U.S Leading in Emission Abatement.  Focus on China and India. 

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Is climate change still the priority of the climate conference?
Phillip Rosetti, R Street, November 10th

Every year the world’s leaders and their delegates convene at the Conference of the Parties (COP), which is the United Nations-hosted annual climate conference. The purpose of the conference traditionally has been to focus on the development and implementation of policy that would curtail global greenhouse gas (GHG) emissions. More recently, the focus of the conference has been to put a spotlight on the harms of climate change and debate on the responsibility of developed nations to pay for what is being called “loss and damage” instead of lowering emissions. While these discussions are important to issues of justice, they do not prompt policy formulation that would mitigate future climate impacts.

Global emissions need to be reduced

A sober examination of GHG emissions reveals that between now and 2050, global carbon dioxide emissions (the largest share of GHG emissions) are projected to increase by 25 percent. Of that increase, 93 percent is expected to come from developing nations. The world’s three largest emitters from fossil fuel use are China (30 percent), the United States (15 percent) and India (7 percent). The European Union notably is 9 percent of global emissions. China, which represents about half of the world’s annual coal consumption, will not have its leader attend the COP, nor will India. From 2010-2020, more than half of the global emissions increase came from China alone.

Much of the focus at this and past COPs has been on the United States, which as the wealthiest large emitter has received significant scrutiny. Past R Street Institute research, though, has noted that the United States is leading in emission abatement. From 2010-2020, the United States accounted for more than half of all the emissions declines among developing nations, and since 2005 has reduced its emissions more than every other developed nation combined. The United States also significantly outperformed emissions projections, even when controlling for the effects of the pandemic.

Rather, rising global emissions are explained by rising fossil fuel consumption globally. Even though alternative energy sources have been growing rapidly, they have not totally supplanted fossil because total global energy demand has exceeded expectations.

Simply, when examining the data, it is apparent that it is not feasible to reduce global emissions without concerted efforts to stabilize emissions in the developing world, and especially in China and India. While developed nations still represent a major share of emissions and need to make considerably more progress on climate change to mitigate its effects, they represent only a small fraction of projected emission increases, and a narrower opportunity for emission abatement than is offered by developing nations.

Proposed solutions so far have been impractical

A recurring theme of the COPs that is persisting through this year is that while developing nations recognize that their decarbonization is key to achieving hoped-for climate goals, they are unwilling to make commitments unless wealthy nations cover the cost. India’s climate pledge is contingent upon other countries paying for the action. This year’s COP opened with a critique that rich nations failed to measure up to last year’s promise of “$100 billion annually” of climate finance for developing nations. Given that so much of climate rhetoric in recent years has focused on legacy emissions and their impacts, rather than mitigating future emissions, it is understandable that the injustice of rich nations reaping the benefits of emissions and not paying the cost has become a focus for the COP.

But avoiding future loss and damage is not served by a nearly exclusive focus on legacy emissions and climate financing. This is because it is simply not possible for rich nations to foot all, or even a large portion, of the bill of a clean energy transition at current costs. The estimated amount of capital required for a global clean energy transition is enormous. The International Renewable Energy Agency estimates that the capital cost of global decarbonization is $45 trillion, which is consistent with an estimate from Morgan Stanley of $50 trillion. Annual costs also corroborate these numbers, with $1.5 trillion per year estimated by the Intergovernmental Panel on Climate Change ($53 trillion from 2016-2050) and the Internal Energy Agency’s Net Zero Emission scenario estimating that capital requirements will increase to nearly $3 trillion per year by 2030. For comparison, the largest U.S. climate spending package was the Inflation Reduction Act’s roughly $370 billion on climate and energy over 10 years, or about a tenth of a percent of the estimated capital cost of a global clean energy transition.

And while we expect benefits from climate action, it is important to understand that future benefits may still require investments that entail present day costs that someone must bear. Even last year’s $100 billion promise, which rich nations have not been able to fulfill, is unlikely to be enough to alter the global emissions trajectory significantly. Quite simply, the overall expected difference in capital cost between presently available clean energy and fossil fuels currently used in developing nations is too wide to expect that a climate strategy of having rich nations furnish clean energy growth abroad will materially mitigate future emissions.

Some politicians have, correctly, understood that the sort of global energy transition they often envision is not possible to achieve without private sector investment, which represents a much greater share of overall energy investment than public dollars. But the policy mechanisms often proposed are inconsistent with steering that capital toward productive ends. As an example, U.S. climate envoy John Kerry proposed a plan similar to past efforts in which companies could claim credit for investments in emission mitigation abroad, such as covering the costs of building renewable energy in developing nations. This makes sense in theory, but a historic problem with these types of programs is that they create perverse incentives for greater emissions in developing nations so as to attract outside funding.

Given the current exacerbated economic conditions of high inflation and high debt among developed nations, there is limited potential for emission mitigation through climate financing in the near term.

To cut global emissions meaningfully, focus on costs

The per-capita gross domestic product (GDP) in a developing nation is, on average, about a fourth of the per-capita GDP in a developed one. This wide disparity of wealth means that even relatively small cost differences among technologies can be critical in determining affordability in developing nations. Even though many renewable energy sources have fallen considerably in cost, the caveat is that these energy sources can only partially satisfy energy demand due to their intermittency, while energy storage and on-demand clean energy sources are often costlier than fossil fuels. In the United States and other major economies, the policy answer to the cost differential between clean and fossil energy has always been additional subsidy—something that is not an option in poorer developing nations that must wrestle with myriad health and human development challenges that take funding priority.

To achieve widespread global decarbonization, the surest path is for the real, unsubsidized costs of clean energy to achieve parity with fossil fuels. The largest factor in U.S. emission decline in recent years has not been renewable energy growth, but rather that natural gas fell below the cost of coal while offering similar utility. Similarly, innovations that bring down the costs of clean energy and its related technology will make the choice of clean energy one of economics rather than a need for subsidy and political will.

Achieving cost reduction, though, is best served by having an energy market that is as open, competitive and free from distortion as possible. Competition incentivizes firms to reduce their operating costs to increase their profits, whereas subsidies and mandates for technological uptake can ironically increase costs because firms no longer need to reduce costs to be profitable. What subsidies do exist should, to the greatest extent possible, be technologically neutral and focus on outcomes over technological favoritism.

In an environment in which true, unsubsidized costs fall due to competition, clean energy uptake in the developing world will simply be a matter of course, as it would not make economic sense to favor fossil fuels if they are higher cost. But policymakers and advocates should be careful not to claim falsely that this technological state has already been achieved, for if it had been then the issue of developing nations’ demand for clean energy financing would not be present.

Prioritize effective solutions

Delegates, advocates, politicians and other climate conscious participants at this year’s COP would be better served by a focus on the data and the nuts and bolts of what it takes to achieve a global energy transition. While a spotlight on loss and damage is an important and worthwhile effort, if the solutions demanded are impractical or unattainable then ultimately no lives will be improved. Avoiding future climate impacts is best achieved by the sort of cost reductions in clean energy that is best enabled by a prosperous and open global market where competition flourishes. If the COP attendees want to get serious on addressing climate harms, then they should look to where the best opportunities for emission mitigation are now, and not where they were in the past.