The 21st Century climate challenge

Brazil, an import duty of €0.73 (US$1) pergallon is applied by the European Union—atariff equivalent in excess of 60 percent. 102 Inthe United States, Brazilian ethanol faces animport duty of US$0.54 a gallon. 103 Whilelower than in the European Union, this stillrepresents a tariff of around 25 percent at 2007domestic market prices for ethanol.Trade policies applied to ethanol conflictwith a wide range of climate change goals.Ethanol from Brazil is disadvantaged eventhough it is cheaper to produce, generateslower CO 2emissions in production, and ismore efficient in reducing the carbon-intensityof vehicle transport. More broadly, the highlevels of tariff applied to Brazilian ethanol raiseserious questions for economic efficiency in theenergy sector. The bottom-line is that abolishingethanol tariffs would benefit the environment,climate change mitigation, and developingcountries which—like Brazil—enjoy favourableproduction conditions. In the European Union,Sweden has argued strongly for a reducedemphasis on protectionism and stronger policiesfor the development of ‘second-generation’biofuels in areas such as forest biomass. 104Not all international trade opportunitieslinked to biofuels offer benign outcomes. As inother areas, the social and environmental impactsof trade are conditioned by wider factors—andbenefits are not automatic. In Brazil, the sugarproduction that sustains the ethanol industryis concentrated in the southern State of SãoPaulo. Less than 1 percent originates from theAmazonia. As a result, the development ofbiofuels has had a limited environmental impact,and has not contributed to rainforest destruction.The picture in other countries and for other cropsis mixed. One potential source of agriculturalinputs for biodiesel is oil palm. Expansion ofcultivation of that crop in East Asia has beenassociated with widespread deforestation andviolation of human rights of indigenous people.There is now a danger that the European Union’sambitious biofuel targets will encourage the rapidexpansion of oil palm estates in countries thathave failed to address these problems (box 3.9).Since 1999, European Union imports of palmoil (primarily from Malaysia and Indonesia)Figure 3.7Some biofuels cost less and cut CO 2emissions moreC0 2emissions (% of petrol emissions)0 10 20 30 40 50 60 70 80 90 100Ethanol from sugarEthanol from maizeBiodiesel from vegetable oilUS$ per litre, 2005Source: IEA 2006 and IPCC 2007.have more than doubled to 4.5 million tonnes,or almost one-fifth of world imports. 105 Rapidexpansion of the market has gone hand-in-handwith an erosion of the rights of small farmers andindigenous people.R&D and deployment oflow-carbon technologiesEmissionsCost0 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00Joseph Schumpeter coined the phrase ‘creativedestruction’ to describe a “process of industrialmutation that incessantly revolutionizes theeconomic structure from within, incessantlydestroying the old one, incessantly creatinga new one”. He identified three phases in theprocess of innovation: invention, applicationand diffusion.Successful climate change mitigationwill require a process of accelerated ‘creativedestruction’, with the gap between these phasesshrinking as rapidly as possible. Carbon pricingwill help to create incentives for the emergenceof these technologies—but it will not be enough.Faced with very large capital costs, uncertainmarket conditions and high risks, the privatesector alone will not develop and deploy technologiesat the required pace, even with appropriatecarbon price signals. Governments will have toplay a central role in removing obstacles to theemergence of breakthrough technologies.The case for public policy action isrooted in the immediacy and the scale of theLower boundMeanUpper bound3Avoiding dangerous climate change: strategies for mitigationHUMAN DEVELOPMENT REPORT 2007/2008 143