by Gerald Pech

29 September 2014

Leadership is great in business The leader gets rewarded and society benefits

from their innovative contributions So does leadership also help in tackling

climate change? Here things are more protracted

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 2

Leadership in international negotiations here the leader does not necessarily gain the

most from being leader and it is unclear whether leadership greatly

changes the outcome Leadership at the national level

here leadership would be particularly helpful but leaders are not particularly encouraged to lead

Leadership in business here some incentives seem to work in the right

direction, but not a central role for tackling climate change

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 3

1 The Economics of Climate Change a. Costs and Benefits of Mitigating Climate

Change b. The 2C-Target: Implications for Kazakhstan c. Benefits from Cooperation

2 Leadership a. Leadership in International Cooperation b. Leadership at National Level c. Leadership in Business

3 Final Thoughts

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 4

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 6

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 7

Temperature ranges as scientists tell us There is risk of “catastrophic climate

change” The economist computes “output loss” at

different temperature levels Figuring out impact on different industry

sectors agriculture and fisheries as the main losers coastal real estate another

and extrapolating share of industries in future economic output

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 8

global mean temperatureincrease oC

1 2 3 4 5

source: Nordhaus (2013)

dam

age

in %

of

outp

ut

0

2

4

6

DICE model

IPCC estimate

only market or near-market sectors loss of species (-) greater risk of natural disasters (-) health effects (-) accessibility of artic sea routes (+) Difficult to quantify

Some measures would not cost anything but rather save costs improved home insulation, energy saving light

bulbs 15% of CO2 emissions in US fall in this category

Increasing energy efficiency of household appliances, power generation, transport

Rebalancing energy mix Offset projects Carbon capture Post-combustion removal from atmosphere

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 11

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 12

Cancun agreement (United Nations Climate Change Conference 2010) says: 2 C above pre-industrial level

Is it “optimal”? Probably not too far off the mark If it would be done in an economically

efficient way, limiting the temperature rise to 2.3 C would be optimal, says Nordhaus But if countries incur unnecessary costs it might

be reasonable to allow more, say 4 C

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 13

Two thirds of already discovered carbon assets could not be commercialized before 2050 (World Energy Outlook 2012) or carbon capture technology used at

implausible level to have a 50% of meeting the target

which would require a limit of 450 parts of CO2 equivalent per million particles in the atmosphere – hence “450 scenario”

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 14

Production of fuels has to become more energy efficient – some of this might result in cutting costs, but overall producing fuels will become more costly avoiding flaring gas from oil drilling sites, oil

tar sands of Canada, carbon pricing (?) Demand will be directed towards less

carbon intensive energy sources demand for carbon fuels will decrease

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 15

9/29/2014

150$

135$

50$

85 mio barrels a day

As demand for carbon fuels decrease Prices for carbon fuels will come down Making the most costly kinds of crude

uneconomical But Kashagan should be ok

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 17

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 18

source: World Energy Outlook 2012

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 19

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 20

Different countries have different “marginal abatement costs” Depending on how much mitigation efforts they

already have undertaken A small group of countries would find it

infeasible to cut emissions sufficiently to have a global impact

Yet the economics of international cooperation have some strange properties

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 21

Everyone can be made better off if they all join in the effort to mitigate

But for each country it is tempting to take the “free rider position” Similar to the well-known “prisoners’ dilemma”

That only some countries cooperate and others stay on the sidelines may be a stable outcome the threat of stopping to cooperate does not work stronger medicine is needed to encourage

widespread participation

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 22

from Finus/van Ierland/Dellink (EG 2006)

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 25

Does president Obama’s use of administrative powers to cut carbon emissions encourage Chinese reciprocity?

China has recently taken action against the emissions

But mainly because citizens complain about local impact of emissions

At the international level, Obama’s action may just make it less likely that China moves

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 26

Kyoto, negotiated 1997, in force 2005-2012

Of the main emitters, only EU, Japan and Eastern European transition economies have joined Kazakhstan ratified in 2009

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 27

Even when countries join, there is no guarantee that they keep their pledges

Signatories miss out on their targets: EC target: - 8% on base year 1990 compliance gap in 2007: 6.5% Canada target: -6 % compliance gap: 31.1 %

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 28

Punishment for countries which do not join or which do join but renege on their pledges

Could take form of a “carbon tariff” on imports from those countries which might be acceptable under WTO rules If a country allows unrestricted emissions this

might be considered a “price dumping policy” under WTO rules and entitle others to retaliate

As of yet untested! But WTO itself has looked more febrile

recently

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 29

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 30

President Obama’s use of administrative powers to cut carbon emissions certainly moved the US in the “right” direction

There has been the argument that many countries would benefit from reducing carbon dioxide emissions

by reducing local environmental effects and earning tax revenue

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 31

Highest emissions of CO2 per capita in Europe and Central Asia

Still heavily subsidizes (in the end consumption of) carbon fuels

Yet started to introduce a market for trading carbon emission allowances and requires all companies with more than

20,000 t CO2 equivalent emissions in 2012 to use allowances

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 32

Politicians are probably interested in political costs (of emission abatement) rather than economic costs Voters whose livelihoods are directly threatened

by mitigation efforts (oil workers in Oklahoma) are vocal and effective opposition

“Under my administration, America is producing more oil today than at any time in the last eight years.” (Obama, cit. in McKibbins, 2014)

Is there a “grand bargain” at national level? Easier in post-industrial societies and easier in

Europe than the US

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 33

As target of government regulation or as potential target of regulation

incentive to pre-empt government action by announcing voluntary measures

but also make adjustments to expected future government policies

As competitor for costumers and employees both tend to value a company’s reputation for

“environmentally responsible behavior”

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 35

A reputation for ecologically and socially responsible behaviour is vital for an employer to attract graduates for 15% of German college graduates it is the

most decisive factor in their choice of employer

for 67% it is one decisive factor

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 36

Sir Richard Branson of Virgin Airlines and his pledge to make 10 bn available for research

But other companies made pledges at last week’s UN event

Incentives work in the right direction: If your competitor makes a pledge, it

increases incentives for you to make a pledge

So this is an example where leadership works

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 37

Whilst leadership in business clearly has the effect of motivating followers to make pledges

voluntary contributions are unlikely to solve the problem on their own

Companies are only “indirectly” motivated and keeping pledges is a different matter

In the end, tackling climate change is the job of governments, not private businesses

There, national leadership would be helpful But international leadership has its limits

9/29/2014Is There a Role for Leadership in Mitigating

Climate Change? 38

Nordhaus, D., The Climate Casino, Yale UP 2013

Klein, Naomi, This Changes Everything Krugman, P., Gambling with Civilization, NY

Review of Books 7 November 2013 Link McKibben, B., Will We Lose the End Game, NY

Review of Books 10 July 2014 Link IPCC website Link IEA, World Energy Outlook, 2012 Link OECD, Energy Subsidies and Climate Change

in Kazakhstan, ENV/EPOC/EAP(2013)7 Link9/29/2014

Is There a Role for Leadership in Mitigating Climate Change? 39