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Fair Allocation of Climate Change Costs Could Double Developed World Debt

Highlights

  • Fair allocation of the economic burden related to rapid decarbonization and climate damage mitigation will become a big topic within the next decade or two. 
  • Perhaps the most equitable way of allocating this burden is by assigning a population-weighted cumulative CO2 budget to each country.
  • In this case, the rich world is on the hook for enormous carbon debts thanks to a century of fossil-fueled development. 
  • Developing nations will soon have the economic and political power (and the moral high ground) to demand accountability from developed nations. 
  • Rich countries should prepare by decarbonizing their economies and getting their public finances in order. 

Introduction

Climate change presents a global challenge, the likes of which we have never encountered before. It is fundamentally a long-term problem on the level of the global community, which is a big problem because us humans are short-term oriented and self-centred in nature.

Personally, I will be (very pleasantly) surprised if we see broad deployment of meaningful climate change policies (e.g. CO2 prices above $50/ton) before climate change directly impacts a sizable portion of the population. This point may still be a decade or two down the line. When this happens though, climate change will quite rapidly transition from being a long-term global problem to being a short-term local problem, spurring us into action.

Source.

During the rushed implementation of climate change mitigation policies that will follow in this scenario, the most important question to answer is the following: how do we distribute the costs associated with rapidly slashing emissions and dealing with mounting climate change damages? This article will present a simple framework for achieving this climate burden allocation in an equitable manner.

Cumulative emissions accounting

The proposed equitable framework is based on cumulative emissions, which is generally accepted to be almost linearly correlated to global temperature rise. A total global CO2 budget for achieving 2 deg C of temperature rise (about 2000 Gt of CO2) is evenly distributed between nations according to their populations and each nation is expected to balance this budget by the end of the century. The resulting carbon budget balances for several large countries are shown below.

Cumulative CO2 emissions balances for several large countries at the end of 2014 using data from the World Resources Institute.

Clearly, the Western world (mainly the US and EU) are already way beyond their fair allocation of cumulative CO2 emissions. By the end of 2014, the US had already exceeded its budget by 330% and the EU by 140%, and these numbers will continue increasing over coming decades.

Developing nations, on the other hand, still have large budgets left. Even China, easily the largest global emitter at present, still has half its allocated budget, while India still has almost 90%.

Another perspective is provided by expressing the current CO2 budget deficit or surplus per person. As shown below, the average US citizen was already in debt to the tune of 900 tons of CO2 in 2014, and is still adding to this debt at a rate of 15 tons/year. India, on the other hand, has a surplus of 244 tons per person, enough for 140 years at current emissions rates.

Finally, it is informative to monetize this carbon debt/credit and express it as a percentage of GDP. When assigning a moderate value of $50/ton of CO2, the following results are obtained. In the US, carbon debt by the end of 2014 stood at 87% of GDP. One positive aspect is that the growth of this carbon debt is about the same as GDP growth, implying that the debt is unlikely to spiral out of control (as long as CO2 costs don't rise significantly above $50/ton). For perspective, US government debt currently stands at 106% of GDP.

The large carbon surpluses of developing nations, especially those with very poor populations like India and Nigeria, are again evident. Naturally, these ratios will shrink in the future, but these nations can still emit CO2 to fuel their growth for decades into the future without breaking their fair CO2 budgets.

But is this really fair?

Fair question. Slapping such a large retroactive debt onto developed world citizens may sound rather harsh at first glance. Keep in mind though that climate change was not just discovered yesterday. The potential threat of global warming was brought to public attention more than three decades ago. And most of the rich world carbon debt calculated above was accumulated after this point in time.

Younger people today may also feel aggrieved about being saddled by this debt accumulated by previous generations. However, these people are encouraged to simply look around them at the economy that these previous generations have built for them while racking up this debt. Would they rather live in an underdeveloped economy with 5x less disposable income and much higher exposure to climate damages? I think not.

Source.

