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Scheinkman joins leading economists in search for climate crisis solutions COP30 Brazil valorinternational.txt
José Scheinkman — Foto: Gabriel Reis/Valor Brazilian economist José Alexandre Scheinkman,lotofácil 08/04/2019 an internationally renowned scholar who has taught at the University of Chicago and Princeton and now teaches at Columbia University, has dedicated much of his time to developing economic ideas to combat the climate crisis. “We have to reach net zero—zero net CO2 emissions—within about 20 years, or the fight will be lost,” he warns. A few months ago, at the request of Andre Corrêa do Lago, president of COP30, Mr. Scheinkman convened a council of top-level economists to propose ideas to the diplomat. Mr. Corrêa do Lago and Mukhtar Babayev, president of COP29, must present a report detailing how the world can mobilize $1.3 trillion annually for countries to confront the crisis. Whether these ideas will gain traction remains uncertain. The group will submit its proposals to the United Nations Framework Convention on Climate Change (UNFCCC) by September 10. There, they will join submissions from governments, institutions, and global civil society organizations and may—or may not—be incorporated into the report prepared by the presidents of COP29 and COP30. Last week, during a visit to Insper in S?o Paulo, Mr. Scheinkman was invited to join the External Evaluation Committee, a panel of experts who meet annually to analyze and guide the school’s direction. He spoke with Valor about the distinguished group of economists he assembled—some of whom are listed below—and their innovative ideas for enabling the global economy to respond to the climate emergency. He outlined six projects: four aimed at reducing greenhouse gas emissions worldwide and achieving net zero as quickly as possible, and two focused on climate justice. Below are the main points from his interview with Valor: A pizza in New York A few years ago, at the invitation of Jo?o Moreira Salles, I attended a conference at Princeton University. By then, I had already moved to Columbia. The event focused on the Amazon, discussing climate, economics, and related issues. I was intrigued. While I was familiar with the climate debate, I had never thought specifically about the Amazon or tropical forests. On the way back, we went out for pizza. Joining us were Beto Veríssimo, co-founder and senior researcher at Imazon and an Amazon specialist, and Juliano Assun??o, economist, executive director of the Climate Policy Initiative, and an expert on the intersection of climate, economics, and forests. Someone suggested forming a group of people interested in developing solutions. After that night, I began participating in climate discussions. I realized there was a major economic science question we had not yet addressed: the technical challenge of calculating the economic value of the forest. For example, given a carbon price, how many cattle should Brazil raise? How much forest should it restore—or cut down? In other words, what were the economic options for the forest, expressed formally and rigorously? Forests I have a long-standing relationship with Lars Hansen, the American economist who won the 2013 Nobel Prize in Economics. I called him and said, “This is a difficult and important problem; we could work on it together.” Mr. Hansen had previously done research on climate, but not on forests. Juliano Assun??o, Mr. Hansen, and I began collaborating. That was how I became involved as an economist, eventually dedicating almost all my time to climate issues. The group One day, Andre Corrêa do Lago asked me if I would like to bring together a group of leading economists to offer him suggestions. I reached out to people at the highest levels of the global academic community. Some names were suggested by the Ministries of Finance and Foreign Affairs; others were chosen directly by Corrêa do Lago. I invited Juliano Assun??o, who is internationally recognized for his research on forests; Hansen; Esther Duflo, the French economist and 2019 Nobel laureate who teaches at the Massachusetts Institute of Technology (MIT); Patrick Bolton, a leading figure in climate economics and now a professor at Imperial College; Rohini Pande, a young professor at Yale; Catherine Wolfram, a professor at MIT; and Harrison Hong, my colleague at Columbia who has long studied climate disasters. Many others are contributing, but this group forms the core. Each member is responsible for a specific area of work. The idea The issue of emissions is global. A unit of greenhouse gas emitted in Russia, South Africa, or Brazil has precisely the same impact. That is the physics of it, which is why, when addressing the problem, we must think globally—and seek the most cost-effective opportunities to reduce emissions or capture carbon. These opportunities vary. In Europe, one tonne of carbon costs $85. A European company facing this price has two options: either pay $85 or spend up to that amount to cut its own emissions. If it can do so for $80, it will reduce its emissions directly. But if the cost rises to $90, the company will simply buy the $85 quota instead. In economic terms, the marginal cost is $85 per tonne. This means Europe spends $85 to avoid emitting a single tonne of carbon—while in the Amazon, the same amount could fund reforestation projects capable of capturing three tonnes of carbon. A global carbon market Limiting efforts to Europe alone makes no sense. Even if Europe reaches net zero in greenhouse gas emissions, it will mean little if emerging countries continue to increase their emissions. The only viable solution is to replicate the European model on a global scale—creating an international carbon market where transactions can occur