Achieving Large Global Goals 

We are in a challenge unique in history, unprecedented, to bring a global scale, environmental threat under control. And unfortunately for the reasons that I ticked off earlier, the eight extraordinary features of this challenge, this is one of the toughest challenges that humanity has faced as a peacetime challenge. So we have our work cut out for us.

Some people are pessimistic, are cynical, believe that the vested interests will win, that the short-sightedness is inevitable, that politics can’t agree on anything much less something as complicated as this. Or that it’s humanity’s fate to have to suffer massive climate derangement cause we don’t pay attention and we don’t take care of ourselves. I think we need not believe any of that kind of pessimism or cynicism. And we do need to take heart, again, as students of history in the fact that good things happen. Big changes do take place. Social movements can be successful in creating very large-scale, indeed global, very positive change. And this is really the topic that I’d like to explore with you in this final chapter.

How we can help to bring about large-scale social change, that is the change to help make the world safe, to respect the planetary boundaries, to achieve sustainable development, generally and specifically to honor the 2-degree Celsius limit as a limit of safety, a guardrail for the world environment? To do that the basic lesson of social change is that not only are governments needed at the table, businesses needed at the table, academics, scientists, experts needed at the table, we as global citizens are also needed at the table.

Large-scale social change occurs ultimately through large-scale social movements. It’s the public, it’s civil society that raises its voice and says, we need to be heard because it’s our safety, it’s our children’s safety, it’s the safety of future generations that we care about that need respect and need attention now. These social movements often start with small groups of very dedicated, committed and very brave people, but they do tap into a moral spirit widely shared. They tap into a knowledge base that can be demonstrated and proved and by being based on fact as well as based on ethical values, widely shared, they can turn into very large-scale social change.

I think about some of the most important of these movements in the last couple of centuries. Think about the fight about ending slavery. Slavery was pervasive. It was the norm at the end of the 18th Century.  A small group of committed activists in Britain at what was becoming the height of the British Empire, said, this is morally wrong, abominable. We need to end the…first the trafficking and then the presence of slavery in the British Empire. It may seem obvious to us, how could anybody defend slavery, but slavery was strongly defended within England itself, of course with the huge slave industry and in other parts of the world. But Wilberforce and Clarkson and others persisted over the course of decades. And quite astoundingly and wonderfully the moral case became the dominant social reality and then the political reality. And slavery was ended in the British empire in 1833. It took a war in the United States to end slavery. Step by step slavery was seen as the abomination that it was.

And by the end of the 19th Century in most places, but still not in every place today, slavery was eliminated. But this is an example of how a moral principle can finally turn into a political inevitability. Ending colonial rule was seen as something impossible to achieve when Gandhi began his campaign in India in the early 20th Century. And by the end of the century it was again, a near inevitability. Not complete, not total by any means, but the mindset, the ideas about what is right and wrong about one people politically dominating another had changed fundamentally in the course of the 20th Century.

The civil rights movement and the anti-apartheid movement similarly required the bravery and genius of a Martin Luther King, Jr. and a Nelson Mandela, but those ideas became widespread ideas. And when one looks at social attitudes today in places that were virulently racist a generation or two generations ago, social attitudes also do change over time.

And now we’re in a battle for women’s rights, for the freedom of sexual orientation, new social mores that come through brave people saying, this is right, this is our moral stake in this, this is something which society more generally needs to embrace. And I think the evidence is that these magnificent and large-scale social changes, starting with very brave, small groups of people but through persistence finally spreading through society can fundamentally change the direction of the world as a whole.

In the last 14 years I’ve been very privileged to be a part of what many of you are also part of and that is the fight to end extreme poverty. The idea that extreme poverty is an anachronism, absolutely needs through directed efforts brought to a close of human history is an idea that was adopted by world leaders at the beginning of the new millennium in the Millennium Development Goals. They have not ended extreme poverty by any means but they have played their role and extreme poverty is coming down as a proportion of the world’s population and in the new phase that will follow the Millennium Development Goals, it’s within reach for governments to say, we can end extreme poverty. The idea is there, the progress is there, the momentum is there and the moral commitment is increasingly taking hold around the world.

Climate change and sustainable development more generally is another case where we need a worldwide reorientation of what we do, how we live, and the morals with which we live. And it was interesting and not just interesting, I would say notable and very important that when the world leaders came together on the 20th anniversary of the Earth Summit, as I described earlier, at the Rio+20 summit in June, 2012 in Rio de Janeiro. At that point, they looked at the Millennium Development Goals and said, that is social action that’s working, we have treaties, we have law, we have negotiations but they’re not working as they need to, we need to look at the lessons of the Millennium Development Goals. In other words, we need to bring society to the table of sustainable development.

And in the outcome document of Rio+20, the conferees made a very valuable contribution and I want to read it. You see it here on the screen. We recognize that the development of goals could also be useful for pursuing focused and coherent action on sustainable development.

These goals should address and incorporate in a balanced way all three dimensions of sustainable development and their inter-linkages. By that they mean, economic, social and environmental. We’ll also underscore that STGs should be action oriented, concise and easy to communicate, limited in number, aspirational, global in nature and universally applicable to all countries while taking into account different national realities, capacities and levels of development and respecting national policies and priorities.

We are in that sense part of a new social movement. The public is coming to the table, the sustainable development goals of which one headline goal will be a safe global climate, gives us the opportunity to help create a worldwide public understanding and public demand for climate safety and for the other features of sustainable development. It’s in that context that the DDPP, the Deep Decarbonization Pathway Project arose, because Secretary General Ban Ki-moon said in the aftermath of Rio+20, we need a global network of problem-solving. And he created the Sustainable Development Solutions Network, the SDSN.

And I’m very privileged to be the director of that. He created that network in order to bring together scientists, engineers, business leaders and civil society leaders, precisely for the kind of problem-solving in which we’re engaged. And the DDPP is a great flagship of the Sustainable Development Solutions Network. It’s an example of civil society, in this case experts from around the world, largely from academia and from other knowledge-based institutions, coming to the fore and saying, here is how this particular problem of deep decarbonization can be solved.

And we’ve learned a lot that we’ve been emphasizing through these lectures, through the DDPP process. We’ve learned a lot about problem-solving itself because we’ve had to solve the problem of how to make our process work, which is not an easy…easy process by any means to actually find these pathways in a constructive manner that can help the world move towards a meaningful climate agreement.