In the end, it is an undeniable fact that current developed world citizens, both young and old, have benefited tremendously from their enormous historical CO2 emissions. It is also an undeniable fact that it will be developing world citizens who will suffer disproportionately from the climate change effects caused by the rich world's historical CO2 emissions.

Thus, if you ask me, a person born into a developed country has won big at the lottery of life, even when saddled with this carbon debt. I cannot see any sound argument why rich world citizens should be allowed more than their equal share of the global cumulative carbon budget.

Practical implications

So, say that such a system based on cumulative historical emissions becomes broadly accepted. How will highly indebted developed countries pay back the world for the century of unabated fossil fuel emissions that created their superior standard of living?

Sucking all of their historical emissions out of the atmosphere will not be practical in most cases. The more feasible arrangement would be to buy emissions credits from developing nations with large CO2 budget surpluses at a mutually agreed price. In this way, developed nations would very directly pay for the climate damages their historical emissions are (and will be) causing to developing world citizens.

The price of these emissions credits will obviously be a major determining factor. It can be expected that prices increase over time as climate change damages become increasingly real and clearly attributable. The potential for very high CO2 trade prices is the biggest risk for developed nations in this system. As mentioned earlier, carbon debts will remain under control at $50/ton, but $100/ton or more (the expected cost of carbon-negative solutions) would be a totally different story.

Can this really happen?

At present, definitely not. In the future, when the balance of economic and political power has shifted much more to the developing world, yes it could.

I do not think there is any way that developing countries will allow the rich world to remain unaccountable for their historical emissions by the time that climate damages become a major item on national budgets. And by that time (maybe in the 2030's), they will have the power to enforce this accountability, whether the rich world likes it or not.

Source.

Conclusion

Climate change brings an array of life-threatening consequences to underdeveloped nations in forms such as famine, disease and extreme weather. The highly developed economies of the rich world shield inhabitants from these threats, but economic consequences such as property devaluation from rising sea levels and a potential influx of climate refugees can become substantial.

Accountability for historic emissions has not really entered the discussion yet. If developing nations decide to leverage their growing economic and political power to enforce such accountability, this will quickly turn into the greatest climate change consequence felt by the rich world.

Personally, I think such a development is likely to occur over the next few decades. Developed nations will therefore do well to start preparing for such a scenario by decarbonizing their own economies and getting their public finances in order.

Schalk Cloete's picture

Thank Schalk for the Post!

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Recent Comments

Jim Baird's picture
Jim Baird on July 23, 2018

Schalk, contrast the "watch those calories" cartoon, with figures 1 and 6 of the Might, Right, and Climate Change post here:

Also the $1 trillion annual saving over fossil fuel production for 200MW Heat pipe OTEC here .

Energy cheaper than fossil fuels, that in turn avoids fossil fuels subsidies and environmental damage is a boon to the low and high emitters a like.

The hurdle is too scale to the 200 MW plants and beyond.

Many of the jobs building this infrastructure will be produced in the "south".

 Some climate scientists argue, the increase in global temperature can be stopped within decades by reducing carbon emissions.

Ocean heat content, however, will continue to increase for at least a thousand years after we have reached zero emissions. If this heat were evenly distributed over the entire global ocean, water temperatures would have warmed on average by less than 0.05 °C (global ocean mass 1.4 × 1021 kg, heat capacity 4 J/gK).

The problem is, this heat isn’t evenly distributed. It accumulates at the equator and is eliminated at the poles with a net accumulation according to Lyman  of 335 terawatts annually.

How can global temperature be stopped within decades when this heat has to come out of the ocean in order for it to come into equilibrium with the atmosphere?

The thermohaline is initiated by a phase change from water to ice. The sinking salty water is replaced by warmer waters from the tropics.

The SST of tropical water can be reduced for at least 250 years by the phase change of a low-boiling-point working fluid to a gas and then back to a vapor at 1,000 meters.