across borders. Global certification agency But a functioning global market requires tools that do not yet exist. How do you certify that a tonne of carbon has been emitted—or captured—in the Amazon or through carbon capture and sequestration technologies? A global certification agency would be essential. Rohini Pande has assembled a large team of economists to tackle the issue. A system of verification must be developed to prevent double counting, and contracts must be designed to minimize risks for participants in this new market. Carbon coalitions Our group is exploring how to design an effective carbon coalition—a field led by Catherine Wolfram. The central question is what price this coalition could set both for carbon emissions within member economies and as a minimum cost for emissions outside it. The Europeans call this mechanism the Carbon Border Adjustment Mechanism (CBAM). We are using the term Carbon Border Adjustment (CBA), but it refers to the same concept. The price could be graduated. As in Europe, everyone could receive an initial quota, with additional quotas allocated to less prosperous EU countries, or a system of differentiated prices could be used. We are running these simulations. One option might be to set the price at $75 for wealthy countries while allowing lower prices for less affluent ones. First step: net zero Ultimately, we must reach what we call net zero. That means emissions can continue only if we capture the same amount. Markets will play a decisive role in this process. Today, the COPs operate based on Nationally Determined Contributions (NDCs)—the climate commitments of each country. But if all nations complied with their current NDCs, the planet would still warm by about 2.7°C. That outcome would be disastrous. No one knows what crossing the 2.7°C threshold would bring, and it is a risk we cannot take. The data is clear: we must reach net zero between 2035 and 2050. If we fail to do so in roughly the next 20 years, the battle will be lost. Staying cost-effective Markets can help achieve this goal at a lower cost. Once Europeans recognize the cost-effectiveness of capturing carbon in tropical forests—and once tropical countries adopt large-scale reforestation strategies—capital will inevitably begin to flow in that direction. Decarbonizing energy Patrick Bolton is focusing exclusively on the energy production sector, which in many countries accounts for 40% to 50% of total emissions. He calculated the cost for all emerging and developing nations to fully decarbonize this sector. To achieve this, energy sources based on coal, oil, and gas must be phased out, and these units decommissioned—a process that incurs costs because owners, workers, and others must be compensated. Bolton carried out all these calculations. He analyzed several scenarios for how much financial assistance wealthier countries would need to provide. The funding would come from two main sources: multilateral banks and direct donations on one side, and financing on the other. At the same time, clean power plants must be built to replace the deactivated fossil-fuel units. Bolton calculated the cost of constructing all the new facilities needed to accommodate economic growth in emerging markets, cross-referenced this with national energy matrices, and concluded that the total figure is not excessive. Spread out to 2035—just ten years from now—the cost would be slightly above $100 billion annually, less than 10% of the estimated $1.3 trillion needed each year to tackle the climate crisis globally. He also notes that private capital could be attracted because the new plants would generate revenue. Bolton estimates that countries would need to fund only 25% of the total cost, with the remaining 75% financed by the market. Help for the poorest Harrison Hong is calculating the cost of climate disasters for the poorest countries—costs for which they bear no responsibility. These burdens are enormous. Currently, immigrants from these countries send remittances home to support their families, and in some cases, these funds account for as much as 6% of their country’s GDP. Proposals in the United States and Saudi Arabia to tax these remittances would be catastrophic, he argues. Instead, they should not be taxed at all, and transfer costs should be reduced. Hong’s project raises a second critical point: climate disasters worsen the already precarious credit situations of indebted countries, eroding their repayment capacity. One possible solution would be a “debt-for-climate adjustment” mechanism. In exchange for partial debt forgiveness, countries would commit to additional emissions reductions, possibly by implementing a carbon price that incentivizes the replacement of diesel engines with clean energy alternatives. Automatic compensation Esther Duflo, who leads a formidable team, is exploring ways to establish automatic compensation for the world’s poorest countries—nations that have contributed almost nothing to climate change yet bear the brunt of its consequences when disasters strike or temperatures rise to destabilizing levels. One proposal would require wealthier nations to commit to financial assistance through a mechanism similar to the Bolsa Família program—a social welfare program in Brazil designed to provide financial aid to low-income families—but with payments triggered at the time of climate disasters rather than distributed throughout the year. Such a system would provide immediate relief, allowing individuals and communities to survive the most acute moments of crisis. Even if the world reaches net zero in the coming decades, climate disasters will continue to occur. They will become more frequent, more severe, and poorer nations will remain the least equipped to withstand their impact. Translation: Todd Harkin
