OECD Observer
In Bali

Secretary-General Angel Gurría led a high-level mission of OECD economists and environmental experts at the UN Climate Change Conference in Bali in December. In this extract from one of his interventions at the conference, Mr Gurría explains some of the reasons why economics and markets must be at the heart of any effective and equitable strategy to tackle climate change.

“The ambitious and comprehensive policies necessary to tackle climate change are known, available and affordable.

The OECD has arrived at this conclusion after working for nearly two decades on the economics of climate change. […]

Our OECD Environmental Outlook, to be launched next March in Oslo, concludes that, to put us on the path to stabilising greenhouse gases in the atmosphere–at about 450 parts per million in carbon dioxideequivalents– would reduce global growth by only about one tenth of one percent per year (on average) from now to 2050. This is an affordable cost. […]

The post-2012 climate framework must rely on a solid economic footing to have a chance to succeed. […]

However, in our quest to limit the cost of adaptation and mitigation, we need to be accurate and to act upon evidence-based information. For example, a number of countries have focused their climate change policies on subsidising the “good” solutions, rather than on taxing the “bad” ones. This is an inefficient choice, because it tends to increase the costs of reducing GHG emissions.

Subsidising “good” behaviour risks locking in technologies that may later be considered obsolete or inefficient. On the other hand, taxing bad behaviour (emissions), provides a consistent incentive for increased efficiency and innovation. […]

How do we manage this transition to a low carbon world in an economically efficient and socially responsible manner?

Although it is frequently cited as a solution, our work shows that many developing countries may face far bigger GDP losses than the industrial world if a uniform global tax is used. For example, in the 450 ppm scenario, the OECD would lose two-tenths of a percentage of GDP by 2030, and 1.1% by 2050, but Brazil, Russia, India and China could lose five times as much.

And this is where the political economy of climate change comes in. The real problem is not how much it costs, but who pays for it. The OECD is examining ways to distribute the burden of the costs of action in an equitable and fair manner, while ensuring that mitigation action takes place wherever it is least costly. […]

Compared to the introduction of a uniform global tax, a global emissions trading permit system could significantly lower the impact on developing countries of achieving aggressive global emission reduction targets. This can be done through differential target setting and allocation of emission permits. Thus, developed countries could undertake a relatively greater financial responsibility for emissions reduction than developing countries.

The full speech, along with other interventions delivered in Bali, can be found at www.oecd.org/speeches.

©OECD Observer No. 264/265, December 2007-January 2008