Chapter 11: The Economics of Global Climate Change

1
Chapter 11 The Economics of Global Climate Change

• Professor Steven C. Hackett
• Humboldt State University

2
Global Climate Change - Science

• Overview
• Science
• Impacts
• Economics
• Kyoto Protocol
• AB 32, WCI, RGGI, EU ETS

3
Global Climate Change - Science

• What is the greenhouse effect and how does it
  work?

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Global Climate Change - Science
5
Global Climate Change - Science
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Global Climate Change - Science

• Absorbed by land, oceans, and vegetation at the
  surface, the visible light is transformed into
  heat and re-radiates in the form of invisible
  infrared radiation. If that was all there was to
  the story, then during the day earth would heat
  up, but at night, all the accumulated energy
  would radiate back into space and the planet's
  surface temperature would fall far below zero
  very rapidly.

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Global Climate Change - Science

• The reason this doesn't happen is that earth's
  atmosphere contains molecules that absorb the
  heat and re-radiate the heat in all directions.
  This reduces the heat radiated out to space.
  Called 'greenhouse gases' because they serve to
  hold heat in like the glass walls of a
  greenhouse, these molecules are responsible for
  the fact that the earth enjoys temperatures
  suitable for our active and complex biosphere.

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Global Climate Change - Science
What are greenhouse gases?

• Carbon dioxide Released to the atmosphere when
  solid waste, fossil fuels (oil, natural gas, and
  coal), and wood and wood products are burned.
• Methane Emitted during the production and
  transport of coal, natural gas, and oil. Methane
  emissions also result from the decomposition of
  organic wastes in municipal solid waste
  landfills, and the raising of livestock.

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Global Climate Change - Science
Greenhouse gases, continued

• Nitrous oxide Emitted during agricultural and
  industrial activities, as well as during
  combustion of solid waste and fossil fuels.
• Very powerful greenhouse gases that are not
  naturally occurring include hydrofluorocarbons
  (HFCs), perfluorocarbons (PFCs), and sulfur
  hexafluoride (SF6), which are generated in a
  variety of industrial processes.

10
Global Climate Change - Science

• Each greenhouse gas differs in its ability to
  absorb heat in the atmosphere. HFCs and PFCs are
  the most heat-absorbent. Methane traps over 21
  times more heat per molecule than carbon dioxide,
  and nitrous oxide absorbs 270 times more heat per
  molecule than carbon dioxide. Often, estimates of
  greenhouse gas emissions are presented in units
  of millions of metric tons of carbon equivalents
  (MMT of CO2e), which weights each gas by its GWP
  value, or Global Warming Potential.

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Global Climate Change - Science

• Carbon dioxide, water vapor, methane, nitrous
  oxide, and other greenhouse gases are all
  molecules composed of more than two component
  atoms, bound loosely enough together to be able
  to vibrate with the absorption of heat.

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Global Climate Change - Science

• The major components of the atmosphere (oxygen O2
  and nitrogen N2) are two-atom molecules too
  tightly bound together to vibrate and thus they
  do not absorb heat and contribute to the
  greenhouse effect.

13
Global Climate Change - Science

• Carbon dioxide is one of the most important
  greenhouse gases. It consists of one carbon atom
  with an oxygen atom bonded to each side. When its
  atoms are bonded tightly together, the carbon
  dioxide molecule can absorb infrared radiation
  and the molecule starts to vibrate.

14
Global Climate Change - Science

• Eventually, the vibrating molecule will emit the
  radiation again, and it will likely be absorbed
  by yet another greenhouse gas molecule. This
  absorption-emission-absorption cycle serves to
  keep the heat near the surface, effectively
  insulating the surface from the cold of space.

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Global Climate Change - Science
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Global Warming Potential and CO2e
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Global Climate Change - Science

• What has been the trend in atmospheric carbon
  dioxide concentrations?

18
Change in Greenhouse Gas Concentrations in the
Atmosphere
Source IPCC, 2007
19
GHG Emissions

• How do greenhouse gas emissions in the US compare
  to other industrialized countries around the
  world?

