- John Kemp is a Reuters columnist. The views expressed are his own --

As hopes for reaching a binding agreement to cut greenhouse gas emissions at the Copenhagen summit die, climate negotiators could learn useful lessons on how to structure the negotiations from the multiple rounds of trade talks within the GATT/WTO framework.

Climate negotiations are about limiting carbon dioxide emissions, but the negotiators are also hammering out a complex economic instrument that will define the distribution of production, energy use and income in the next few decades. It is the agreement's profound economic effects that are making it so hard to reach a final deal.

While the stalled negotiations on the Doha Round might make it seem likely an unlikely role model, the GATT/WTO process has successfully created a legal framework for liberalising world trade through eight successive rounds of increasingly complex negotiations, as well as a dispute settlement system accepted by all major countries.

In the process, negotiators have already had to resolve many of the difficult issues bedevilling attempts to reach an emissions deal:

* How to obtain treaty commitments from a huge range of countries at different stages of economic development.

* How to handle negotiations with the United States, given the peculiar nature of that country's constitutional arrangements.

* How to ensure countries live up to their commitments and resolve subsequent disputes about treaty implementation.

Climate negotiators could usefully apply many of these lessons to their own agreement. As Copenhagen falters, they may need to rethink the "road map" for talks to improve the chance of bringing them to a successful conclusion.

FRAMEWORK AND DETAILED SCHEDULES

The 1947 General Agreement on Tariff and Trade (GATT) established a legal framework and general principles for trade liberalisation. But detailed tariff reductions as well as commitments on subsidies, dumping and technical barriers were left to a later series of trade rounds. These commitments were then turned into schedules of concessions for each member country and incorporated by reference into the central treaty.

Negotiations started with a series of limited tariff reductions that were gradually made more ambitious. Part IV of the GATT, added in 1966, guaranteed developing countries "special and differential treatment" to encourage them to become involved in the tariff-reduction process and make their own binding commitments.

For each round, political leaders set broad objectives at the outset, but the detailed exchange of "concessions" was handled by lower-level officials in a Trade Negotiations Committee (TNC).

Something similar is needed for the climate talks. President Barack Obama has already backed a "two-step" process. Political leaders would aim for an "operational agreement" at next month's summit while leaving a legally binding agreement until 2010 or later. [ID:nSP280582] The aim is to ensure agreement on the big issues is not held hostage to myriad disputes over the details.

It might make sense to separate an agreement on the broad framework (including establishment and review of targets, trading emissions allowances, technology transfer, funding, and dispute settlement) from the details (including specific reduction targets and how much developed countries pay their developing counterparts to help mitigate the costs of technology upgrades).

It might also make sense to agree fairly easy reductions in the first round, then hold further negotiations in coming years to make targets more ambitious, using salami-slicing tactics rather than a big-bang approach. This would also allow developing countries to adopt modest emissions cuts in round one, with the aim of toughening them further in subsequent talks.

But for a two-step process to work, political leaders must give clear instructions to lower-level officials responsible for detailed negotiations (including clear scope for eventual concessions). If not agreement will become bogged down over relatively small differences in percentage reductions, as the Doha Round has become stalled over farm subsidies and tariff cuts for developing countries.

THE PROBLEM OF SENATE RATIFICATION

Trade negotiators are already used to the idea that an agreement is subject to a "double lock." Deals require approval at international level and by the U.S. Congress (either by a two-thirds majority in the U.S. Senate if the deal is presented as a treaty, or a simple majority in both houses if the deal is presented as ordinary legislation).

The existence of this double lock confers an advantage on the United States since other countries have to negotiate twice -- once with the administration and then again with Congress. Having given one set of concessions to the president's officials to secure a deal, other countries may have to make even more concessions to get the deal approved by U.S. legislators.

To encourage countries to make meaningful concessions without fear the final deal will be re-opened, U.S. presidents have often been required to obtain "fast-track" negotiating authority binding Congress to a straight up-or-down vote within a set time on the results of a trade round.

Negotiations are usually structured as a "single undertaking" in which every commitment or concession is part of a whole and indivisible package and cannot be agreed separately: "nothing is agreed until everything is agreed."

In terms of sequencing, trade negotiators have usually sought to reach an international agreement first and then presented the deal for congressional approval.

Until now, the climate negotiations have been using the opposite approach. The Obama administration has sought to obtain an ambitious climate bill including cap-and-trade from Congress (HR 2454, S 1733) and then use this to persuade developing countries such as China to offer significant emissions reductions at the international level.

But experience with trade negotiations suggests that an international deal precedes U.S. action, and does not come after it. It is unlikely Congress will agree to stringent targets without some assurance other countries will follow suit, including large future emitters such as China and India. So the international track may need to move first, or at least in parallel.

