2. A Bretton Woods for the ClimateCrisisFORES Policy Paper 1: 2010 Martin Ådahl Daniel Engström Mattias Johansson Jakob Rutqvist

3. The failure of COP15 Failure of the negotiation process Failure of the political ambition of major emitters Failure of concrete problem solving (MRV)

5. internalize external costsReduce complexity by delegating Transparency and accountability to establish trust (MRV)

6. Benefits of institutions Voluntary containment of options Builds norms around common goals  more difficult to deviate  increases reputational costs / reciprocity  internalization of common good (Keohane 1984, 1986; Abbot&Snidal 1998, Ostrom 1996) Honest broker – transparency (MRV) Reduces transaction costs / complexity(North 1990 , Coase 1960 ) Pool of accumulated expertise

7. Bretton Woods 1944 (Dominguez 1992) IMF World Bank IAT  GATT  WTO The mechanisms: Gold standard Fixedbutadjustable pegs Multilateral funding Durabilitydespite drawbacks: Fixed pegs failed – but new IMF role Lowered tradebarriers Norms: ”Washington consensus” Bretton Woods, New Hampshire, July 1, 1944

8. Bretton Woods institutions vs. UNFCCC Bretton Woods: Governedbyexecutiveboard with quotas Employees: World Bank: 10 000 IMF 2 400 WTO 630 Economists and lawyers UNFCCC: Consensus decisionprinciple – one nation onevote Employees: UNFCCC 300 IPCC experts about 2000 total <20 economists 2-3 experts on markets

9. 1. Permanent institution:IMF/WTO equivalent for the climate Rules set by politicians instead of discretion Practical decisions delegated to practical experts not diplomats Standing army of experts on practical deployment (markets, economic instruments) Independence as watchdog Governing structure reflecting responsibilities and economic weight (quotas)

10. New “International Carbon Fund” Linking emission markets Governing reformed Clean Development Mechanism (CDM) Funding mitigation and adaptation through market mechanism Technical assistance

11. 2. Global emission markets linkingmechanism Linking emissions markets Aligning incentives Funding

12. Emission markets(Tientenberg, Stavins etc) Emission reductions Price Tax Reductions Cap

13. Existing / proposedmarkets(Damsgaard 2009) Global emission markets 2009: 7,375 MtCO2 $126.6bn +5.5% Markets / mechanisms: EU ETS US: Waxman-Markey / Kerry-Boxer CDM JI Australia, others Sources: Bloomberg, US EPA, EU Commission

14. Linking markets

15. Linkingequalizesprices(Jaffe & Stavins 2009, Aldy & Stavins 2010, Flachsland, Marschinski & Edenhofer 2009) Price Price Cap Cap

16. Price convergence when markets link(Dellink 2009) Source: OECD

17. Less costly to reduce emissions(Dellink 2009) Source: OECD

18. Wrongpoliticalincentives (regardless of instrument) Price Price Cap Cap

19. An ”exchange rate” betweencaps ”Exchange rate” between emission markets within the system: Per capita cap nation / Per capita cap global (Basic commodity ”climatespace” instead of emissions)

20. Mechanism for correctingpoliticalincentives Price Price Cap Cap

21. Funding for poorer nations Incentive to cap / mitigate emissions Compensation for historical emissions by earlyindustrialized nations Support for nations hit by climatechange

22. Green FundNorwegian/Mexicanproposal Contributions: from all exceptleastdeveloped based on current and historical emissions, GDP, population and CO2- intensity proportion of UN-allowances for auctioning. national cap and trade systems maycontribute Developing countriesnetbeneficiaries. Governed by high level board policy guidance of, and accountable to, the COP equal representation developed/developing nations.

23. Extendedmechanism for fundingmitigation and adaptation Contributions: Fraction of all cap-and-trade systems within system set aside (instead of grandfathering) In relation to historical emissions Developing countries that capbeneficiariesaccording to formulabased on GDP per capita Funding for carbon institutions Source: WRI, IEA

24. 3. ”Major Emitters Forum” Top emitters based on present MEF (Major Economies Forum) Clear objective -> Emission reductions Commonpracticewithin UN institutions Minilateralism -> Multilateralism GHG emissions 2005 Source:: WRI

25. Benefits of major emitters forum Higherreputationalcosts(Abbot&Snidal 1998) Tighterreciprocity -> Issuelinkages No (or fewer) spoilers Negotiationtailored to needs

26. The proposal A permanent institution Rulesinstead of discretion Normative Expertise A comprehensivemechanism Linking Correctingincentives Funding A Major Emitters Forum