20
Source EPA
21
Top GHG-Emitting Countries
22
Top 10 Global Energy Consumers
Source BP Statistical Review of World Energy,
2006.
23
CO2 Emissions Trends 2005 - 2030
Source IEA WEO, 2006
24
Global Climate Change - Science

• What has been the observed relationship between
  atmospheric carbon dioxide concentrations and
  global average temperature?

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Global Climate Change - Science
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Global Temperature Anomalies
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Global Temperature Anomalies
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Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) Natural millennial
  climate swings are associated with slow
  variations of the earths orbit induced by the
  gravity of other planets.

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Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) Precise measurement of
  ice age atmospheric gases from bubbles in the
  Antarctic and Greenland ice sheets indicates that
  the change of climate forcing (from these
  gases) between the ice age and the present was
  about 6.5 watts per square meter.

30
Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) Anthropogenic effects
  now exceed the natural effects from orbital
  perturbations.

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Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) Because of the large
  capacity of the worlds oceans to absorb heat, it
  takes the earth about a century to approach a new
  thermal balance (radiation in radiation out)
  from a given amount of forcing, but re-set at a
  higher temperature.
• Meanwhile, more forcings occur.

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Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) The net value of
  forcings since 1850 is 1.6 /- 1.0 watt per
  square meter.
• The earth is out of energy balance by 0.5 to 1.0
  watts per m2 (more in than out), implying that
  even if no new greenhouse gases were emitted by
  human activity, the earths surface would warm by
  0.4 0.7 degrees C.

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Global Climate Change - Science

• Hansen (Sci. Am. Mar 04) The growth rate of
  greenhouse gas forcing has slowed since the
  1980s due to fewer chlorofluorocarbon emissions
  and a slower growth rate in methane emissions.
• NOAA in 2004 found that CO2 concentrations in the
  atmosphere increased by 3 parts per million in
  2003, considerably faster than the average rate
  of 1.8 ppm over the past decade.

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Global Climate Change - Science

• If current trends continue, what will happen to
  atmospheric carbon dioxide concentrations, and
  how might that affect global average temperatures?

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Global Climate Change - Science

• If nothing is done to slow greenhouse gas
  emissions
• CO2 concentrations will likely be more than 700
  ppm by 2100
• Global average temperatures projected to
  increase between 2.5 - 10.4F

36
Stern Review (2006) Trends

• At current annual flow emissions rates, the stock
  of greenhouse gases in the atmosphere will reach
  double pre-industrial levels by 2050 - that is
  550ppm CO2e - and will continue growing
  thereafter.
• But the annual flow of emissions is accelerating,
  as fast-growing economies invest in high carbon
  infrastructure and as demand for energy and
  transport increases around the world.
• Thus the level of 550ppm CO2e could be reached
  before 2035. At this level there is at least a
  77 chance - and perhaps up to a 99 chance,
  depending on the climate model used - of a global
  average temperature rise exceeding 2C.

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Stern Review (2006) Forecast
38
Stern Review (2006) Forecast
39
Global Climate Change - Science

• In April 2000 the Intergovernmental Panel on
  Climate Change stated "that there has been a
  discernible human influence on global climate."

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Global Climate Change - Science

• A warming trend of about 1F has been recorded
  since the late 19th century. The IPCC projects
  further global warming of 2.2-10F (1.4-5.8C) by
  the year 2100. This range results from
  uncertainties in greenhouse gas emissions, the
  possible cooling effects of atmospheric particles
  such as sulfates, and the climate's response to
  changes in the atmosphere.

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Global Climate Change - Science

• The IPCC states that even the low end of this
  warming projection "would probably be greater
  than any seen in the last 10,000 years, but the
  actual annual to decadal changes would include
  considerable natural variability."

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Sectoral Emissions

• What are greenhouse gas emissions by sector?

43
Global Climate Change - Science
44
US Greenhouse Gas Emissions by Sector
45
Global Climate Change - Science

• For the last 150 years or so, approximately 20 to
  25 percent of the increase in atmospheric carbon
  dioxide concentrations have come from changes in
  land use.
• Examples include the clearing of forests and the
  cultivation of soil for agriculture.