We’ve identified in the SDSN and in the DDPP some of the strategies for success in achieving big social goals. The first part of success is set goals. This I think is absolutely fundamental, because without the goal we have no direction. With a goal, stay below the 2-degrees Celsius in order to prevent dangerous anthropogenic interference in the climate system, we have goal. We have something we can hold onto. And as President John F. Kennedy said about setting goals, “By defining our goal more clearly, by helping it seem more manageable and less remote we can help all people to see it, to draw hope from it, and to move irresistibly toward it.” So not only do we need goals but we have to define the goals more clearly, make them seem more manageable as we hope the DDPP process is doing. And specifically to make the goals seem more manageable we have to identify pathways o achieving those goals.

What we have called backcasting. Look at 2050, where we need to be and ask, how are we going to get there from where we are today in 2014? We need R&D roadmaps, a point that we’ve emphasized to overcome existing hurdles. We’re going to need to demonstrate successes of some of these technologies. We’re going to need to build momentum of civil society.

And then rapid scale up, mass public education and of course, deepening the political and the institutional framework by reaching meaningful agreements in COP21 and similar kinds of frameworks in other areas. It’s obviously a huge undertaking, but sustainable development defines the most important agenda of our generation. Earlier generations faced their specific challenges, ours is the challenge of a very crowded planet, pressing against planetary boundaries, threatening survival itself of millions of species, the well-being, the survival of humanity itself. And so we must take on this challenge.

And we must take heart from the success of earlier vast social change actions as I’ve noted. It may see awfully hard to accomplish this. Some of the technological challenges seem absolutely daunting. Can you really take the core of the world energy system and within 25 or 30 years change it to a low carbon energy system? The answer, the evidence says, is yes, if we really work at it. If we direct our attention and direct our technological change in the needed area.

As I’ve said, I was inspired in my youth by the moon shot. By President John F. Kennedy standing in Congress and saying early in 1961 that he recommends that the United States accept the challenge of putting a man safely to the moon and bringing him back safely to earth by the end of the decade. And what’s absolutely interesting about that among so many other things is that when President Kennedy made that call to action, there was no plan to do it. He wasn’t referring to the accepted engineering reports that said exactly what the blueprint is. It took NASA more than a year to come up with the, the basic ideas and then it took brainstorming and problem-solving and heroics and brilliant engineering, a lot of resources and a major sustained commitment through the entire process. In 1962, in talking about this attempt to go to the moon, President Kennedy said something that I believe resonates today in the spirit of the challenge that we face in climate change and in all of this deep systems transformation and technological change that we’re going to need to undertake, he was talking to a public that was asking, is this too hard, can we do it? And President Kennedy said, “We choose to go to the moon.” We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard.

Because that goal will serve to organize and measure the best of our energies and skills. Because that challenge is one that we’re willing to accept, one we are unwilling to postpone and one we intend to win, and the others too. And I can tell you as he spoke at Rice University in a vast open stadium that day, the applause were phenomenal, because the public rallied to this.

They said, this is, this is something we can do. This is a challenge we are willing to accept. Fundamentally we need the world around the table. We need the experts. We need the engineers. We need the governments. And we need us as civil society. And we need to do this at a time that is extraordinarily difficult, because we’re talking about climate change at a time where we’re also facing a lot of war, a lot of conflict, a lot of battles that are not only devastating in and of themselves but taking up the energy, taking up our attention, turning us away from what really counts for our long-term survival.

And so fundamentally we are going to have to find a way to cooperate on what is important, find a way to turn away from the violence and the war and find a way to cooperate peacefully for decades to come. And as I close the course I want to close one more time with President Kennedy who pursued peace in 1963 and very much with a vision that by doing so we could turn to science and to the arts and to cooperation and to public health and to other goals. And he faced a big challenge then. The world was deeply divided then as it is now. And he had to urge Americans and the world about the capacity to cooperate.

So I want to close with my favorite lines of President Kennedy about cooperation itself, but you’ll see that they really resonate when it comes to our specific challenges, fifty years later. President Kennedy said, “So let us not be blind to our differences, but let us also direct attention to our common interests and to the means by which those differences can be resolved. And if we cannot end now our differences, at least we can help make the world safe for diversity. For in the final analysis, our most basic common link is that we all inhabit this small planet, we all breathe the same air, we all cherish our children’s futures and we are all mortal.” Thank you for being in the class. I look forward to being together with you in the next semester.

Can Everybody Win? Should Everybody Win?

We’re discussing in this lecture the structure, the shape of COP21; of the agreement and the premise of a negotiation in general as I’ve emphasized is a Pareto improvement, that the participants in the negotiation come out of the negotiation feeling that they’re better off than they were in the business as usual trajectory and the question that

I’d like to ask is can everybody really win in a climate agreement and an important second question is should everybody win? It all depends I suppose on one’s perspective. I’ve emphasized repeatedly now that there are many different divisions at the negotiating table.

There are the divisions of the rich and the poor countries. There are the divisions of the fossil rich and the fossil poor countries. There are divisions between producers of the fossil fuels and the consumers of the fossil fuels, not as countries but as players in the market, and here I’m thinking about the private companies, the big oil companies Exxon Mobil or Chevron or BP and others versus the consumers on the other side. Not only the consumers of their products but people who will then experience the results of climate change.

And another division which I’ve emphasized although only briefly is the different perspectives of the present and the future generations. Now here we have a little bit of an advantage. Only the present generation is present right now. The future generations don’t get their direct say, but they do have a strong interest. They’re not really at the table except through us, except through our logic, our moral commitments, our cultural imperatives, but we need to understand that future generations really are at the table.

They have interests and the question is, are they winners in this process? Under business as usual, they’re surely losers but how can both the present and the future generations be winners in the process? Well, let me come back one more time to this basic diagram that I introduced earlier where on the horizontal axis we had the income of one group of countries and on the vertical axis the income or the well-being of a second group and I’m imagining that these two groups are negotiating with each other for an agreement starting from inside the potential well-being line at business as usual and trying to reach the cooperative point.

Now in this final use of this curve I’m using the country one grouping to be the oil exporters. Countries like the Gulf states, Venezuela, Canada, Australia, which are significant exporters of fossil fuels. And I’m using in this case on the vertical axis the oil importing or the fossil fuel importing countries that are buying these carbon rich energy supplies from the first group of countries. And as usual, both groups are at the bargaining table and in principle one could have a Pareto improving outcome in which both the oil exporters and the oil importing countries are better off. But think about the ways that the policy choices are typically discussed.

Well, we’ve not focused in this course on the details of policy choices of how to move to the low carbon economy. At this point emphasizing mostly how does one achieve a low-carbon economy.

