid requires a lot of investments in the infrastructure.

But renewables are not competitive in the energy market, today. And they are growing on public incentives. Do you think that they will soon become competitive?

It is a stepwise process and it has to be complemented by energy efficiency. Wind is to a certain extent already competitive and also an increasing CO2 price will make coal and gas less competitive. So this is a timing issue and I’m not saying that we can achieve it immediately, but over a reasonable time horizon we can build  this kind of super-grid which  integrates renewables from all over Europe. It’s definitely an option, but it takes time. Even in Germany we  are now debating about by when we should phase out nuclear power. It is my expectation that we will not phase out nuclear power immediately, but we will also do this step by step. And although we have to invest, we have to inform the people and  ask them if they would like to phase out nuclear power by 2020 or a bit later. Anyway, new investments in renewables are inevitable and people have to accept that this is not a free lunch.

Which kind of energy mix are China and India going to compose?

I definitely think China  now has the goal to increase the energy efficiency to an unprecedented scale so China is also thinking about an emissions trade scheme at a national scale, which is very encouraging. The Chinese energy portfolio will count on renewables, but they also have a huge amount of coal and gas. The role of nuclear power will depend on how fast they will be able to build up new nuclear plants. But, again, coal will be a  prominent energy source and so we need CCS and we have to clarify to what extent it is feasible and economically affordable. China is now willing and is committed to do something to reduce their emissions and I find this a very encouraging sign.

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International structure affects the foreign policy issues and the domestic politics; you can’t just prioritise one or the other you have to do both sequentially and simultaneously.
Prof. Robert Keohane (Princeton University) talks about international relations, cap-and trade and a “dual-leadership world” where Usa and China have to take the lead, but you can’t say to say which players can determine the outcomes in the system. How can we get action from people and leaders in climate negotiations?
“In the presence of a deadlock on the traditional ways of solving climate change questions, may be the Economy of Esteem could help us” Prof. Keohane argues in this interview to Climate Science&Policy.

A Two Level Game

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Climate Change and the Economy of Esteem

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Incentives, Credible Actions and Binding Limits for a Global Climate Policy Architecture

Read the full transcript

Interrelated Topics for a Multilevel Issue

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USA and China Potential Leadership for Important Players

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At COP 15 in Copenhagen, China has announced that the country carbon emissions per unit of gross domestic product (GDP) will be reduced in 2020 by 40–45% with respect to 2005 levels (this commitment is in the Annex to the so called Copenhagen Accords). This has marked a point of departure from the long standing reference to the UNFCCC principle of “common but differentiated responsibilities”, which requires Annex 1 countries to take on the initial responsibility in reducing carbon emissions. China’s appeal to the historical responsibility of developed countries and their higher per casame pita emissions remains a very valid point, but its now undisputed role as the largest emitter in the world –with 25% more emissions than the second one, the US– doesn’t get unnoticed. Before and during COP 15, many countries have pressed China to take on action in controlling their very rapid emission growth.

An important political statement with an elusive metric

Although China has resisted demands from American and European negotiators to adopt binding limits on its emissions, arguing that environmental concerns must be balanced with economic growth and that developed countries must first demonstrate a significant commitment to reducing their own emissions, its -40-45% proposal can be considered an important political statement. However, the assessment of its implications in terms of emissions reductions has generated less consensus, given that specific assumptions are needed to convert the somewhat elusive metric of carbon intensity into the conventional one of quota targets.

Economic and emissions projections can be used to provide some intuition of how demanding is the intensity proposal. According to the Energy Information Agency of the US Department of Energy (EIA-IEO09), in 2020 China will have an economy of 16.9 Trillions USD (measured in 2005$, PPP) and energy related emissions equal to 9.4 GtCO2, and thus a carbon intensity of 0.56 tCO2/’000$; with an intensity in 2005 just above 1, the country is thus assumed to achieve the 45% reduction target in the so called Business as Usual scenario, without any additional effort.

Another well known energy outlook, provided by the International Energy Agency (IEA-WEO09), foresees a very close carbon intensity figure (0.55), reinforcing the argument that the Chinese proposal would not entail measures that are additional to the ones considered as baseline. What China commits to do is therefore its business as usual.

However, this interpretation is at odds with declarations that suggest that significant action will be required to achieve a decarbonization of the economy of this sort, released for example by the same IEA¹. Chinese commentators² have suggested that the objective will require significant investments and increased taxes on energy or emissions. Yet, looking at Chinese own forecasts doesn’t provide a different picture from the ones of foreign agencies: in the report that forecasts energy and emissions to 2050, produced by China’s Energy Resource Institute, the carbon intensity in the baseline is expected to fall within the 40-45% band. Indeed, and contrary to other countries such as India, the main sources of projections seem to agree on similar growths in emission (3% per year) and in the economy (8% per year), which yield the rate of decarbonization set forth in the Chinese proposal in Copenhagen.