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Global Climate Change - Science

• When forests are cleared and cultivated, some
  carbon stored in the woody matter of the trees is
  emitted immediately due to burning. Other carbon
  is released more slowly due to decay.

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Global Climate Change - Science
What are carbon dioxide sinks?

• Oceans (phytoplankton, coral reefs, other sea
  plants and animals)
• Land sequestration in trees, soil, etc.

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Global Climate Change - Science

• According to the Woods Hole Research Center,
  about 100 Pg (one petagram 1 billion metric
  tons) of carbon (not carbon dioxide, which is
  much heavier) were released into the atmosphere
  from changes in land use world-wide between 1860
  and 1990.

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Global Climate Change - Science

• The annual emissions of carbon from changes in
  land use have been increasing, and by the late
  1980s stood at 1.6 Pg per year.

50
Kaya Identity

• IPAT Impact Popul AffluenceTech
• Kaya Identity (aka Kaya Equation), a more
  sophisticated version of IPAT
• Anthropogenic
• CO2 emissions E A x B x C x D

http//www.grida.no/publications/other/ipcc_sr/?sr
c/climate/ipcc/emission/050.htm
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Kaya Identity

• Kaya Identity E A x B x C x D, where
• A Population.
• B Per capita GDP (standard of living)
• C Energy intensity (energy consumed per unit of
  GDP). Reflects energy efficiency and the
  sectorial make up of the economy.
• D Carbon intensity (carbon emitted per unit of
  energy consumed). This quantity reflects the fuel
  mix of a given society.

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Kaya Identity

• Kaya Identity E A x B x C x D
• Totally differentiating this equation yields
• ?E ?A ?B ?C ?D
• Where ? means percent change in

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Kaya Identity

• Kaya Identity ?E ?A ?B ?C ?D
• Simply means that the percentage change in
  anthropogenic emissions equals the sum of the
  percentage changes in population, per-capita GDP,
  energy intensity, and carbon intensity.

54
Kaya Identity
Average Annual Percent Change 1980-1999
Source Tester et al. 2005. Sustainable Energy
Choosing Among Options (MIT Press)
55
Global Climate Change - Stabilization
Stern Report (2006) Stabilizing at or below
550ppm CO2e would require global emissions to
peak in the next 10 - 20 years, and then fall at
a rate of at least 1 - 3 per year. By 2050,
global emissions would need to be around 25
below current levels. These cuts will have to be
made in the context of a world economy in 2050
that may be 3 - 4 times larger than today - so
emissions per dollar of GDP would need to be just
one quarter of current levels by 2050.
56
IMPACTS Excerpts from Preparing for Change
Sept. 2002 Report by the California Regional
Assessment Group for the US Global Change
Research Program.

• The number of threatened and endangered species
  in the state, already the largest in the
  contiguous 48 states, could rise significantly
  due these combined stresses. Extreme events, such
  as floods, droughts, and wildfires may become
  more frequent and intense.

57
Emissions Pathways, Climate Change, and Impacts
on California Katherine Hayhoe et al. 2004
(Proceedings of the Nat. Acad. Of Sci.)

• Used two global climate models
• NCAR/DoE Parallel Climate Model (PCM)
• UK Hadley Centre Climate Model v. 3 (Had)
• Applied a high emissions A (970 ppm) and a low
  emissions B (550 ppm) scenario, through 2100,
  drawn from the IPCC

58
Emissions Pathways/CA Impacts (2004), Cont

• Temperature
• All simulations show increases in statewide
  annual average temperatures.
• Avg. annual increase of 1.35 2 degrees C. by
  2050.
• Avg. annual increase of 2.3 5.8 degrees C. by
  2100.
• Summer temp. increases gt winter.

59
Emissions Pathways/CA Impacts (2004), Cont

• Precipitation
• Three of four simulations project winter precip.
  decreases of 15 30 , with reductions
  concentrated on the North Coast and the Central
  Valley, by 2100.
• These results differ from previous projections
  showing () precip.