We know that to move from coal fire power plants to wind and solar power or to move from internal combustion automobiles to more expensive electric vehicles something has to be done through regulation or through emissions permits or through carbon taxation to tilt the balance in the marketplace towards the lower carbon option. And remember of course that the whole theory of this is that we should be willing to spend a bit more of our resources than we’re now spending on the carbon rich infrastructure to spend it on a low carbon infrastructure because we’re going to come out way ahead in the long term by avoiding climate disaster and so the idea is that while the alternatives right now may look more expensive when you add in the social cost of carbon to the market cost of carbon then these alternatives either are or through research and development could be made to be the best cost alternative.

But how do you tilt the consumers or the market behavior in that direction. You may regulate, no more coal fired power plants without carbon capture and sequestration. No more internal combustion engines after 2030. You can only buy light duty vehicles that are…have zero tailpipe emissions. That’s one way to do it. And the other way we know is to tilt the market prices through corrective pricing. For example through a carbon tax that’s levied on the use of coal, oil and gas. And suddenly wind and solar power and electric vehicles look like the better deal.

Suppose we go that second option which has been the preferred option in the European Union for example to use a tradable permit system. We know that the implication of that kind of policy or not an equivalent but closely related policy of putting on a carbon tax is to raise the price of carbon fuels to the consumer but by driving down demand for those carbon fuels to lower the price received by the producers.

So the typical strategy right now not necessarily wrong in any way but the typical strategy is let’s push demand away from coal, oil and gas by creating a price wedge between what the consumers pay, a high price, and what the producers receive, a lower price and that will move the economy to a safer, lower emitting, 2-degree C limit kind of economy of our pathways.

All fine and good; absolutely right from a climate point of view but what I’m illustrating here is one absolutely plausible outcome that the world thereby moves to a higher aggregate level of well-being by avoiding climate disaster but it does so with a big improvement of the oil importing countries because they not only have a safer climate but they now pay a lower market price, not as consumers but the price that is actually net of tax paid to the oil exporters. They get a double benefit.

Whereas the oil exporting countries, say Saudi Arabia or Australia or Canada would face a lower world market price because demand for their products from other countries has gone down. Yes, they’re compensated by a safer climate, but maybe they’ve taken a big hit in their revenues and the way that I’ve drawn it here is that instead of reaching a Pareto improving outcome, that is along an arrow that goes from the southwest to the northeast, maybe the arrow goes to the northwest, that the oil importers are way better off but the oil exporters while living now in a safer climate also have seen their market really, really cut sharply and therefore they would say that’s not a mutually beneficial outcome, that’s just a punishment of the oil countries.

Now what could be done? What could be done for example would be a transfer of income. Let’s say that the oil importers impose a carbon tax and that has the effect of shifting us to a safe energy system but the losers are the oil exporters and the oil importing countries that have collected this tax on oil use could transfer some of the revenues to the oil exporters.

That probably would seem a little bit shocking to a lot of people. Indeed, when I once proposed it they said you’re heretical. How dare you give money to the oil exporters, they’re damaging the world. We’re not going to pay for them, we’re not going to compensate them. I mention this to raise the point. Can everybody benefit from an agreement? Should everybody benefit from an agreement?

Should is on the basis of principle, ethics, morals, legal judgment, responsibility, can is more of an economist’s question. I can tell you it’s possible to compensate oil exporters, even oil companies for a loss of their market income that may come from putting on a carbon tax. The should is another question. Is it really true that every party to the negotiation should walk away feeling better off? Maybe some of the oil exporters should walk away a bit unhappy that well, there goes our market, only compensated by the fact the climate will be safer and they were the polluters in the first place. My point is that there are different standards of outcome.

You might say a Pareto improving outcome is what we’re after. You might say no, no, polluter pays, I’m not interested in the polluter being compensated in any way. They’re both absolutely pragmatic and sensible standards. They contradict each other. And from a practical negotiating point of view it’s complicated. Because it could be that the oil exporting countries become a blocking coalition to say well, these negotiations are all fine and good in saving the climate and saving the world along with it, but why should we be the big losers in all of this? We’ll stop that until we’re compensated.

This is for us to discuss and debate in the global online negotiations next semester. This is for the world to discuss and debate. But as a practical matter, let me make a point. The oil exporting interests have been a blocking coalition in practice. Maybe not in the literal way that I’ve just described it, but there’s no doubt that the resistance to strong climate action has been greater among the net fossil fuel exporting countries than it has been among the net fossil fuel importing countries.

By and large, with exceptions within the European Union, most of the European Union is a net fossil fuel importing region and it’s also a region experiencing a lot of climate devastation. On both counts, the European Union is the world leader in saying we must take climate action. But in other parts of the world where countries are fuel exporters, for instance Canada and Australia, the politics is much, much less interested, let’s put it that way, in a climate agreement because the real weight of the politics is powerful interests of the fossil fuel industry who are saying why should we bear that cost?

I’d say the same is certainly true in the case of Russia. A massive fossil fuel exporter and so far not so interested in a strong, low-carbon climate deal, perhaps because of the specific interests involved.

And so it’s worth us to ask the question who are these big fossil fuel entities, what kind of role do they play in the negotiations, are they a blocking coalition, what kind of sharing of the costs and benefits would be a reasonable approach to reaching a full deal and I just want to share with you a few tables showing how concentrated in fact the fossil fuel resources are.

Coal, for example, is so concentrated that five countries alone have about three-quarters of the total world’s coal supply, the U.S., Russia, China, Australia and India. And you can imagine within each of those five countries there are very, very powerful lobbies, politically influential that say don’t go there to a low-carbon agreement.

On the next graph, I show the oil reserves. Same story, actually. If I take groupings of countries, the five big groupings constitute in fact the three-quarters of the total proved oil reserves. These are the Gulf countries, the Gulf Cooperation Council (GCC), that’s Saudi Arabia, United Arab Emirates and neighbors, it’s Venezuela with its vast oil and unconventional, both conventional and unconventional oil reserves, it’s Canada with its massive unconventional heavy oil, the oil sands of Alberta, it’s Iran and Iraq. And these countries obviously also have very, very strong interests in the market price and the future use of petroleum.

And if I turn to the next of the three resources, natural gas reserves, once again there is tremendous concentration of the proved reserves f natural gas. Again, the Arabian peninsula is so central to this story of course, next comes Iran, Russia with its vast natural gas deposits, Turkmenistan and Venezuela. Combined these five countries, the top five holders of natural gas reserves, account for two-thirds of the total reserves. So we see that this is going to be complicated, these negotiations, and there is a question about what these countries will demand, that’s perhaps more evident.

