Crawford School of Public Policy

The numerical certainty scale (NCS) and polychotomous choice (PC) methods are two widely used techniques for measuring preference uncertainty in contingent valuation (CV) studies. The NCS follows a numerical scale and the PC is based on a verbal scale. This paper presents results of two experiments that use these preference uncertainty measurement techniques. The first experiment was designed to compare and contrast the uncertainty scores obtained from the NCS and the PC method. The second experiment ...

Uncertainty can hamper the stringency of commitments under cap and trade schemes. We assess how well intensity targets, where countries' permit allocations are indexed to future realised GDP, can cope with uncertainties in a post-Kyoto international greenhouse emissions trading scheme. We present some empirical foundations for intensity targets and derive a simple rule for the optimal degree of indexation to GDP. Using an 18-region simulation model of a 2020 global cap-and-trade treaty under multiple uncertainties and endogenous commitments, we estimate that optimal intensity targets could achieve global abatement as much as 20 per cent higher than under absolute targets, and even greater increases in welfare measures. The optimal degree of indexation to GDP would vary greatly between countries, including super-indexation in some advanced countries, and partial indexation for most developing countries. Standard intensity targets (with one-toone indexation) would also improve the overall outcome, but to a lesser degree and not in all cases. Although target indexation is no magic wand for a future global climate treaty, gains from reduced cost uncertainty might justify increased complexity, framing issues and other potential downsides of intensity targets.

Transaction costs and institutional rigidities will reduce the attractiveness of the Kyoto Mechanisms compared to domestic greenhouse gas abatement options. Especially the Clean Development Mechanism (CDM) is likely to entail considerable costs of baseline development, project registration, verification and certification. The AIJ pilot phase and the PCF programme give indications about the level of these costs. Moreover, CDM projects have to be approved by host country institutions. So far, only a small share of host countries has been able to set up these institutions. Several of the larger host countries intend to only approve projects if the market price is above a certain threshold.

We give theoretical, partial equilibrium comparisons of a tax with thresholds, tradable targets ('emissions trading' or ET), and non-tradable targets, as mechanisms to abate well-mixed ('global') emissions from many parties, under independent uncertainties in both future business-as-usual emissions and marginal abatement costs. All three mechanisms are revenue-neutral, and use flexible thresholds or targets indexed continuously to parties' activity levels. We analyse both risk-neutral or risk-averse behaviour. Key theoretical results are that because of emissions uncertainty, there is no simple Weitzman (1974) rule for choosing between 'prices' (a tax) to 'quantities' (ET); under ET, marginal abatement cost uncertainty is a benefit, compared to certainty; and under risk aversion, any mechanism with more expected welfare also gives more expected abatement. We apply our theory to global greenhouse gas abatement in 2020, using an 18-region numerical simulation model with new uncertainty estimates. Key global, empirical results are that under either risk behaviour, a tax dominates ET, which hugely dominates non-tradable targets; and under risk aversion, an optimally indexed tax gives about 60% more welfare and 30% more abatement than unindexed ET, while optimally indexed ET achieves about two-fifths of these improvements.

A 'new Kyoto', called for by the Australian government, may well be based on cap-and-trade, but with significant changes. Under the old Kyoto, broad participation and meaningful commitments were difficult to achieve -in part because of uncertainty about compliance costs and the dichotomy between countries with targets and those without. This policy brief examines options for making greenhouse gas commitments under a `New Kyoto' more flexible: intensity targets, sectoral targets, non-binding targets, permit price caps, and linking targets with commitments for technology development. We also touch on market-based options outside the target-based paradigm.

Indonesia is among the largest 25 carbon dioxide emitting countries when considering only fossil fuels, and among the top three or five when emissions due to deforestation and land use change are included. Emission per capita from fossil fuels are still low in comparison with other countries, but have been growing fast, and are likely to overtake those from deforestation and land use change in the future. This chapter argues the importance for Indonesia to start developing strategies to mitigate its emissions from fossil fuel combustion. It analyses the main drivers of the increase in emissions, identifies the options and challenges in reducing the future growth in emissions. Policy options are reviewed that would enable the Indonesian economy to keep on growing, but with a much lower carbon output.

The paper proposes a global mechanism to finance and promote sustainable development (SD) that is multinational, provides incentives for rich and poor countries to promote SD, incorporates the principle of common but differentiated responsibilities and links incentives and funding for SD to structural benchmarks and performance targets. The mechanism would operate as a large fund into which rich countries would pay based on their level of population,

The agreement on implementation of the Kyoto Protocol achieved at COP7 in Marrakech has important impli-10 cations for investment in greenhouse gas emission reduction projects in developing countries through the clean 11 development mechanism (CDM). The required actual emission reductions for participating Annex B countries, 12 overall will be relatively small, as the United States do not intend to ratify the protocol and significant amounts of 13 carbon sequestered in domestic sinks can be credited. In addition, the potential supply of surplus emission permits 14 (hot air) from Russia and other economies in transition may be as high as total demand in the first commitment 15 period. Thus, even under restraint of hot air sellers demand, CDM demand will be limited, and a low demand, low 16 price carbon market scenario appears likely.