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Emissions Pathways/CA Impacts (2004), Cont
Fig. 6. Winter (DJF) and summer (JJA) precip.
change for 2070-2099, relative to 1961-1990.
Geographical patterns of precipitation change are
consistent across models and scenarios, with the
greatest decreases occurring on the northwest
coast and along the eastern Central Valley and
western Sierras
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Emissions Pathways/CA Impacts (2004), Cont

• Extreme Heat and Heat-Related Mortality
• Temperature extremes increase in frequency and
  magnitude, with high emissions scenario A
  having the most dramatic increases.
• Annual number of heatwave conditions days (3
  days of temp. gt 32 degrees C.) increases under
  all simulations.

62
Emissions Pathways/CA Impacts (2004), Cont
Fig. 13. Change in number of days with heatwave
conditions occurring in Los Angeles, Sacramento,
Fresno and El Centro in 2070-2099 relative to the
1961-1990 average.
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Emissions Pathways/CA Impacts (2004), Cont

• Impact on CA snowpack, runoff, and water supply
• Rising temps less winter precip ? less
  snowpack.
• Total surface water equiv. (SWE) losses by 2100
  range from 29-72 for low emissions scenario to
  73-89 for high emissions scenario.
• Length, severity, and frequency of extreme
  droughts in the Sac R. system by 2100 increases
  substantially.
• Near doubling in percentage of dry years (from
  32 historically to 50-64 by 2100)

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Emissions Pathways/CA Impacts (2004), Cont
Table 2. Percentage of years classified as wet,
above normal, below normal, dry, and critical for
the 19061996 historical period and simulated for
the years 20702099 for the Sacramento River
system (the 40-30-30 Four River Index)
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Emissions Pathways/CA Impacts (2004), Cont
66
Global Climate Change Forecasts
Source IPCC, 2007
67
Forecasted Impacts Crop Yields
Source IPCC TAR
68
Risks Associated With from Global Warming
Source Parry (2001)
69
Economics Supply curve for liquid fossil fuels
Peak oil is a red herring a false message of
hope that we will run out of oil, thereby
restricting consumption and greenhouse gas
emissions from liquid fossil fuels.
70
Supply will not constrain consumption
Previous slide EOR Enhanced oil recovery GTL
Gas to liquid (i.e., convert natural gas to
liquid fuel) CTL Coal to liquid (i.e.,
Fischer-Tropsch Synthesis) The point of the
previous slide is that there is a very large,
upward-sloping supply curve of existing liquid
fossil fuels that go well beyond conventional
oil. Most of these imply much more carbon dioxide
emissions than conventional oil. Supply will not
constrain consumption we must use economic
instruments such as taxes or cap and trade to
limit consumption of liquid fossil fuels.
71
Liquid fossil fuels have big greenhouse gas
emissions
72
Economics
Estimated effect of different carbon charges on
the price-competitiveness of renewable energy.
Source EPRI, in NYT 07 Nov 2007.
73
Global Climate Change Economics

• 2006 Stern Review (UK Govt sponsored
  independent report) on the economics of climate
  change
• Examines the evidence on the economic impacts of
  climate change.
• Explores the economics of stabilizing greenhouse
  gases in the atmosphere.

74
Global Climate Change Economics

• 2006 Stern Review key finding
• The benefits of strong, early action on climate
  change outweigh the costs.

75
Global Climate Change Economics

• 2006 Stern Review key finding
• It is not possible to predict the consequences
  of climate change with complete certainty, but
  enough is known to understand the risks.
• Mitigation - taking strong action to reduce
  emissions should be viewed as an investment, a
  cost incurred now and in the coming few decades
  to avoid the risks of very severe consequences in
  the future.

76
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Ignoring climate change will eventually damage
  economic growth.
• Our actions over the coming few decades could
  create risks of major disruption to economic and
  social activity, later in this century and in the
  next, on a scale similar to those associated with
  the great wars and the economic depression of the
  first half of the 20th century.
• It will be difficult or impossible to reverse
  these changes.

77
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Climate change poses a grave threat to lower
  income countries due to
• Geography (already in warm areas).
• Ag dependent economies, and ag will be heavily
  impacted by climate change.
• Lack money for mitigations.