What they might receive, what they should expect on a practical and on an ethical basis in a worldwide transition to a low carbon economy. One thing we can say for sure, and I would like to point it out to all of the oil countries and oil exporting countries and companies, if carbon capture and sequestration works, then the space that is opened up in the carbon budget is expanded and this is why all of the fossil fuel producers have an enormous stake in proving and from their point of view demonstrating if it’s right, the feasibility of large scale carbon capture and sequestration.

And it’s why that group of countries and the companies that I’m going to introduce at this moment also should be major financiers of the testing, the research, the development, the demonstration and if successful the diffusion of carbon capture and sequestration. Now I’ve talked about the oil reserves and production in terms of countries but of course there’s some very, very major players in the world. Those are big oil companies. Some are privately owned, others are state owned and they are extraordinarily powerful actors in the world scene. They’re among the major largest countries it’s almost right because of their scale, but companies in the world and they are absolutely in my opinion the most powerful political lobby in the world.

They’re an enormously successful industry. Massive in scale, massive in wealth, massive in technological capacity, massive in determination for more than 100 years the oil companies have basically gone anywhere to the most remote places to the…to Siberia, to the middle of rain forests, to absolutely difficult terrain to the deep oceans to extract oil and sell it and they’ve made vast fortunes doing it but one has to marvel at the technological might and fortitude of this industry.

But when you look at the bottom line, the bottom line is absolutely amazing. Fortune 500 has its list of the top companies in the world measured by revenue and take a look at the top ten. Wow. Of the top ten, number one, number three, number four, number five, number six, number ten are oil companies. Extraordinary. And number seven is the power distribution company of China, so you have Royal Dutch Shell, Exxon Mobil, Sinopec, China National Petroleum Corporation, British Petroleum, the State Grid Corporation of China, and Total. Giants in the world, the biggest companies in the world. Seven of the ten Fortune 500 companies are in the oil sector.

They have a voice, believe me. Two of the remainder…remaining countries…there I go again…two of the remaining three companies in this top ten list are automobile companies. Major users of petroleum. We have number eight, Toyota, and number nine, Volkswagen. It’s fair to say that nine of the ten companies in the top ten of the Fortune 500 are therefore basically in the petroleum sector and it’s not surprising how powerful this sector has been and continues to be. It has to be at the table in my view in these negotiations, it absolutely has to put its vast financial might into the research and development of carbon capture and sequestration because that is ultimately its long term license to operate.

The tenth remaining company on this list is Walmart a retail giant of phenomenal reach. It’s interesting that Walmart has been pursuing a strategy of trying to press tremendous energy efficiency through its supply chains and it’s been involved very much in…in trying to bring its supply chains in agriculture as well and there as a consumer facing company where consumers are saying what are you doing for the environment? Walmart perhaps feels that more directly than the big oil giants. Here is a…an undeniable story and reality that we absolutely need to face and to understand in the coming months of negotiation. We’re talking about the core of the world economy when we talk about the energy system. We’re talking about the very biggest companies in the whole world.

We’re talking about major countries that have strong national interests, reasons of state and a massive part of their economies involved in energy production and in the export or import of primary energy resources. In other words, the stakes are very high if the logic is of finding a way to create an agreement in which there is widespread benefit shared in a way that is…that enables us to get to that agreement, we’re going to have to face the realities of this concentration of fossil fuel resources and fossil fuel economic and political power in the coming months.

The Three-Tiered Structure of Mitigation Commitments

Welcome to theglobal online negotiation will put you at the negotiating table as a delegate to work out with fellow citizens around the world a meaningful climate agreement for 2015, one that I count of us being able to deliver and to say to the world leaders, here it is, here a kind of agreement you should have and if you don’t come up with it, well the world’s citizens have.

So I’m looking forward to participating together with you as delegates to the global online negotiation next semester. And therefore in this tenth and final lecture of this semester, I’d like to talk about the structure of the negotiations at COP21, how they can produce a meaningful agreement, an agreement to achieve the 2-degree Celsius limit on mean global temperature increase. And to do that in this chapter one, I want to talk about a kind of structure, a three-tiered structure for an actual agreement.

Now these three tiers are not the only parts of a climate agreement, indeed, in further chapters of this lecture I’ll talk about some of the other parts of an agreement in terms of financing for instance.

But here I want to talk about the logic of an agreement on mitigation. What would it mean to agree to a 2-degree Celsius limit for the world as a whole? And for that purpose let’s go back to the three kinds of interactions that I discussed in lecture nine.  The poker game, the brainstorming around the table and the conductor-less orchestra, because I think that all three have some role in the negotiations. What’s being discussed now mostly is the poker game. That’s been the tradition of the negotiations up until now. What are we going to agree to? How do I make sure as representing country one that I’m not giving up something relative to country two? And we’re going to have that kind of bargaining no doubt and we’ll have absolutely that spirit to some unavoidable extent, also to some logical extent to make sure that the commitments are shared.

The first tier of any agreement is likely to be some legally binding contributions or commitments of countries in the relatively short-term. Say up to the year 2030, the agreement to be reached next year will only take force most likely by around 2018 and maybe begin its period of implementation around 2020. And perhaps the next phase envisioned within an agreement would be 2030. Governments are saying to others, what are you ready to put on the table that is a firm commitment on emissions levels across the greenhouse gases and that can be monitored, reported, verified and that will be binding for you? Now that’s the poker game. It is not going to deliver a 2-degree Celsius ambition. Why? First, it’s too short-term for that. In order to deep, deeply decarbonizes, we’re going to need decades, not decade, so any real deep decarbonization program needs to have a horizon well beyond 2030 to mid-century and even beyond because we know that if our goal is to reduce global emissions of carbon dioxide by 2050 to say between 10 and 15 billion tons, we’re going to need as a world to reduce net emissions to nearly zero or to zero net emissions perhaps by 2070 to 2080.

So the second tier is going to have to give us a longer-term framework to begin with, 2030 can never do it. The other problem with focusing only on the short-term in that baseline poker game is that it can, it can trick you. It can lead countries to short-term improvements hat are kinds of dead-ends, that are limited progress but have a lock-in effect that don’t allow the countries to go further. This is evident in the United States with some of the sentiment right now to shift from coal fired power plants not to wind or solar or nuclear or zero emitting electricity, but to natural gas. And the argument is, well that’s an improvement. Going from coal to gas, that’s a good thing. And that would be built say into a 2030 scenario. The problem with that however is that while gas burns more cleanly than coal, an economy based natural gas is not an economy consistent with the 2-degree C limit. It would be emitting far, far more than would be permissible under a carbon budget of 2-degree centigrade. So the second tier has to be longer-term. And of course given our experience in the Deep Decarbonization Pathways Project, we feel quite strongly from our own experience and from the logic of the project itself that every country should put forward a deep decarbonization pathway, at least to the mid-century.