It should be noted that Business as Usual scenarios incorporate significant investments in low carbon technologies: for example, according to the IEA, 114 GW of wind and nuclear will be in place in 2020, as compared to today’s 14. China has also committed to a significant energy efficiency improvement before 2010. Yet, coal is expected to continue to dominate the energy mix, with the astonishing installed capacity in 2020 of almost 1000GW, twice as much as today. It thus remains unclear whether the proposed climate policy will achieve more than the already demanding “natural” evolution of baseline.

Economic development and carbon intensity

History provides some, though partial, guidance over the future. In the 15 years preceding 2005, China’s carbon intensity has decreased by roughly 44%, the same number that is forecasted to 2020, either as baseline or policy. Yet, significant variations can be detected over time. In Figure 1, we plot the historical carbon intensity for China, as well as for South Korea and Taiwan³. China achieved a remarkable drop from its initially extremely high carbon intensity, but then experienced a sudden reverse of this trend in the early 2000’s, that has ceased only after 2004. Though this well noticed fact can be imputed to a swift reallocation of the economic activity towards energy intensive sectors such as cement and aluminum, and to potential misreporting of emission inventories around the turn of the century, it also serves as a reminder that steady intensity improvements should not be given for granted.

Figure 1. Carbon intensity versus per capita gdp (log scales). Historical data for China (1988-2008), South Korea (1980-2005) and Taiwan (1975-2006), and projections to 2020 from EIA IEO09, IEA WEO09 and ERI. The two horizontal lines indicate the carbon intensity reduction target of 40-45% with respect to 2005 – click the picture to enlarge

Indeed, looking at a sufficiently large panel of countries doesn’t provide an unequivocal relation between economic development and carbon intensity⁴. Carbon efficiency gains are observed in many circumstances, but in widely varying relation to the economy. Figure 1 provides some evidence for two neighboring countries. Both Taiwan and Korea started from lower levels of intensity than China for similar level of income, potentially because both countries rely almost exclusively on imported energy and do not have significant coal resources. Over time, both managed to improve their intensity, though at rates lower than the historical (and projected) one for China. Other coal rich countries in transition through similar levels of intensity or wellbeing provide different evidence. Poland managed to decrease its intensity roughly one to one with its economy. South Africa didn’t essentially get any efficiency gain.

Therefore, the historical evidence provide us with only limited confidence to believe that naturally, as China’s economy develops from the roughly 5000$/per capita of today to the 11500 $/per capita in 2020, the carbon intensity will be driven down by a growing role of the service sector and of technology. That is, the projections reported in Figure 1 indicating a baseline straightly approaching the climate target might well be correct, but it also plausible that deviations from the historical rates of decarbonization would result in a much more demanding job.

Assessing the challenge of the carbon intensity target

By regressing per capita GDP on carbon intensity (in logs), we can estimate the carbon elasticity of per capita income for different countries and time spans. Looking at the past 20 years (1988-2008), China’s carbon elasticity is about -0.5, meaning that every 1% of increase in per capita income has been accompanied by 0.5% decrease in carbon intensity. This value is also true for Taiwan, for the 5-11.5 K$/cap range assumed to be for China between now and 2020. Using this value for projecting forward, would result – as noted above – in a carbon intensity reduction in line with the climate proposal, of about 41% with respect to 2005. Indeed, despite using a much richer modeling approach, this is what international and national scenarios are projecting.

Table1. Implications of different elasticities on carbon intensity and emissions in China in 2020 – click the table to enlarge

Using lower elasticities would alter the picture. For example, since 2004 (and according to provisional emission estimates to 2008) China’s carbon elasticity has been around -0.3. Estimates for South Korea – for a similar range of per capita income – yields a value of -0.25. In Table 1 we show what would happen if China follows such rates of decarbonization. The carbon intensity reductions for these two lower values would be lessened, consequently, to 27% and 23% respectively. Such lower rates would result in higher emissions, or equivalently in more emission reduction had the climate proposal of 40-45% to be attained. Table 1 also shows that an elasticity value of -0.3 would result in a mitigation effort of -26%, and that would exceed -33% for the lower case.

These results indicate that assessing the challenge of the carbon intensity target proposed by China is not an easy task. If China were to continue on its long term historical trend, then the 40-45% objective would essentially yield nothing more than the baseline. No additional effort. No leadership to fight climate change. The Copenhagen Accords would be even emptier than what is now perceived. This is what energy scenarios seem to predict to be the most likely case. Yet, the significant variations over time and across countries suggest that the proposal could turn into a serious mitigation policy, and possibly a very challenging task, even for somewhat lower rates of decarbonization of the Chinese economy.

1. The IEA Chief Economist, Fatih Birol, told Nature that “if the target is met, it would have significant implications for China and the rest of the world.” Nature, “China’s climate target: is it achievable?”, Vol 462|3 December 2009
2. See for example http://www.chinadaily.com.cn/china/2009-12/04/content_9113522.htm
3. Data sources for GDP, population and emissions: World Development Indicators, CDIAC, Penn World Tables
4. Similar suggestions hold for economic development and per capita emissions, a topic widely analyzed in the so called environmental Kuznets curve literature