78
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Climate change may initially have small positive
  effects for a few rich countries in high
  latitudes, but is likely to be very damaging for
  the much higher temperature increases expected by
  mid- to late-century under BAU scenarios.

79
Global Climate Change Economics

• 2006 Stern Review detailed findings
• With 5-6C warming - which is a real possibility
  for the next century - existing models that
  include the risk of abrupt and large-scale
  climate change estimate an average 5-10 loss in
  global GDP, with poor countries suffering costs
  in excess of 10 of GDP.

80
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Estimate that the total cost over the next two
  centuries of climate change associated under BAU
  emissions involves impacts and risks that are
  equivalent to an average reduction in global
  per-capita consumption of at least 5, now and
  forever.

81
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Including direct impacts on the environment and
  human health (non-market impacts) increases the
  estimate of the total cost of climate change on
  this path from 5 to 11 of global per-capita
  consumption.

82
Global Climate Change Economics

• 2006 Stern Review detailed findings
• A disproportionate share of the climate-change
  burden falls on poor regions of the world. If we
  weight this unequal burden appropriately, the
  estimated global cost of climate change at 5-6C
  warming could be more than one-quarter higher
  than without such weights.

83
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Estimates that the annual costs of stabilization
  at 500-550ppm CO2e to be around 1 of GDP by 2050
  - a level that is significant but manageable.

84
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Four ways to reduce emissions
• Reduced demand for emissions-intensive goods and
  services
• Increased efficiency, which can save both money
  and emissions

85
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Four ways to reduce emissions
• Action on non-energy emissions, such as avoiding
  deforestation
• Switching to lower-carbon technologies for power,
  heat and transport

86
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Studies by the International Energy Agency show
  that, by 2050, energy efficiency has the
  potential to be the biggest single source of
  emissions savings in the energy sector. This
  would have both environmental and economic
  benefits energy-efficiency measures cut waste
  and often save money.

87
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Action to prevent further deforestation would be
  relatively cheap compared with other types of
  mitigation.
• The power sector around the world will have to
  be least 60, and perhaps as much as 75,
  decarbonized by 2050 to stabilize at or below
  550ppm CO2e.
• Deep cuts in the transport sector are likely to
  be more difficult in the shorter term, but will
  ultimately be needed.

88
Global Climate Change Economics

• 2006 Stern Review detailed findings
• Estimates based on the likely costs of these
  methods of emissions reduction show that the
  annual costs of stabilizing at around 550ppm CO2e
  are likely to be around 1 of global GDP by 2050,
  with a range from 1 (net gains) to 3.5 of GDP.

89
Global Climate Change Economics

• 2006 Stern Review detailed findings
• This range of estimated costs was largely
  validated by macroeconomic modeling (the range of
  cost there was also centered on 1 of annual GDP,
  with a range of -2 (i.e., a benefit) to 5 of
  annual GDP).

90
Global Climate Change Economics

• 2006 Stern Review critique
• Many economists criticize the Stern Reviews use
  of a zero percent discount rate ie., valuing
  future impacts the same as today.

91
California Climate Risk and Response
Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
92
California Climate Risk and Response

• Climate response mitigation to prevent the
  worst impacts and adaptation to climate change
  that is unavoidable on the other hand, can be
  executed for a fraction of these net costs by
  strategic deployment of existing resources for
  infrastructure renewal/replacement and
  significant private investments that would
  enhance both employment and productivity.

Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
93
California Climate Risk and Response

• At the sector level, there will be some very
  significant adjustment challenges, requiring as
  much foresight and policy discipline as the state
  can mobilize. In this context, the political
  challenges may be much greater than the economic
  ones.
• The states adaptation capacity depends upon
  flexibility, but divergence between public and
  private interests may limit this flexibility. As
  in the current financial dilemma, resolving this
  will require determined leadership.

Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
94
California Climate Risk and Response

• Despite the extent and high quality of existing
  climate research reviewed in this document, the
  degree of uncertainty regarding many important
  adjustment challenges remains very high.
• This uncertainly is costly, increasing the risk
  of both public and private mistakes and the
  deferral of necessary adaptation decisions.
• Improving research and understanding of climate
  effects may itself be costly and difficult, but
  policymakers must have better visibility
  regarding climate risk and response options.

Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
95
Global Climate Change Economics
96
Global Climate Change Economics

• According to a study by Burtraw and Toman (1998),
  climate change policy to reduce emissions of
  greenhouse gases (GHGs) may also reap
  environmental co-benefits by reducing emissions
  of other conventional pollutants.
• These co-benefits, are realized immediately and
  could be on the order of 30 percent of the
  incremental cost of GHG reduction.

97
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• They evaluated the economic cost of Italy
  meeting the Kyoto Protocol (6.5 reduction in CO2
  by 2010).
• They included in their analysis the current or
  co-benefits from reducing CO2 less sulfur
  dioxide, nitrogen oxides, carbon monoxide,
  mercury, etc., based on estimates of average
  external cost per unit of pollutant.

98
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• They identified the mix of fuel and energy
  sources that would meet Italys Kyoto target at
  minimum social cost.
• In evaluating Italys current fuel mix versus
  the mix that meets the Kyoto target, they
  included avoided external costs to human health,
  agriculture, material goods, and ecosystems.

99
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• Based on an average global cost of 30 euros per
  ton of carbon dioxide, it would be advantageous
  economically for Italy to change its power
  generation strategy to comply with Kyoto.
  Scenario BAU Kyoto implies a 17 reduction in
  greenhouse gas emissions and 1800 x 106 in
  external cost savings, but a private cost
  increase of 300 x 106 to industry, yielding a net
  cost saving of 1500 x 106.

100
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• This is achieved with a fuel mix using more gas,
  less coal, more renewable sources, and more
  co-generation (combining electric and formerly
  waste thermal energy).
• Implementing the MSC scenario would entail an
  even larger social cost savings, 2 billion euros
  per year.

101
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• Note Even if one totally excludes the 30 euros
  per ton of carbon dioxide from external cost,
  there is still a net social cost savings of 918 x
  106 per year, as the increase in private costs
  (548 x 106) is more than offset by the decrease
  in external cost (1466 x 106).

102
Global Climate Change Economics

• De Leo et al. (Nature 413 478-79, 2001)
• Conclusion Co-benefits of reducing local and
  regional air pollution and related external costs
  is a sufficient reason to cut the combustion of
  fuels responsible for global warming to the
  extent necessary to meet Kyoto targets for Italy.

103
Global Climate Change Kyoto Protocol

• In December 1997 the Third Conference of Parties
  adopted the Kyoto Protocol to the UN Framework
  Convention on Climate Change in Kyoto, Japan. The
  Kyoto Protocol commits Annex I Parties to
  individual, legally-binding targets to limit or
  reduce their greenhouse gas emissions, adding up
  to a total cut of at least 5 from 1990 levels in
  the period 2008-2012. The individual targets for
  Annex I Parties are listed in the Kyoto
  Protocol's Annex B, and range from an 8 percent
  cut for the European Union (EU) and several other
  countries, to a 10 percent increase for Iceland.

104
Global Climate Change Kyoto Protocol

• The rules for entry into force of the Kyoto
  Protocol require 55 Parties to the Convention to
  ratify (or approve, accept, or accede to) the
  Protocol, including Annex I Parties accounting
  for 55 of that groups carbon dioxide emissions
  in 1990.

105
Global Climate Change Kyoto Protocol

• 4 November 2004 -- President Vladimir Putin of
  Russia signed the federal law to ratify the Kyoto
  Protocol. This follows ratification of the
  Protocol by the State Duma (22 October) and the
  Federation Council (27 October). The Kyoto
  Protocol entered into force 90 days after
  Russia's instrument of ratification was received.

106
Global Climate Change Kyoto Protocol

• The Kyoto Protocol also establishes three
  incentive-based economic instruments that are
  designed to help Annex B countries reduce the
  cost of meeting their emissions targets. These
  instruments are joint implementation, emissions
  trading, and the clean development mechanism.
  These instruments allow Annex I countries to meet
  their emissions target by either producing or
  acquiring emissions reductions in other
  countries, most commonly lower-income developing
  countries.