Those DDPPs are a little bit like the score that is on the musician’s stand in the conductor-less orchestra, that is the music that will be played. It’s not music under a contract that says, you play that, that’s legally binding and verified. More, it is the, the theme music that together around the world countries will play in order to make the sounds of, of 2-degrees C. In other words, to make the music that can really change the direction of the, the temperature and the energy system. It is to put it in other terms, part of that thinking through and implementation process, how can we really get to where we need to go?

Now there’s a third part of this puzzle around the table and that’s the fact that we don’t have solutions at hand that are quite good enough for what we’re going to need. Again, in the Deep Decarbonization Pathway Project, many country teams had a very, very difficult time to have their models combine the assumed quite rapid economic growth for the developing countries for example and the deep decarbonization together with that growth.  And when the models were pushed on that, the models said, our technological assumptions are rather cautious, rather static. If we’re going to be able to decarbonizes more deeply, of course we’re going to need breakthroughs on technology.

This should be the third tier of an agreement.  If the first tier is for the short horizon, legally binding, the second tier is the pathways for the middle of the century. The third tier or component of an agreement is a serious worldwide effort to make breakthroughs on technology.

What is called the RDD&D framework. The research development demonstration and diffusion framework. This is not the kind of agreement unfortunately that has been negotiated in the past. When one looks at the Kyoto Protocol or the drafts that were circulated for Copenhagen, or even the discussions that are underway now, the components that I’ve just outlined of short-term, legally binding contributions, intermediate run pathways and a major constructive effort on technology has not really been a framework in place.

And one can see in the tensions that result, the failure to have that integrated frame has made it very difficult to reach agreements on any  particular component. Countries resist being pushed farther in terms of legally binding commitments beyond what they feel is already sure and available technologically. Without the technology building component, we also will not develop those improvements that will open up the space for much deeper action.

And yet without the pathways that guide us and tell us that it’s not enough to go from coal to natural gas, but we have to go from coal to zero carbon electricity, or nearly so, without those pathways, then we don’t even have guidelines on what the technological needs and obstacles that we must overcome really are.

So it’s that integrated framework that is the kind of framework that can carry us forward. In the next chapters, let’s look more deeply at the issues of technology, the issues of finance, and the issues of public mobilization and support of a bold agreement.

Basic Principles of a Global Agreement

We’re talking about the concepts of the climate change negotiations. It’s a more abstract lecture than the others. The numbers that I’m giving are made up. Of course I’m trying to use numbers that are illustrative but they’re mainly illustrative of concepts. And though it’s somewhat abstract, I think these concepts are important.

We discussed in chapter one the concepts of Pareto improving negotiations, the concepts of efficiency and of fairness or equity as distinct aspects or gauges of a negotiating agreement.

I want to review many of what you could call as the headings or the chapter titles of a negotiation agreement. Again, not in the literal sense of how the negotiations will be written down, that we’re going to do in the global online negotiations next semester, but more in the conceptual sense.

What are the headings that negotiators need to be attentive to to reach a fair, efficient, meaningful agreement?

So let’s start with the essence of this course. The agreement has to move the world to deep decarbonization. Our theme is that when one looks at the costs of mitigation and the benefits of mitigation, staying under the 2-degrees Celsius limit is absolutely imperative. The damages of going beyond that are so great, the risks are so high that the marginal benefits of mitigation drive us to ensure that we stay within the limit.

And the technologies that we have available and that we can develop to reduce carbon emissions are sufficiently good that it makes sense for the world to negotiate on the basis of its commitment to 2-degrees C as absolutely the upper bound, the limit of climate safety. A second standard which we introduced in last lecture is efficiency. And that is that if we’re going to undertake deep decarbonization, this should be done in the least cost way.

The world shouldn’t waste resources arbitrarily in reducing carbon emissions, it should find the way to move from the business-as-usual to a safe, deep decarbonization pathway in an overall, least cost manner.

But we also discovered that simply applying a naive efficiency criterion alone isn’t enough because efficiency might leave the burden of adjustment unfairly on one particular group of countries.

So we need to introduce concepts of fairness alongside concepts of efficiency.

Efficiency think of as low cost, least cost, but fairness is who actually bears that cost in the end? And since countries can make financial transfers to each other, that’s one way of reallocating across countries some of the economic costs associated with climate mitigation.

Now a phrase that has been central to these negotiations from the very start of the U.N. Framework Convention on Climate Change is common but differentiated responsibilities.

This is the concept that the world as a whole has a shared responsibility of climate safety. All countries signed onto that from the poorest to the richest. But these are differentiated responsibilities and CBDR, (common but differentiated responsibilities) conveys within it not only different capacities, different marginal costs of mitigation, but also fairness, that countries have different responsibilities to justice, globally.

Rich countries have more financial capacity, more economic capacity, more historical responsibility and therefore they should pay their fair share. That’s not the end of the negotiations.

If this were a one-time exercise, one moment of negotiating, say a purchase and sale of a house, we might stop there, what’s efficient, what’s equitable?

But we’re talking about a complex process over many, many decades and therefore it’s not surprising that there are other headings of the negotiations. One key concept is that what we know about what to do and how much to do and the ways to do it will evolve over time.

Our understanding of the science, our understanding of the risks and crucially our technological options are going to evolve over time.

So one heading of the negotiations is about updating. We have to go into these negotiations understanding that this is a dynamic process, it’s an adaptive process. Adaptive not in the sense of adapting to climate change, but in the sense of adapting to change in global realities more generally, new information, new technologies, new awareness, new science, new understanding of what should be done. So we need systematic updating.

As the climate science changes, we may come to understand that 2-degrees centigrade is too much. Maybe we really have to aim for one and a half degrees Celsius for the true margin of safety. This is something that climate science might reveal to us in the coming years. Alternatively, we may find that 20 billion tons of CO2 emission relative to the baseline per year is too low because wonderful breakthroughs occur in solar or wind power and electric vehicles or in carbon capture and sequestration or fourth generation nuclear power that allows us to go even farther than that.

And so we need that kind of updating, resolution of uncertainties, learning and investing in new knowledge, especially investing in new technology.  And a technology blueprint process, creating a roadmap and investing in the research and development and the demonstration and the diffusion of these improved technologies will be a crucial part of any successful agreement.

More generally the parties to the Framework Convention talk about the means of implementation. They say, okay, this is all fine concepts. Two degrees no problem. They don’t say, no problem, but they say, yes we understand the concepts, we understand the concepts of sharing the burdens. But what are the real means of implementation? What do they mean by that?

