RECONCILING EMISSIONS TRADING WITH A TECHNOLOGY-BASED RESPONSE TO POTENTIAL ABRUPT CLIMATE CHANGE.

It has been shown that preparedness to respond effectively to imminent abrupt climate change, getting CO₂ levels down towards pre-industrial in a few decades, involves the promotion of specific technology types that can be the basis for a negative emissions energy system (Read and Lermit 2003/5). In particular, Bio-Energy technologies linked to technologies for CO₂ Capture and Storage (BECS) or to other carbon disposal technologies, if done on a sufficiently large scale, can achieve this result given a context of policy urgency that also yields advances in energy efficiency and the take up of ambient energy technologies (wind, solar, etc.) in line with low emissions energy scenarios (e.g. the fossil free energy scenario developed by the Tellus Institute for Greenpeace International (Lazarus et al. 1993). It has also been shown (Read 1999, 2000, 2000a) that, if account is taken of inter-temporal beneficial learning externalities, it is efficient to reward innovation in policy-desirable technology types (e.g. through project-based schemes that embody such technology types) by a greater amount than the penalty on emissions. Such dynamic efficiency can be achieved through establishing a secondary market for project based credits exchanged for a number of emissions permits M(t) (M > 1 for t < H, the time horizon for policy) and with the variation of M(t) over time corresponding to the dynamically efficient path. This results in the incentive for project based emissions reductions being M(t) times greater than the penalty on emissions. By making use of the initial allocation of permits in each time period, an aspect of emissions permit trading that has no efficiency function under either auctioning or `grand-fathering', this arrangement enables project based credits to be administered flexibly whilst ensuring the integrity of the emissions cap. The purpose of this article is to link these two bodies of work to show how a dynamically efficient response to the threat of abrupt climate change can be implemented in a way that is compatible with the response to gradual climate change that has been negotiated in the Kyoto Protocol. The design of such a dynamically efficient mechanism is considered, having as its objective the promotion of the two technology types mentioned above. A particular institutional model for implementing such a mechanism is described that mimics managerial behaviour in the adoption of new technology, avoids the additionality requirement that burdens the operation of the CDM in its current form, and aims to achieve `industry friendliness' as a necessary condition of effective implementation. [ABSTRACT FROM AUTHOR]