This can be accomplished at less cost than fossil fuel production and produce more energy.

The effective policy option is ocean heat management IMHO.

Schalk Cloete's picture
Schalk Cloete on July 23, 2018

The link to the article you gave is not working for me, so I cannot see the figures you refer to. 

It is a bit off-topic, but to me it seems rational to first fix the planet's overall heat imbalance by tackling the greenhouse effect. If this is not fixed, it really does not matter much what we do about the heat exchange between different systems on our planet. 

I'm open to OTEC as a part of a true "all of the above" clean energy strategy. But I struggle to see this becoming deployed on the scale you imagine due to the massive capital investment required by the very low thermal efficiencies and the added costs of transporting energy from the deep ocean (preferably in the tropics) to demand centres. 

Jim Baird's picture
Jim Baird on July 24, 2018

Sorry about the link. S/B https://www.energycentral.com/c/ec/energy-legitimately-too-cheap-meter

With 13% of global GDP dedicated to fossil fuel subsidies and environmental damage, OTEC is a bargain.

 

Jim Baird's picture
Jim Baird on July 24, 2018
Schalk Cloete's picture
Schalk Cloete on July 27, 2018

Please see here for my critique of the IMF report calculating 6.5% of global GDP from fossil fuel externalities: https://www.energycentral.com/c/ec/putting-imf-externalized-cost-report-.... This number should be much smaller. 

Average production costs of fossil fuels are about $35/bbl for oil, $4.5/MMBtu for gas and $50/ton for coal. Total global production at these costs sums to $1.2 trillion for oil, $0.6 trillion for natural gas and $0.4 trillion for coal. This amounts to 2.5% of GDP, less than half the number in your article. 

What is your source for the other environmental externalities you assign to fossil fuels? Why must these be added to the already accounted for fossil fuel externalities?

Even though it is undeniable that fossil fuels impose large externalities, these are not nearly as large as implied in your article. It is important to note that, in the developing world (where 90% of future energy and economic growth will happen), economic inefficiency takes many more lives than fossil fuel externalities. Vilifying fossil fuels and advocating for technology-forcing of less economical alternatives is therefore very dangerous. 

Nathan Wilson's picture
Nathan Wilson on July 29, 2018

Sure, we should decarbonize our energy systems as quickly as possible, but all the hand-wringing over past emission ignores the enormous benefits that people of every nation derive from the scientific, medical, and engineering advances produced by the fossil fuel driven economies of developed nations:

- Cellular telephones, TV, and radio, which have high market share in even the poorest countries.

- The "germ theory of disease", antibiotics, vaccines, and prescription glasses which save millions of lives and improve the lives of billions of others, every year.

- Fertilizer, crop rotation and other modern farming practices.  These allow our limited Earth to sustainably provide food for many billions of people: an order of magnitude greater than is possible using primitive technology.

- The secrets of power-on-demand, via electricity and internal combustion engines. These have greatly boosted prosperity of every society which uses them by amplifying human productivity.

- The secret of nuclear energy, which provide all the advantages of fossil fuel use (for electrifiable applications), but in a safe, emissions-free, and sustainable way.

 

A century ago, it was not possible to run a modern economy without fossil fuel (or severe deforestation).  Today, it is possible and the needed technology is for sale from several developed countries.

Schalk Cloete's picture
Schalk Cloete on July 29, 2018

Yes, that is true. On the one hand developing nations have received lots of productivity-enhancing innovation from the developed world. On the other hand, they are exposed to a much more volatile climate system and tighter resource constraints due to a century of developed world growth. 

The inherited technology (lowering living costs) can possibly cancel out the resource depletion (increasing living costs). But I think the direct effects of climate change (caused by the developed world and felt in the developing world) and the costs of an energy system transformation getting anywhere close to a 2 deg C global temperature rise (requires a much larger fraction of disposable income in developing nations) will become serious issues when it comes to distributing the economic burden between developed and developing nations. 

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