States negotiate treaties with the intent to comply, otherwise they would not take the negotiations so seriously. But a nation’s incentives to comply are different than those to participate. Once an international environmental agreement is joined, the state may choose to continue complying, hedge its actions, or change policy altogether and withdraw from the treaty because the initial conditions for participation have changed. Of the subset of states that choose to comply, some will meet the treaty requirements and others will fail to comply because they were unable to meet an overly ambitious goal. The compliance criteria
developed here looks at those states that intend to comply but may be at higher risk of failing because of the effects of the IAF mechanism design. This compliance is inhibited if the IAF
16 AD-RICE is an extended version of the regionalized RICE integrated assessment model (IAM) (Nordhaus
and Yang 1996) with explicit adaptation and mitigation policy choices.
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mechanism inhibits the nation’s efforts to mitigate, which puts it at a higher risk of not meeting its promised and required mitigation targets. Compliance effects of IAF are analyzed on two criteria.
Criterion C1 – Resource Competition. Does the proposed policy and institutional design of the IAF mechanism place adaptation efforts in a zero-sum competition with mitigation for financial resources, or is there little or no resource competition effect?
Economic scarcity dictates that at any one time there is a finite level of resources available to redistribute, and any allocation comes with an opportunity cost from foregone alternative uses of the same resources (Friedman 2002c). In other words, there is a degree of competition for the same dollars between mitigation and adaptation, and the choice to devote limited policy resources to climate change means that they come at the expense of other pressing policy issues (chapter two). All of these resource priorities are in zero-sum
competition with other issues. If, given preferences at a given time, there is a finite level of political willingness to address climate change, then that ―policy pie‖ cannot be expanded. The addition of a new policy option (adaptation) within these bounds will necessarily redistribute the portfolio and lower the use of the original policy (mitigation).
The resource competition criterion characterizes the concern expressed by environmental advocates when adaptation originally gained recognition as a response strategy, that its rise in prominence would be to the detriment of mitigation efforts. Global resources available to address climate change are not constrained by their physical or technological availability but by the political willingness to devote them to the climate change issue instead of other uses, whether they be other pressing policy problems or simply more consumption. When we say that current levels of technology limit our ability to
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address climate change (and that we therefore need to develop new and more advanced technology), what is really meant is that technology at our given standard of living limits our ability to deal with climate change.
Results from climate and economy IAMs predict that in principle this crowding out is not a problem, as the inclusion of adaptation as a risk-reducing policy response allows for a lower global mitigation level to achieve a given level of social welfare. However, such results apply to an idealized policy world where mitigation is already set to an optimal level. If mitigation is instead at a level below even the lowest optimal estimates from IAMs, then mitigation will need to rise (or at least stay constant) even with the addition of adaptation to the policy mix, in order to achieve the original damage goal.
That new adaptation money has the potential to crowd out other legitimate international policies has already been recognized in adaptation’s relationship with sustainable economic development. Calls for adaptation mainstreaming (incorporating climate change expectations into all future development decisions) are paired with the
concern that delivering aid in this way will cause its total level to fall short of the UNFCCC’s additionality requirement, that any future adaptation aid be in addition to pre-existing ODA commitments by developed nations. The fear is that ODA could be recast as adaptation aid with the result either that: 1) ODA stays at its current levels and the recasting into adaptation is simply a name change that leads to no increases in actual adaptation aid, or 2) climate change adaptation is promoted at the expense of ODA and economic development goals.
Criterion C2 – Policy Interactions. As the IAF policy is implemented, would its institutional design cause negative distortions that discourage mitigation investments, positive feedbacks that instead tend to promote mitigation, or neither interaction?
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The challenge of climate change can be framed in two policy-equivalent ways. In one approach, global GHG emissions are a negative externality of economic activity that inflict uncompensated damages on parties other than the emitters. From a different perspective, the earth’s total carbon sinks, particularly the world’s atmosphere, is a global public good that is capable of absorbing a certain amount of emissions before becoming degraded and causing damages for all.18 Price or quantity policies can address the problem from either approach, by pricing the externality into the emissions production or
consumption decision, or by promoting the amount of the public good up to socially optimal levels. For instance, under ideal conditions,19 a Pigouvian environmental tax is optimal if it is set equal to the marginal damages (Sterner 2003). The optimality condition does not stipulate where the tax revenues are spent (a separate question), and they can be redistributed to the population either as cash, invested in related environmental projects, invested in unrelated projects, or targeted to victims as refunds in compensation for their losses.20 This result is applicable to polluter pays policy proposals for IAF that tax carbon emissions and use the funds for damage compensation. Under certainty, outcomes from Pigouvian taxation can be achieved by the equivalent quantity measure (Weitzman 1974) such as via a cap-and- trade auction.
Policy can be distorted when additional policies with different goals are also implemented. For example, for IAF proposals that are based on the continuation or
expansion of adaptation levies on existing mitigation mechanisms, Brown and Vigneri (2008)
18 Weimer and Vining (2004) elaborate upon this policy equivalency. 19
Ideal conditions consist of ―fully informed, honest, welfare maximizing regulators and appropriate concepts of property rights‖ (Sterner 2003).
20 However, compensating the victims of environmental harms with the revenues actually reduces overall
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note that ―a levy placed on international trading may act as a deterrent to market activities and have the potential to reduce overall liquidity in the carbon market.‖ Through such taxation of mitigation efforts to promote adaptation, adaptation piggy-backs on mitigation efforts and puts a drag on its effectiveness; a ―good‖ is promoted by taxing another ―good.‖ The phenomenon could apply wherever these methods are used to raise funds, at the
international or domestic levels.
No one is deluded that an international climate change treaty that can be adopted would result in a global optimum mitigation level, and it is assumed here that these
mitigation levels will remain below what both natural scientists and economists propose as a minimum level. Therefore, in this suboptimal world, I look not at how the addition of adaptation could cause deviations from optimality, but at how adaptation financing could induce further negative distortions of a policy variable of which more is better (mitigation).