107
Global Climate Change Kyoto Protocol

• In brief, Joint Implementation occurs when a
  donor country invests in pollution abatement
  measures in a host country in return for
  credits which it may use in meeting its own
  pollution abatement targets. In the Kyoto
  Protocol, JI occurs between Annex I countries
  (industrialized countries) that have emissions
  reduction targets.

108
Global Climate Change Kyoto Protocol

• The Clean Development Mechanism (CDM), where
  hosts do not have emissions targets (non-Annex I
  countries).

109
Global Climate Change Kyoto Protocol

• The Clean Development Mechanism was envisioned to
  perform a three-fold function
• To assist non-Annex 1 countries in achieving
  sustainable development
• To contribute to the ultimate goal of the
  convention i.e., stabilization of greenhouse gas
  concentrations in the atmosphere
• To help Annex 1 countries comply with their
  emission reduction commitments.

110
Global Climate Change Kyoto Protocol

• Clean Development Mechanism (CDM)
• Results in buyer receiving Certified Emissions
  Reductions (CERs) from the seller.

111
Global Climate Change Kyoto Protocol

• The International Rivers Network and CDM Watch
  produced a report in October 2002 on the use of
  hydropower projects in the CDM. The report
  Damming the CDM shows that big hydro
  threatens the effectiveness and credibility of
  the CDM, and risks undermining the entire Kyoto
  Protocol by providing carbon reduction credits
  for projects that dont actually reduce emissions.

112
Global Climate Change Kyoto Protocol

• Recent examples of CDM deals brokered by CO2e (a
  div. of Cantor)
• Oct 04 Three sugarcane waste-fired electricity
  generation facilities in Brazil generated CERs
  to a European company that funded the facility
  through the CDM, for use in the EUs emission
  trading scheme (ETS).
• Aug 04 A swine waste digester/methane
  combustion facility in Chile generated CERs to
  Canadian and Japanese utilities that funded the
  facility through the CDM. Reduced over 400,000
  tonnes of greenhouse gases reduced per year.

113
Global Climate Change Kyoto Protocol

• Emissions Trading
• The European Union Emissions Trading Scheme up
  and running in Jan. 2005
• Mandatory emissions limits on all big
  industrial and energy intensive businesses by
  2005
• These limits were too small too many carbon
  credits initially granted.
• Exploring long-term rules for trading outside
  EU

114
Global Climate Change Economic Policies

• The Stern Report (2006) suggests three economic
  policies are required to shift away from
  business-as-usual and stabilize carbon equivalent
  emissions

115
Stern Report Economic Policies

• 1. Establishing a carbon price, either directly
  through a tax or through a cap-and-trade program,
  or indirectly through command-and-control
  regulation, is an essential foundation for
  climate-change policy.

116
Stern Report Economic Policies

• A stable carbon price policy will be necessary
  for companies (and consumers) to invest in new
  more carbon-efficient products and technologies.
  And the knowledge gained from research and
  development is a public good companies may
  under-invest in projects with a big social payoff
  if they fear they will be unable to capture the
  full benefits. Thus there are good economic
  reasons to promote new technology directly.

117
Stern Report Economic Policies

• There are likely to be high returns to a doubling
  of investments in this area to around 20 billion
  per annum globally, to support the development of
  a diverse portfolio of technologies.

118
Stern Report Economic Policies

• 2. The second element of climate-change policy is
  technology policy, covering the full spectrum
  from research and development, to demonstration
  and early stage deployment.

119
Stern Report Economic Policies

• 3. The third element is the removal of barriers
  to behavioral change. Even where measures to
  reduce emissions are cost-effective, there may be
  barriers preventing action. These include a lack
  of reliable information, transaction costs, and
  behavioral and organizational inertia. The impact
  of these barriers can be most clearly seen in the
  frequent failure to realize the potential for
  cost-effective energy efficiency measures.

