FT on climate policy

McDermott, Verde, Laing and Mejean take on Lomborg in the Financial Times.

As I have argued before, Lomborg plays a useful role in cooling down the overly ambitious climate policies promoted by European leaders — but he also tends to get his details wrong.

New targets for greenhouse gas emission reduction

Minister Gormley has announced new targets for greenhouse gas emission reduction: 2020 emissions are to be 10% below 1990 levels (29% below 2005 levels) , 2030 emissions 40% below 1990, and 2050 emissions 80% below 1990.

EU legislation has that Ireland should cut 2020 emissions by some 20% below 2005. The EU has committed itself to 30% if there is a meaningful global agreement on emission reduction (which is as unlikely as ever). The Environment Council has repeatedly tried to remove the conditionality of the 30%, but has been rebuffed by the European Council. The government now argues that Ireland should unilaterally adopt the 30% (well, 29%) target.

It will be hard enough to meet the EU target, as illustrated here (after Devitt et al., 2010). According to the low growth scenario, Ireland will fall short some 5.5 mln tonnes of CO2 equivalent of the EU target — and 13.5 mln tonnes of the new government target. Today’s permit price is 14 euro/tCO2. Under the EU target, Ireland would need to spend 80 million euro per year on importing permits (the model imposes a carbon tax equal to the permit price, so buying permits is cheaper than increasing domestic emission reduction). Under the new government target, this would by 190 mln euro.

The new government target is less stringent than that proposed by the Oireachtas Joint Committee on Climate Change and Energy Security.

Paddy Morris on the economics of climate change

Over at Think or Swim, Paddy Morris accurately summarizes my work on the economics of climate change pre-Anthoff and pre-Weitzman. The comments are interesting too.

Poznan and all that

The latest round of international negotiations under the United Nations Framework Convention on Climate Change in Poznan reached its conclusion last week. The parties to this convention meet twice a year. The latest talks were a preparation for the Copenhagen negotiations scheduled for late 2009. Nothing much happened in Poznan. These were talks about talks.  Should one pity the civil servant who attends these boring meetings, or envy her for all the foreign travel at the taxpayers’ expense?

By the way, the Irish taxpayer need not worry about such expense: The Irish delegation to the climate negotiations travels on account of official development aid. Poor foreigners foot the bill.

The irrelevance of Poznan is best illustrated with the fact that the European Council met during the “crucial” end-phase of the Poznan conference — and made decisions about European climate policy. The decisions are bizarre from an economic viewpoint.

The main target of European climate policy was unchanged. We will reduce greenhouse gas emissions in 2020 to 20% below their 2005 levels. A number of countries expressed concern about the costs of meeting such a strict target. These worries were placated by grandparenting more emission permits, and auctioning fewer. This is exactly wrong. Cap-and-trade with grandparented emission permits is roughly equivalent to a carbon tax with lump-sum recycling. Cap-and-trade with auctioned permits allows for a smarter recycling of revenue. In fact, almost any recycling scheme is smarter than lump-sum. In this particular case, the revenue is essentially a capital subsidy to energy-intensive industries (but long after credit will be uncrunched), although it can also be interpreted as a windfall profit. The agreed compromise is not bad for the environment as some environmentalists have claimed because emission targets are the same. The agreed compromise is not good for the economy either, contrary to the claims of the politicians involved. It is bad for the economy, but good for shareholders in energy-intensive industries.