Climate change and developing countries

Abstract

Climate change is one of the biggest issues facing the world. In recent years, several attempts have been made to define international strategies to cope with this threat. As a result, the current climate regime consists in the second commitment period of the Kyoto Protocol. In the meantime, Parties under the UNFCCC are negotiating for the definition and the approval of a new Agreement to be implemented in 2020. While in the first phase of negotiations the main objective was to get also reluctant Annex I countries to ratify the Kyoto Protocol whereas developing countries’ concerns remained marginal, last years have been characterized by an increasing role of developing countries both in climate negotiations and in emission levels. Accordingly, this has exacerbated the debate about the CBDR Principle, considering how crucial active involvement of the developing part of the world is in climate actions. In view of this, the research project aims to investigate how the role of developing countries in the fight against climate change has been changing over time. The research consists of three papers. The first one investigates the role of developing countries in the Kyoto Protocol first commitment period (2008-2012) and, in particular, it is focused on the Clean Development Mechanism (CDM), the only instrument that directly involves them. Indeed, CDM projects are still far from being an effective development activity due to the uneven distribution of these projects in a few relatively well-off economies. One potential cause of this imbalance is analyzed in terms of the trade relationships between developed and developing countries. By applying a gravity model to a panel dataset, wellestablished export flows from developed economies towards developing countries are shown to explain why a large proportion of CDM projects are unevenly geographically distributed. This kind of lock-in effect regarding the CDM between developed and developing countries could be avoided by both enhancing the institutional framework in developing countries that host CDM projects and reinforcing compulsory rules for CDM destinations in the least-developed economies. The second paper analyzes the role of these countries in post 2012 negotiations, with particular emphasis on the role that their heterogeneity plays in the formation of coalitions and in the negotiating process. As it has become evident during the last COPs, developing countries have different expectations and concerns about climate change negotiations, reflecting huge differences with respect to their economic, political and human conditions. The emergence in climate negotiations of more differentiated positions compared with the traditional segmentation between developed and developing countries can contribute to explain the deadlock characterizing climate negotiations. By applying a cluster analysis, this paper aims to investigate the role played by heterogeneity in specific characteristics of developing countries in explaining divergent costs and benefits associated with alternative climate negotiation outcomes. By clustering developing countries according to their economic, geographic, environmental, energy and social characteristics, the paper presents some considerations on climate political economy strategies in these countries with respect to existing bargaining coalitions. In particular, cluster results suggest that developing countries are characterized by heterogeneous concerns and conflicting interests that can contribute to explaining the deadlock in climate negotiations. Indeed, in some circumstances, countries may advocate, at the same time, interests that are potentially contrasting, leading to the possibility that very fragile, variegate and unstable alliances will be formed, complicating the negotiation process and leading to a standstill. Given the heterogeneity of countries and their relative differences in costs and benefits related to climate actions, it is necessary to set out compensating schemes, such as the Green Climate Fund (GCF), for the most vulnerable countries in order to reach a successful agreement. Advancing from that point, the third paper addresses the debate about the GCF, especially regarding the resource allocation mechanisms that are still under discussion. A climate-economic computable general equilibrium (CGE) model is developed with the purpose of taking into account a monetary evaluation of climate change damage costs incurred by all countries as well as a mechanism describing the operationalization of the GCF. The purpose is twofold: i) to investigate costs and benefits of ongoing climate negotiations, with particular emphasis on developing countries, and ii) to examine the role of the GCF as a compensating measure in fostering the realization of a more efficient climate agreement. The model used to carry out the research is the GDynE, an energy-environmental version of GDyn developed by Markandya et al. (2015)1, resulting from merging GDyn with GTAP-E, according to Golub (2013)2. The main novelty of the model adopted here is represented by new and explicit equations that allow for the introduction of the climate damage as well as a more wellstructured description of the GCF allocation mechanisms. Results show that, despite the high costs associated to the implementation of a climate policy, developing countries would face even higher costs if they did not act. Thus, the first conclusion we can draw is that, if a costs-benefits criterion were the leading factor driving mitigation decisions, developing countries would gain from actively participating in mitigation policies. However, defining the stringency of the global mitigation target (450 ppm vs 550 ppm) as well as the best structure of compensating mechanisms (GCF) is more complicated. Indeed, climate change policies affect many aspects of a country’s economy, such as welfare and GDP. Shifting from a policy evaluation criterion to another can lead to several and often contrasting conclusions. As for the role of GCF, two alternative resource allocation methods have been investigated. Simulation results give some elements to strengthen the discussion about the GCF rules on a quantitative basis. In fact, the preference for an allocation method over the other from the developing world depends on the effects that the different allocation between adaptation and mitigation produces on the whole economy. Given the several aspects affected by resources allocation, also in this case the preference of a country for an allocation method over the other strongly depends on the evaluation criteria. However, results confirm that, as stated in the second paper, the preference of a country for an allocation method is strongly influenced by its characteristics and needs. Therefore, a country-specific GCF should be designed in order to facilitate the negotiation process and to reach a more effective climate agreement.