Several developing economies have announced carbon emissions targets for 2020 as part of the negotiating process for a post-Kyoto climate policy regime. China and India's commitments are framed as reductions in the emissions intensity of the economy by 40-45% and 20-25% respectively between 2005 and 2020. How feasible are the proposed reductions in emissions intensity for China and India, and how do they compare with the targeted reductions in the US and the EU? In this paper, we use a stochastic frontier model of energy intensity to decompose energy intensity into input and output mix, climate, and a residual technology variable. We use the model to produce emissions projections for China and India under a number of scenarios regarding the pace of technological change and changes in the share of non-fossil energy. We find that China is likely to need to adopt ambitious carbon mitigation policies in order to achieve its stated target, and that its targeted reductions in emissions intensity are on par with those implicit in the US and EU targets. India's target is less ambitious, and might be met with only limited or even no dedicated mitigation policies.

Lack of action on cross-border environmental problems in developing countries is often ascribed to gaps in local capacity and resources, failure of regional cooperation, and lack of financial support from rich countries. Using the case of the Southeast Asian Haze pollution from forest and peat fires in Indonesia, we explore the challenges posed by environmental problems whose causes are closely linked to local development and livelihood strategies, and whose impacts are local, regional (haze) as well as global (carbon emissions). We assess whether there are real opportunities to implement effectively the recent Association of Southeast Asian Nations (ASEAN) Agreement on Transboundary Haze Pollution. To address the deep determinants behind haze pollution, we propose signatories to the Agreement refocus their efforts to controlling peat fires rather than strive for a zero-burning regime. We also recommend a new approach to financing sustainable development based on rules and incentives, with a regional pool of funds, contributed by rich countries through the Global Environment Facility and countries in Southeast Asia.

We give empirical welfare results for global greenhouse gas emission abatement, using the first multi-party model to include both tax-versus-trading under uncertainties, and revenue recycling. Including multiple, independent parties greatly reduces the welfare advantage of an emissions tax over emissions (permit) trading in handling abatementcost uncertainties, from that shown by existing, single-party literature. But a previously ignored and much bigger advantage of a tax, from better handling uncertainties in business-as-usual emissions, greatly boosts the overall tax-versus-trading advantage. Yet the degree to which each mechanism is used to raise and recycle revenue efficiently by lowering distortionary taxes -rather than recycle revenue as lump sums, or not raise revenue by giving tax thresholds or free permits -may in turn dominate any taxversus-trading advantage. Choosing the best greenhouse abatement mechanism should thus consider the issues of tax-versus-trading and efficient revenue recycling together.

Rapid global economic growth, centred in Asia but now spread across the world, is driving rapid greenhouse-gas emissions growth, making earlier projections unrealistic. This paper develops new, illustrative business-as-usual projections for carbon dioxide (CO 2 ) from fossil fuels and other sources and for non-CO 2 greenhouse gases. Making adjustments to 2007 World Energy Outlook projections to reflect more fully recent trends, we project annual emissions by 2030 to be almost double current volumes, 11 per cent higher than in the most pessimistic scenario developed by the Intergovernmental Panel on Climate Change (IPCC), and at a level reached only in 2050 in the business-as-usual scenario used by the Stern Review. This has major implications for the global approach to climate-change mitigation. The required effort is much larger than implicit in the IPCC data informing the current international climate negotiations. Large cuts in developed country emissions will be required, and significant deviations from baselines will be required in developing countries by 2020. It is hard to see how the required cuts could be achieved without all major developing as well as developed countries adopting economy-wide policies.

We analyse the long-term efficiency of the emissions target and of the provisions to reduce carbon leakage in the Australian Government's Carbon Pollution Reduction Scheme, as proposed in March 2009, and the nature and likely cause of changes to these features in the previous year. The target range of 5-15 per cent cuts in national emission entitlements during 2000-2020 was weak, in that on balance it is too low to minimise Australia's long-term mitigation costs. The free allocation of output-linked, tradable emissions permits to emissions-intensive, trade-exposed (EITE) sectors was much higher than proposed earlier, or shown to be needed to deal with carbon leakage. It plausibly means that EITE emissions can rise by 13 per cent during 2010-2020, while non-EITE sectors must cut emissions by 34-51 per cent (or make equivalent permit imports) to meet the national targets proposed, far from a cost-effective outcome. The weak targets and excessive EITE assistance illustrate the efficiency-damaging power of collective action by the 'carbon lobby'. Resisting this requires new national or international institutions to assess lobby claims impartially, and more government publicity about the true economic importance of carbon-intensive sectors.