They mean first, what policy instruments are going to be chosen? Will there be common worldwide instruments? It’s been a dream of some, not one that I share, but it’s been a dream of some that there should be one global market of emissions permits. And that that would set one social cost of carbon and that would drive an efficient, low-cost solution. That is an example of trying to put one single policy instrument inside the negotiating framework perhaps to reach a desirable outcome.

Another example that’s suggested is a single price on carbon in the form of a carbon tax. Or it could be a single regulatory standard which says, no country shall engage in the construction of new coal fired power plants unless they are fully equipped with carbon capture and sequestration technology.

So policy tools are one part of implementation. Leave them to the countries or have them at a global scale.

A second of course is financing, who’s going to pay for all of this? What’s going to happen with the poor countries? How can countries that need technologies that are owned by businesses in other countries access those technologies? Do they have to pay large royalties? Do they have to pay monopoly rents to a monopoly holder of such technologies?

Then another aspect of implementation, absolutely central is of course developing the technologies that enable us to stay below the 2-degree C limit as Emmanuel Guerin has emphasized and put into tremendous detail in earlier lectures. There’s also the question of capacity building which has been part of all of the agreements.

Some countries simply need help technologically, not in the form of what’s embodied in machinery, but in the form of training of local engineers, local regulators and so forth in order to be able to implement a program or a new system or a new technology of low-carbon energy. And then finally one needs to remember that these negotiations cover not only mitigation, not only moving from the business-as-usual trajectory to the 2-degree centigrade limit, but also must cover all of the challenges of adaptation. Increasingly the treaty has incorporated concerns of adaptation. How to help countries adapt to the ongoing climate change? How to become more resilient? How countries can be insured in a way for losses and damages that they incur when they’re hit by a massive tropical cyclone or a massive inundation, or a terrible drought that, whose frequency and intensity is being increased by the ongoing climate change?

So the adaptation agenda is another chapter of the full agreement. You see we have the hands full, with all of this countries are asking what does this mean for us? What are we going to have to do? What burdens are we signing up to? Can we actually meet those responsibilities technically, legally, economically? And who’s going to pay for all of this? Just ourselves? Will we get help? What’s the basis for that kind of sharing of the economic and the financial costs? We now turn in more detail in the next chapter to this question of fairness.

 

Efficiency & Fairness

Where I want to talk about the concepts of negotiation. We’re entering a negotiation among the parties to the U.N. Framework Convention on Climate Change, the 193 parties. A few are very decisive parties to the convention, the largest economies, the largest emitting countries. They’re going to be bargaining with each other. And the question is what is the nature of that bargaining? What are the problems, the challenges, the obstacles? What’s the right way to reach a cooperative agreement? What are the barriers to reach cooperation? That’s the subject of this lecture.

I’m going to ask you to bear with me as we introduce some economics style diagrams. You’ll have a chance to practice those in some assignments and some special problems to hone your skills on these kinds of diagrams that are standard for economic analysis.

The lecture is about the, two crucial concepts of negotiation, efficiency and fairness. And it’s important to keep these concepts distinct. And I’m going to use a lot of examples to highlight the differences of efficiency and fairness.

We’ll start with a, an economist’s diagram that links the amount of mitigation that’s undertaken, that is the reduction of CO2 emissions shown on the horizontal axis and measures for any given level of emissions, the cost of an incremental increase of mitigation or an incremental reduction of a ton of CO2.

What you see here is a rising curve, essentially drawn as a line. The more mitigation that’s undertaken, that is the more reduction of CO2 emissions compared to business-as-usual, the higher is the cost of each incremental tone of carbon dioxide that is pulled out of the emissions or sometimes it’s called the marginal cost of the emissions. And when you see a rising curve or a line such as this, it means that the marginal cost of mitigation is increasing.

The first few billion tons of CO2 that are reduced compared to baseline don’t cost very much, maybe it’s a bit of insulation in, in the homes, a bit of energy efficiency, turning off the lights when they should have been turned off in the first place. Improving some of the efficiency of industrial operations.

But if you want to get deeper reduction of CO2, you have to introduce new technologies, maybe not just efficiency but substituting coal fired power plants by wind or solar plants. Now those can be cleaner, they can be environmentally safer of course, but maybe they’re more expensive to implement than a standard baseline traditional coal fired power plant. And so to implement that next stage of emissions reduction or that incremental mitigation of emissions, it’s going to cost more to reduce that extra ton of CO2.

If you continue and we want to drive carbon emissions way, way down, perhaps using really very fancy technologies, the direct air capture of carbon dioxide in the air and then sequestering it geologically, at least with the technologies we have right now, each ton of carbon dioxide that is removed from emissions using that technology would be very expensive, perhaps hundreds of dollars per ton of carbon dioxide reduced.

The result is this upward sloping schedule or curve as we would say in economics, linking the extent of mitigation on the horizontal axis with the cost of each incremental ton of carbon dioxide removed from emissions compared to the baseline. Those are the costs. What about the benefits of doing this?

Well that’s a different kind of curve. Again, we put on the horizontal axis, the extent of mitigation compared to a business-as-usual trajectory and on the vertical axis we measure in dollars per ton of carbon dioxide reduced emission, now much benefit there is.

Now why is there a benefit of lower emissions of CO2? Well that’s what we’ve been talking about for many lectures now. The climate will be safer. And the idea is that at a low level of mitigation compared to baseline, we would have a huge increase of temperature. The baseline, the business-as-usual remember is an increase of temperatures of maybe four or even six degrees Celsius. So at that point, incremental warming is disastrous. We’re already suffering massively and any further warming adds to the disaster. That means that the benefits of mitigating carbon dioxide, of reducing emissions are very, very high. That’s why the curve is at a high vertical point at low levels of mitigation.

But suppose we’re successful, we have deep Decarbonization and a lot of carbon dioxide is reduced from the emissions flow because of a successful change of the energy system? Suppose that we reduce carbon dioxide enough so that the temperature increase is held even to one degree Celsius or one and a half degree Celsius, a very deep decarbonization of the energy system? What would the gains be of a further reduction of carbon dioxide at that point? Well maybe because the climate is already stable, if there has been a lot of mitigation, an incremental reduction of yet another ton of CO2 wouldn’t really get too much benefit for world society. And so the amount of benefit shown on the curve for a high level of mitigation, that is the marginal benefit of an extra ton of carbon dioxide removed through further mitigation would be a quite low level.