The Obama administration needs to harvest a number of provisional commitments from its international partners to have any hope of getting a climate bill through the Senate. If it is structured as a single undertaking, the various parties would offer tentative commitments. Once a deal is done, it would be taken back to the Senate to be incorporated into U.S. law.

The only question is whether the president would need to obtain some sort of fast-track authority. This is probably not necessary as long as the president's Democratic Party controls both houses of Congress with comfortable majorities.

But it does set a deadline for a deal. Negotiators would need to reach agreement by next summer, well ahead of the 2010 mid-term elections, unless the Democratic Party appears on course to retain comfortable majorities, in which case negotiations could take longer and still reach a successful conclusion.

DISPUTES, NULLIFICATION, IMPAIRMENT

U.S. lawmakers are already suspicious that other countries will not adopt meaningful targets or will cheat on those they do agree. So any climate deal will need a mechanism for settling disputes. If not, countries are likely to retaliate unilaterally against partners they believe are not living up to their commitments, which could unravel the whole system.

From the beginning, GATT Article XXIII allowed a country to request formal consultations with another treaty member if it believed expected benefits under the agreement were being "nullified or impaired," and this has been worked up into an increasingly formal and effective dispute settlement system.

If emission targets and aid packages are structured as part of a mutual exchange of concessions among treaty signatories, so one country's targets are conditioned on other countries meeting their own, the climate treaty will need a similar dispute mechanism.

Rather than attempt to create one from scratch, it would probably be better to use the WTO system as a template and modify it to take account of the climate accord's unique characteristics.

- Bjorn Lomborg is adjunct professor at the Copenhagen Business School. He is the organizer of the Copenhagen Consensus Center, which brings together some of the world's top economists, including 5 Nobel laureates, to set priorities for the world. The opinions expressed are his own. -

In this blog, I would like to share with you some of the best – and worst – ways to fix climate change. This is important because the Earth is warming up, increasing concentrations of carbon dioxide are contributing to this warming, and humankind is dumping ever-increasing amounts of CO2 into the atmosphere.

Of course, this is a point that is made by many campaigners, politicians and the media every single day. But I think that in our discussions on global warming, we actually often miss a really important question: not if we should do something about global warming - but rather how best to go about this. Just like with any other problem we face, there are many possible remedies, and some of them are a whole lot better than others. Not just cheaper (although cost is one very important criteria), but more effective, more efficient and - crucially - more likely to actually happen.

We need to focus on the cost of the solutions and the real-world benefits we should expect from them. Why? Because I believe it is nothing less than morally unconscionable to spend enormous sums of money making a minor difference to long-term global warming and human well-being, if we could achieve a lot more impact – and leave future generations better-off – with a smaller investment through a smarter solution.

This year, my think-tank, the Copenhagen Consensus Center, commissioned 21 new research papers – you can read them all here along with summaries and op-eds on them – that examine the costs and benefits of a multitude of responses to global warming. Each research paper carefully examines one response to global warming, and highlights the costs and benefits of that approach.

The research in itself is very important, and is groundbreaking in many respects. It answers such questions as what can we achieve through climate engineering? What happens if the entire world signs up to stringent, immediate carbon cuts? Are we on the right path to achieving the technological breakthroughs needed to shift away from reliance on fossil fuel? How much can we achieve through adaptation? How much global warming damage can be prevented if we focus first on cutting methane or black carbon emissions, or if we put more emphasis on expanding forests?

The papers are written by top climate economists – many of whom are heavily involved in the work of the United Nations climate change panel, the IPCC. I believe we should pay attention to their findings, because these economists are experts in calculating costs and benefits and in looking at the ramifications of different climate policy approaches. Their work definitely fills a void in the climate debate.

But having a list of feasible responses to climate change is not actually enough. We have scarce resources, and we surely have an ethical obligation to address climate change the best that we can. That means that we need to work out which approaches could play a serious role in fixing climate change.

To help achieve this, the Copenhagen Consensus Center convened an expert panel of five of the world’s leading economists, including three recipients of the Nobel Prize. Last week, this impressive team deliberated on the research and engaged with the research authors. The expert panel was asked by the Copenhagen Consensus Center to answer the question:

If the global community wants to spend up to, say 250 billion dollars per year over the next 10 years to diminish the adverse effects of climate changes, and to do the most good for the world, which solutions would yield the greatest net benefits?

They have now come up with their answer – a prioritized list representing their consensus opinion, showing the best and worst possible responses to global warming. (A summary of all of their findings is available to download at the same website).

I believe that the expert panel’s findings highlight the problems with the world’s current political fixation on carbon taxes, and – equally importantly – underscore the vast promise shown by alternative responses to global warming.

The expert panel concluded that the most effective use of resources would be to invest immediately in researching marine cloud whitening technology. (This, fundamentally, is where boats spray seawater droplets into clouds above the sea to make them reflect more sunlight back into space, reducing warming). They also highlighted a need to immediately boost research into non-carbon energy sources to ensure that we can move away from reliance on fossil fuels.