120
Stern Report Economic Policies

• Minimum efficiency standards for buildings and
  appliances have proved a cost-effective way to
  improve performance, where price signals alone
  may be too muted to have a significant impact.
• Information policies, including labeling and the
  sharing of best practice, can help consumers and
  businesses make sound decisions.

121
Vehicle Energy Efficiency Standards
Source WRI, 2006
122
Stern Report Economic Policies

• An effective response to climate change will
  depend on creating the conditions for
  international collective action.
• Creating a broadly similar carbon price signal
  around the world, and using carbon finance to
  accelerate action in developing countries, are
  urgent priorities for international co-operation.

123
GHG Proposals in 110th Congress
124
Europe

• The EU aims to commit itself, as part of an
  international climate protection agreement, to a
  30 reduction in its greenhouse gas emissions by
  2020 (compared with 1990).
• Until a new agreement is concluded, and without
  prejudice to its position in international
  negotiations, the EU will reduce its emissions by
  at least 20 by 2020 (compared with 1990).

EU GHG Trends and Projections (1990 100)
125
EU Country Distance to Target
Source EU Environment Agency
126
Californias AB 32
The Global Warming Solutions Act (AB 32), which
was signed into law September 2006 and mandates a
first-in-the-nation limit on emissions that cause
global warming, requires that the California Air
Resources Board (CARB) put an implementation plan
(Scoping Plan) in place by January 2009.
Scoping Plan A policy roadmap to meet the
annual emissions reduction target of 169 Million
Metric Tons of Carbon equivalent (MMTCO2e) by
2020 to stabilize annual emissions at 427 MMTCO2e
overall.
127
Economic Impacts of Scoping Plan
Multiple studies have been conducted assessing
the economic impacts of CARBs Scoping Plan.
CARBs own economic analysis using the
Environmental Dynamic Revenue Assessment (E-DRAM)
model projects that the states proposed package
of policies will increase overall CA personal
income by 14 billion, overall gross state
product by 4 billion, and result in the creation
of 100,000 additional CA jobs.
Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
128
Economic Impacts of Scoping Plan
Using the Berkeley Energy and Resources (BEAR)
Model, we find that if California improves energy
efficiency by just 1 percent per year, proposed
state climate policies will increase the Gross
State Product (GSP) by approximately 76 billion,
increase real household incomes by up to 48
billion and create as many as 403,000 new jobs.
Fredrich Kahrl and David Roland-Holst, Dept Ag
and NR Econ Research Paper No. 08102801,
UC-Berkeley, Nov 2008
129
AB 32 and Regional Partnerships
Problem Leakage of CO2e-intensive production to
other states or countries. Solution
Ultimately, a world-wide CO2e emissions
reduction. Intermediate step A region-wide
(Western Climate Initiative) CO2e reduction
strategy. Plan WCI region-wide cap and trade
program http//www.westernclimateinitiative.org/e
webeditpro/items/O104F18808.PDF
130
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131
Other Regional Initiatives
EU Emissions Trading Scheme (ETS) First regional
CO2e initiative. Operates under auspices of Kyoto
Protocol. Regional Greenhouse Gas Initiative
(RGGI) First regional CO2e initiative in US.
Began in Sept. 2008. Ten states participate in
RGGI Connecticut, Delaware, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New
York, Rhode Island, and Vermont.
132
RGGI
Through laws and/or rules, each state limits
emissions of CO2 from electric power plants,
creates CO2 allowances and establishes the
state's participation in CO2 allowance auctions.
A "Model Rule" drafted jointly by the states
provided a coordinating framework as individual
states developed their laws, rules or
regulations. Regulated power plants will be able
to use a CO2 allowance issued by any of the ten
participating states to demonstrate compliance
with an individual state program. In this manner,
the ten individual state programs, in aggregate,
will function as a single regional compliance
market for CO2 emissions.
133
RGGI
The majority of CO2 allowances issued by each
participating state are distributed through
quarterly auctions. Cap and Auction is a
hybrid of cap and trade and a carbon tax. The
regulatory agency auctions allowances to
regulated emitters. Revenue from auction can be
used to offset adverse impacts on lower-income
people, to subsidize renewable energy or energy
efficiency programs, etc.