That’s why a marginal benefit curve or schedule as is sometimes said in economics would be downward sloping. At low levels of mitigation, in other words, being close to business-as-usual, every ton of CO2 is really a burden for society.

But for very high levels of mitigation, so that the climate is already in the safety zone, further extent of mitigation would not add so much benefit. Now the trick of economics always is to put a cost and a benefit schedule on the same graph as is done here.

And the miracle of economics is where the two curves cross. Why is that? Again, on the horizontal axis we have the extent of mitigation, on the vertical axis, the costs and benefits of an incremental ton of carbon dioxide removed.

Whenever the benefit curve is above the cost curve, which is towards the left-hand side, it means that the cost of removing one more ton of carbon dioxide is less than the benefit that society enjoys by that carbon dioxide being pulled out of emissions.

In other words, the climate safety that is the result is worth more than the direct extra costs of undertaking that mitigation through some kind of deep decarbonization program. On the right-hand side, where the cost curve is above the benefit curve, it means that further units of carbon dioxide reduction are more costly per ton than the benefits that society enjoys by having that extra ton of CO2 pulled out of the emissions stream.

Everything measured compared to the business-as-usual. Well  What is the social optimum? What is the optimal extent of mitigation? It is where the marginal benefit of removing an extra ton of carbon dioxide equals the marginal cost of removing the extra ton. And that’s shown in this case at a level of mitigation of 20 billion tons of CO2.

Think of that as the reduction in the flow of carbon emissions, say in the year 2050 and on the vertical axis, that cross occurs at a level of $50 per ton of CO2. What does that $50 signify?

It signifies that in terms of the cost of mitigation that is the cost incurred for that last bit of mitigation undertaken at a level of 20 billion tons CO2 removed and it signifies that the benefit of removing that CO2 is the same, also $50 per ton when you factor in how much climate damage is avoided by having that extra ton of CO2 removed.

Now we give a name for that equilibrium point. That is called the social cost of carbon dioxide. It is the measure both of the benefit of removing that ton of CO2 and in a social optimum policy, it is also the cost, because you want to go just to the point where the extra benefit and the extra cost or I should say, the benefit of the extra ton removed and the, and the cost of the extra ton removed are just equal.

Now does society benefit from undertaking that level of mitigation? It sure does, because for that level of mitigation effort, removing 20 billion tons of CO2 per year, the costs of removing that CO2 is less than the benefit, unit by unit, just up to the last ton of CO2 that’s removed.

And you can compare the benefit level for an incremental unit of mitigation on the upper curve with the cost of reducing that level of CO2 on the lower curve and that vertical distance is the net social benefit, the benefit minus the cost of undertaking that level of mitigation.

Well if you add up all of those units of mitigation effort up to the 20 billion tons removed, each one of them has a benefit level higher than the cost level. Add up all of those and you get the area between these two lines.

When you take the total area, as we would in basic geometry, you can say, that’s the sum of society’s gains from this mitigation effort. And in the particular diagram that I have here, that would add up to one trillion tons, that’s the area of the triangle shown as the difference between the marginal benefit line and the marginal cost line. So far so good.

This is the basic economics of why we want to undertake deep decarbonization in the first place, because the benefits of the safer climate, unit for unit of emission reduction or emission mitigation are higher than the costs, unit by unit of CO2 emission reduction.

Now comes the big issue for negotiations. If we were just one person or one country, we’d probably work out more easily, okay, let’s have a 20 billion tons reduction, our society is going to benefit and we’ll undertake these costs, the benefits will be bigger than the costs and we’ll figure out how to do that.

But now suppose we have two countries, or two regions or the developed world and the developing world. Of course it’s even more complicated. We have a 193 countries that are party to this negotiation, it’s a little hard to draw with 193 countries, so I’ll stick with just two negotiating countries. Think of them as the developed countries and the developing countries. And think of these on the horizontal axis for the moment as country one or region one.

And on the vertical axis is country two or region two. And for simplicity, think about this as the income or the well-being of these two groups. Now before we undertake the optimum deep decarbonization, there’s a certain level of income of country one and country two on the baseline or the business-as-usual trajectory. Of course that’s a path of incomes over many years but I’m compressing this to just one point of time, just to give us clarity of the discussion.

And if we graph the level of income of the first country and the level of income of the second country, just on a, a normal plane, we’d have a point which is shown as the business-as-usual point. Now we can do better than the business-as-usual.

That’s the beauty of the fact that at low cost we can reduce carbon emissions and enjoy benefits, for instance, more productivity of agriculture, better human health, more safety as a result of that reduction.

So we can actually have both country one and country two enjoy higher income than in the business-as-usual point. And indeed we can draw all of the potential levels of income of country one and country two on a downward sloping line that says if the world income is allocated all to country two, the point would be on the vertical axis, country two would have all the income, country one would have no income.

That would be pretty miserable for country one. On the other hand, if all the income is allocated to country one, we’d be on the horizontal axis down in the bottom right of that curve. And more normally, both country one and country two would have some level of gross domestic product. And the beauty of climate mitigation is that both of these countries can be better off than they were at the business-as-usual level.

So start at the business-as-usual income point for these two countries and there is a range from point A to point B of what’s possible for how to share the improvement from climate control. And point A, country one is made a lot richer through climate control and country B is left off just as it was in the business-as-usual baseline. At point B, country two reaps all the benefits from climate control and country one is left just as it was in the baseline, the business-as-usual path. Country C is the sweet spot.

It is the cooperative agreement of both country one and country two to say, let’s share the increased well-being that will come from undertaking an optimum global mitigation effort.

We’ll share the burden, we’ll both benefit from a safer climate and we’ll both be left better off than we were in a business-as-usual trajectory. That is what’s called in negotiations, a Pareto improvement. Pareto is the name of a great Italian economist and sociologist at the beginning of the 20th Century, Vilfredo Pareto. And Pareto said, an improvement in a bargaining situation is when all parties of that bargain are better off than they were in the baseline or in the business-as-usual situation. So shifting from BAU to point C is a Pareto improvement.

Now let’s try to understand how this will work at the country level. And we’re going to see a problem now.

I’ll start with a simple case and then we’re going to go to a more complicated problem. Let’s start with a symmetrical situation where these two groups of countries have the same technologies, basically the same income levels, the same potential for mitigation, the same gains from successful climate control.

So the first country, we’ll call it the developed country group, has a mitigation, marginal cost curve, like the one we saw that’s shown here. And this is a schedule of mitigation costs up to ten billion tons per year, reduced by the developed countries compared to the baseline. And I’m going to draw this curve backwards for the developing countries.