The first of these policy options, climate engineering, could provide a cheap, effective, and rapid response to global warming. Remarkably, the research considered by the expert panel, written by lead author Dr Eric Bickel, suggests that a total of about 9 billion dollars spent developing marine cloud whitening technology might be able to cancel out this entire century's global warming. That is a remarkable finding, and shows exactly why this is deserving of further, serious consideration.

I think it’s instructive to quote one of the Expert Panel members, Nobel Laureate economist Thomas Schelling, who said that “climate engineering has great promise. Even if one approaches it from a skeptical viewpoint, it is important to invest in research to identify the limitations and risks of this technology sooner rather than later.” In other words, regardless of your starting point about this technology – whether you are optimistic or pessimistic or plain cynical – there’s a really strong argument to start researching it now.

The finding that greater investment is needed in energy research came after the Expert Panel considered an excellent research paper by economists Professor Chris Green and Isabel Galiana of McGill University showing that non-fossil energy sources will – based on today’s availability—get us less than halfway toward a path of stable carbon emissions by 2050, and only a tiny fraction of the way towards stabilization by 2100. That’s a very significant finding. In other words, they are saying that there is a need for a total technology revolution which has not yet even started.

The expert panel’s findings don’t just show what we should be doing – they also highlight the policy responses that are not effective. In doing so, they really reveal the problems with the world’s current approach, which is of course a narrow focus on carbon taxes. The Expert Panel found that expensive, global carbon taxes would be an expensive, ineffective way to reduce the suffering from global warming, and placed these at the bottom of their list.

This finding was based on a groundbreaking research paper by renowned climate economist Professor Richard Tol, who showed that a high, global CO2 tax starting at 68 dollars could reduce world GDP by a staggering 12.9 percent in 2100—the equivalent of 40 trillion dollars a year – costing many times the expected damage of global warming.

There are really important implications for policy-makers here. Although carbon taxes and a ‘cap-and-trade’ scheme should, in theory, have very similar outcomes, the latter produces a much higher opportunity for pork-barrel politics and waste. So cap-and-trade schemes – which many politicians are considering implementing today – would be even less effective than taxes.

All of this is crucial knowledge, because we do not have the money to waste, nor the time to spend pursuing bad strategies. The reason for gathering the Expert Panel of economists now was that, this December, world leaders will gather here in Copenhagen to negotiate a successor to the Kyoto Protocol.

Their current path – of making ever-bigger promises of carbon cuts – is not likely to work. As the Expert Panel highlighted, it is flawed economically. Carbon taxes will cost a fortune and generate very little temperature reductions in a very long time.

It is also flawed politically, because negotiations to reduce CO2 emissions will become ever more complicated, pitting developing nations – which rely on burning fossil fuels to lift billions of people out of poverty – against richer nations.

And even if lofty promises are made in Copenhagen, the experience of past agreements in Rio de Janeiro and Kyoto shows that they are not likely to be fulfilled. The reason for this isn’t because of any lack of good-will, but because cutting carbon emissions this way is incredibly difficult and expensive.

I believe that if world leaders don’t change track ahead of Copenhagen, they will be doing us – and future generations – a huge disservice.

If we care about the environment and about leaving this planet in the best state that we can, we actually have only one option: we all need to start seriously focusing, right now, on the most effective ways to fix global warming.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. —

President Obama is in favor of moving towards “energy independence,” but his new 2010 Budget specifically seeks to raise taxes on domestic oil exploration by $31 billion over 10 years, a larger tax increase than on any other industry. In addition, oil and gas producers would bear a disproportionately heavy share of other tax increases on business, more than $320 billion.

Surely a president who desires energy independence would leave oil companies alone so that America could develop greater domestic reserves.  But this is not the case.

The ostensible rationale for the tax increases is that the current tax system “distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent expensing encourages overproduction of oil and gas, it is detrimental to long-term energy security…” This wording, with reference to credits, lower tax rates, special treatment, and accelerated depreciation, is repeated eight times in the Treasury Department’s Green Book, a description of proposed spending and revenue changes in the budget.

President Obama believes that subsidies for renewable energy are acceptable, even though renewable energy is only responsible for 4 percent of America’s supply.  He does not consider expenditures of $60 billion on “clean energy investments” to be distortions.  But oil, which accounts for almost 40 percent of America’s energy usage, is a different matter, apparently deserving of higher taxes to limit overproduction. With fuel prices close to $5 a gallon last summer, we could have used a little overproduction.

If America is to reduce use of imported fuels, it needs to raise domestic production to increase long-term energy security. Every additional barrel of oil produced in America is one barrel fewer that needs to be imported.  The oil and gas industry already employs more than 1.5 million workers, and has the potential to employ many more.

