Note: This blogpost was published by the Economist on October 12, 2015 read original blogpost here
In December talks in Paris involving more than 200 countries may result in a new agreement aimed at reducing carbon emissions. In the months leading up to the conference, The Economist will be publishing guest columns by experts on the economic issues involved. Here, Stefan Ambec of the Toulouse School of Economics and Jessica Coria of the University of Gothenburg argue that efforts to reduce greenhouse-gas emissions and efforts to reduce other pollutants are not always complementary.
BURNING fossil fuels for heating, generating electricity or for transport does not simply produce carbon-dioxide emissions, but also other greenhouse gases (GHG), such as particulate matter (PM), sulphur dioxide (SO2), nitrogen oxides (NOx) and volatile organic compounds (VOC). They are harmful to human health and damage the environment. Local air pollution is a big concern in many countries, and measures to reduce carbon-dioxide emissions have been implemented to combat this. China has recently issued a national five-year action plan to cut air pollution, by reducing the use of coal in generating electricity, and by encouraging investment in wind power and improved energy efficiency.
At first, this appears to be good news for the climate. The general public often thinks that measures to improve local-air quality will also cut carbon emissions. Yet this is not the full story. Policies to cut carbon emissions sometimes also cause a rise in the emissions of other greenhouse gases, such as SO2 and NOx, which contribute to climate change even more than carbon does. For instance, filtering SO2 emissions out by installing flue-gas desulphurisation devices on coal boilers uses energy, thereby creating more carbon emissions. Most notably, over the last decade fuel-tax policy in Europe has incentivised drivers to switch from petrol cars to diesel ones, cutting carbon-dioxide emissions but increasing ones from more NOx and PM.
Cutting local pollution can also have unintended consequences for climate change on a global basis. In a new paper, we investigate the question of the effects of "policy spillovers" between local and global emissions. The economic model used includes both the ancillary benefits and costs of pollution abatement from pollution at a local and global basis. The paper shows that in the absence of international obligations to cut greenhouse-gas emissions, countries only do so when they are complementary to efforts to reduce pollutants that damage the immediate environment (such as NOx). When local-pollutant abatement efforts are substitutes, however, countries have no self-interest in reducing their greenhouse-gas emissions. Worse still, the regulation of local air pollution might lead to higher emissions on a global basis in net terms.
This is why reducing greenhouse-gas emissions on a global basis requires international treaties. But the choice of policy instrument through which this is done matters if unintended consequences are to be avoided. The emission-reduction targets inspired by the Kyoto protocol in fact could be counter-productive for improving air quality. Countries that experience higher costs of curbing GHG emissions will obtain less stringent targets. By postponing investment in clean technology, sticking with coal rather than moving to cleaner fuels such as wind or solar, a country will be allowed to emit more. Such perverse incentives can be avoided with market-based instruments such as tradable emission allowances—like in the European Union Emissions Trading Scheme—or a tax on GHG emissions. Nevertheless those instruments should be properly designed to avoid any unintended consequence on local air pollution. In particular, the way emission allowances are allocated or the revenue from taxing GHG emissions is used matters.
So is air pollution really good news for the climate? That depends on the technology used for reducing pollution as well as the agreement that would emerge from future climate negotiations. There is scope for optimism: many technologies currently being adopted to cut carbon emissions are also reducing other forms of pollution. They may even manage to reduce many sources of air (GHG, SO2, PM and NOx) at lower cost.