Now you go from no mitigation in the bottom right-hand origin of this curve. It’s now reversed in direction. And as you move to the left of that diagram, there’s more mitigation being undertaken by this second group of countries, country two,which I’m calling for our purposes, the developing countries.

If I superimpose these two figures and say that the world as a whole is going to undertake the optimum level of CO2 reduction of 20 billion tons, the one we found in the earlier diagram and we superimpose these two symmetric cost curves they meet right in the middle, where the developed country group reduces by 10 billion tons, the developing country group reduces by ten billion tons and the marginal cost of mitigation for each of these countries is the same, $50 per ton of CO2 reduced.

That’s also the social cost of capital in equilibrium for the whole world. So we have a situation where there is one social cost of capital that applies to both negotiating parties.

They each mitigate in this case, half of the total world need. They share the costs. They have equal benefits. And if the world were so balanced, we probably wouldn’t have any difficulty in reaching such a symmetric, balanced, obviously fair equilibrium.

Now here’s a problem. What if the cost curves are very, very different? And different in a way which is, I’m going to put it in a way which some people will object to, but actually could be realistic.

Suppose that mitigation is actually more expensive in the high-income countries and less expensive in the low-income countries? Why would that be? Well the high income countries like the city of New York where I’m sitting right now has an infrastructure that was built 50 years ago or a 100 years ago. To retrofit that is incredibly expensive. We spend billions of dollars to add a kilometer of subway miles in this city, whereas if you’re building a system from the beginning, it’s much less expensive.

For a developing country that is fast-growing, but is building its infrastructure for the first time, it may be much less expensive to build a green field plant that is clean and low emitting than to retrofit an old plant.

The result is peculiar because now we have a steep marginal cost curve of the high income, or the developed countries, that’s shown starting from the left-hand side of the graph and the upward sloping line that is quite steep. And we have a relatively flat marginal cost curve of the developing countries signifying that the cost per ton of carbon dioxide reduced just doesn’t increase all that much for the developing countries.

Now here is the paradox or the problem in terms of fairness and efficiency. What would be for this kind of world, these two blocks of countries with these distinct cost curves the least cost way of reducing total emissions by 20 billion tons?

It would be where the marginal costs for the two groups of countries of mitigation are equal. That’s where these two lines cross. And interestingly, because it’s cheaper and the marginal costs of mitigation are lower in the developing countries, the least cost worldwide formula for reducing 20 billion tons of CO2 emissions is no longer  symmetrical, it’s that the developing countries should do the hard lift.

They should do 15 billion of the 20 billion tons of emission and the developed countries, only 5 billion of the 20 billion tons. That way the total cost that the world would bear in reducing the emissions, which comes out to a total cost of $600 billion dollars in this example would be minimized.

But the developing countries would say, are you crazy? That is so unfair. Yes, of course we could do it more cheaply, but take a look Professor Sachs, you’re asking us to bear $450 billion dollars of the $600 billion cost, whereas the rich countries who are richer to begin with would only be bearing a $150 billion. Why should we be the ones to undertake all that mitigation? That’s not fair.

So perhaps developing countries would suggest, even given the asymmetry of costs, a solution like this. Some negotiators might say, look, fair is fair, we’ll each do ten. We’ll do half each. The rich countries mitigate by ten billion tons, we’ll mitigate by ten billion tons and that will be it.

Now if you look closely at this graph, the problem is that this is a very expensive solution for the world as a whole, though it is cheaper for the developing countries. In this case, the rich countries are spending a tremendous amount for those incremental units of mitigation, the amount of mitigation between five and ten billion tons that they are bearing compared to the previous diagram.

In fact, if this equal division is taken then in this case the developed countries would have $600 billion dollars of mitigation costs, the developing countries, $225 billion, the world total cost of undertaking climate change mitigation would therefore be $825 billion dollars compared to what was $600 billion dollars before.

Fairer? Absolutely fairer in some sense, but more expensive? For sure. So not very efficient but perhaps more equitable.

Now the rich countries would say, okay, that’s not equitable, you’re making us pay a tremendous amount for this. Yes, it’s divided 10 and 10, but you understand, we have to retrofit. You have green field, how about if we each bear an equal share of the costs? Well if you get out a pencil and paper and take the specific assumptions and solve a little quadratic equation, it turns out in the example of this diagram that the equal cost sharing would have the developing countries mitigate 13.2 billion tons and the high income countries reduce 6.8 billion tons for that total worldwide reduction of 20 billion tons.

Each of the two groups would be spending about $347 billion dollars or about $695 billion dollars for this total effort, $95 billion more than in the first example where the developing countries do more. So you might say, well that’s fairer. It’s a little bit less imbalanced. I suppose you can see where I’m about to go and that is that in some circumstances it’s possible to eat your cake and have it too. And that is, it’s possible to combine both efficiency and fairness in the negotiations. How can that be done? It can be done through side transfers.

The idea is that countries agree on a deep decarbonization pathway that minimizes the global costs of mitigation, but then countries make side financial payments to share the burden in a fair manner. So if we go back to the low cost solution where the developing countries put in 15 billion tons of mitigation, the developed countries only 5 billion tons, remember that that is the minimum cost solution for the world, 600 billion in total, the least cost all the examples. But since the rich countries bear only a cost in that case of $150 billion and the developing countries, $450 billion, one way to equalize the burden,

I’m not saying it’s the only to judge fairness, but one way to equalize the burden would be for the developed countries to say, let’s do it the least cost way and we will transfer a  $150 billion dollars per year to you, the low cost countries to compensate you for having undertaken the extra heavy lift. And in that case, each country ends up bearing a $300 billion dollar cost. The total costs are equally divided. And the total cost that is shared equally among the two sides is thereby minimized. Here is the bottom line. The bottom line is that because climate change is a disaster for the world, there are benefits, net benefits, economic gains to mitigation.

That’s the whole point of this course and it’s the whole point of the framework convention on climate change. Those benefits should be shared among countries. The idea of Pareto, that these can be benefits in which all countries gain is an important idea. So that every country sees the benefit of moving from the baseline. How do share? Well one can separate two concepts. The efficient mitigation is the way of reducing emissions at least cost for the world as a whole. The fair way is to share the costs appropriately.

We can do both if we’re smart, by having a least cost mitigation strategy worldwide and then having side transfers from rich to poor countries, if the poor countries are bearing an unfair burden in the least cost construction.

This I think I, and I hope gives some sense of the complexity of the challenge but also of the nature of the negotiations.

Countries need to formulate pathways so that we satisfy the 2-degree limit and then they need to formulate financial transfer programs so that the cost of achieving those pathways is fair.