Estimates of American oil and natural gas reserves keep growing, potentially generating more job opportunities.  In 2007, 200 trillion cubic feet of natural gas, equivalent to 33 billion barrels of oil, or about 18 years of U.S. oil production, were found in the Haynesville Shale, a rock formation in northern Louisiana. Discoveries have also been made in Texas, Arkansas, and Pennsylvania. New optimism about U.S. gas reserves and production capacity has been pushing natural gas prices down.  Since the fuel is there, why propose new taxes to discourage production?

President Obama’s new tax proposals, rather than leading towards energy independence, would drive oil and gas production abroad.  New taxes would place American producers at a disadvantage in the global market, punishing domestic American oil and gas companies and benefiting countries with large reserves such as Venezuela, Saudi Arabia, Iran and Russia.  Does President Obama really want these countries, all under fire for their neglect of basic human rights, to get richer at our expense?

Moving towards energy independence is under attack from another quarter—extreme environmentalists. After Tuesday’s failure of California ballot initiatives to cut spending, Californians might take seriously Governor Arnold Schwarzenegger proposal to allow additional offshore drilling from Platform Irene, off the coast of Santa Barbara, which would raise $1.8 billion. But drilling on the Outer Continental Shelf remains unpopular. It’s telling that residents find it preferable to release 40,000 prisoners from jail or fire thousands of teachers—rather than drill offshore, which could bring in a steady stream of revenue to the state capital of Sacramento.

Until the United States has the technology to operate its 250 million motor vehicles without gasoline and natural gas, we need more domestic exploration, not less.  At some point, maybe later this year, maybe in 2010, our economy is going to shift to post-recession recovery, and oil and gas consumption are going to rise.  We don’t want a repeat of $5 gasoline and sky-high home heating bills.

Davos leaders have traditionally looked to the long term and have largely been keen on helping all nations of the world to benefit from economic development. But with politicians and businesses tied up with short term concerns about the economic crisis there’s a risk at least that efforts to spread development and to ward against the threat of climate change may go on hold, at least for a time. Reuters News asked delegates at the World Economic Forum’s annual meeting to share their thoughts on whether we should be concerned about development and sustainability slipping down the global agenda.

– Amanda Williams Palmer is the editor of Reuters’ European Venture Capital and Private Equity Journal (EVCJ). The opinions expressed are her own. —

Steel giant ArcelorMittal has shut down furnaces at a dozen sites across Europe for at least six months as its customers, mostly automakers, downsize because of the economic downturn. While environmentalists crack into the bubbly, serious polluters realize that carbon is about to get a whole lot cheaper. And cheap carbon is only bad for the environment.

ArcelorMittal and many other industrial manufacturers are busy selling surplus carbon credits in order to raise short-term cash, flooding the market where polluters trade EU Carbon Allocations (EUAs). Under the Kyoto agreement, companies need a certain number of EUAs in order to pollute. So ultra dirty European utilities, which face huge carbon shortfalls and have been slow to adopt cleaner methods, are buying those credits for a song.

EUA prices have fallen from their 1 July peak of €29.33 ($37) to a low on 28 October of €17.40 ($22), said Alessandro Vitelli, director of strategy at IDEACarbon, a carbon finance ratings agency. “The price implications of the recession are already being seen,” he said.

The low price of carbon also discourages hedge funds and private equity funds from investing in companies that reduce emissions. These funds aim to profit from a type of carbon credit called a certified emission reduction (CER). CERs are issued by the United Nations to developing world companies that are removing pollutants from the environment.

Many of these companies are backed by private equity and hedge funds and it is this type of business which may suffer most in the downturn because CERs typically trade at a €1 to €2 discount to EUAs.

The Carbon Asset Fund, backed by Carbon Capital Markets, is one such fund. It invests in projects across the developing world, especially in Central and South America and South East Asia. The companies that it supports specialize in destroying methane created by landfills by flaring it or turning it into energy. These companies are rewarded with CERs by the UN.

“There is always the fear that in the current financial situation the instinct is to ignore the environmental problem,” said Nick Eagle, the director of sales and trading for Carbon Capital Markets. “But the current credit crunch is short term in comparison with the issue of global warming.”

That may be, but for some financial sponsors, the price falls have only underlined their concerns about carbon investing. Impax, which runs a green hedge fund and a private equity fund, has shied away from investments in CER businesses because “we’ve seen a waterfall of risks including the most recent fall in the price” said CEO Ian Simm.

Despite some short-term carbon emissions cuts, the domino effect the economic downturn will have on the cost of carbon credits threatens the long-term health of the environment.

(Pictured above: Smoke is emitted from a factory at Keihin industrial zone in Kawasaki, south of Tokyo October 22, 2008. REUTERS/Kim Kyung-Hoon)