Page contents > 1. Policy | 2. Carbon markets, pricing and regulation | 3. International technology support | 4. Economics of biofuels and deforestation | 5. International region and country studies
The first phase of the Grantham Institute's research agenda will be organised into five programmes, reflecting some of the most important questions in climate change.
1. Policy
Within the past two to three years, international political efforts have redoubled to secure agreement on mitigating climate change. Central to this agreement at a formal level - and further crucial to guiding the efforts of businesses, markets and individuals beyond the negotiating table - is a shared notion of what is a safe level of greenhouse gases in the atmosphere. In other words, by how much should we reduce our emissions of greenhouse gases, and how quickly? How should we proceed in the short term, assuming we learn more about the consequences of climate change over the next two decades?
Answering these questions requires a complicated mix of science, economics and politics. For instance, we rely on climate scientists to indicate to us how fast temperatures will increase if we follow 'business-as-usual'. But we need to understand the economic and social consequences of these changes. Moreover, reducing greenhouse gas emissions is costly, so some comparison of the costs and benefits of action must be made. In turn, working out how much it will cost to reduce greenhouse gas emissions requires us to take account of future changes in technology on a large scale.
Beyond the international target, there is a set of equally difficult questions about how to share the burden. Industrialised countries have been responsible for the lion's share of past greenhouse gas emissions, but developing countries like China and India command a rapidly increasing share, due to the unprecedented growth of their economies. Numerous ideas have been tabled for how to share the burden in general terms, but these have seldom been applied in a rigorous, quantitative way to project future pathways of emissions in different regions.
This research programme aims to inform all of these issues by undertaking state-of-the-art interdisciplinary research at the interface of science, economics and politics. Amongst the projects we will undertake, we will try to put into operation the various proposals for how to share the burden of international emission reductions, taking into account the need to 'hedge' against an uncertain future, and the need to stimulate technological advances.
2. Carbon markets, pricing and regulation
Trading in the right to emit greenhouse gases is emerging as one of the foundations of climate-change policy. Trading is widely recognised to be a way to reduce emissions cheaply, because it permits flexibility in where and how firms make their reductions. The EU has been at the forefront, with the establishment of an Emissions Trading Scheme or ETS. Now Australia and the north-eastern states of the United States have signalled their keenness to introduce carbon trading, and even to connect their schemes to Europe's scheme. In fact, worldwide trading in carbon has already in effect begun, because firms in industrialised countries can buy emission reductions in developing countries, for example through what is known as the Clean Development Mechanism, one of the successes of the Kyoto Protocol. To illustrate how quickly these markets are developing, pension funds are now signing deals to finance clean household cooking stoves in China.
This rapid growth raises, however, a number of important questions about the potential of carbon markets to achieve climate-change goals. On the one hand, they have the potential to drive widespread change, and to address equity concerns by driving large flows of money from industrialised countries, which buy emission reductions, to developing countries, which can sell them cheaply. On the other hand, the problems with, for example, the EU ETS, as well as the market for carbon 'offsets', sound a cautionary note that much more needs to be understood. This research programme aims to do just so, drawing on internationally recognised expertise in finance and financial economics at the LSE and working closely with the growing carbon finance and trading industry to identify ways in which carbon markets can be made to work more effectively, efficiently and equitably.
3. International technology support
New, low-carbon technologies will play a pivotal role in mitigating climate change. We already have many technologies that can contribute, from hybrid motor vehicles to capturing the carbon dioxide emitted from coal-fired power stations and storing it underground (carbon capture and storage or CCS) and we expect to benefit from many more over the coming decades.
Research and development of these technologies is crucial, but experience tells us that governments and markets have an equally important role to play in the fate of new technologies. Some become household names, while others fail to penetrate the market at all. In the economics of climate change, the central question is how can policy best bring through green technologies, through a mixture of direct support for research and development, and creating the right kinds of conditions for markets to pull the best technologies forward.
In addition, the economics of climate change must consider the international dimension. How can technologies be brought forward collaboratively, across borders? How can the technological evolution of developing countries be accelerated? Is there a first-mover advantage to countries who invest heavily in green technology, exporting the fruits of their labours to other countries?
These sorts of questions will be researched in this programme, which is uniquely placed to combine the engineering and technological knowledge of researchers at Imperial College London's Energy Futures Lab with the LSE's renowned expertise in economic competitiveness and innovation housed within the Centre for Economic Performance|.
4. Economics of biofuels and deforestation
Recent developments have highlighted the importance of rural land-uses for climate change. Deforestation and agriculture account for nearly one third of global greenhouse gas emissions. On the other hand, much attention has in the past few years been focussed on the potential for biofuels to provide one alternative to fossil fuels as a source of energy, helping mitigate climate change while also addressing energy-security concerns.
But the case for avoiding deforestation and for promoting biofuels as a strategy for mitigating climate change cannot be made without also considering the wider economic and environmental implications of these kinds of land-use change. For example, recent reports by the United Nations Environment Programme have thrown into doubt the wisdom of converting large amounts of land in developing countries, sometimes ironically tropical forest, into agricultural land for biofuels. These reports point to the environmental cost of doing so, notably for the conservation of biological diversity. Conversely, the case for avoiding deforestation can actually be strengthened by consideration of the wider class of benefits forests provide.
What is clear is that the economics of biofuels and deforestation cannot be researched without taking a holistic view of the goods and services provided by ecosystems and this is precisely the aim of this research project, by applying state-of-the-art techniques for accounting for the total value of forests and rural land-uses. What is also clear is that issues of land-use change, especially though not exclusively in developing countries, cannot be tackled without also analysing the political-economic dimension. Thus this research programme will also look at the governance arrangements necessary to effectively manage forests and rural lands in relation to climate change.
5. International region and country studies
A key requirement in the design of effective international mitigation and adaptation strategies will be the development of research networks that encompass both the
developed and developing world and that include those countries whose emissions rate are increasing the most rapidly.
An international region and country studies programme will enable the Grantham Institute to develop links with researchers and data sources, primarily in but not restricted to India and China, to develop joint projects that assess and contribute to the effectiveness of international climate policy from a global perspective.