The coming fight over climate change and energy policy may make August's health care reform row look like a playground scuffle. In June, the House of Representatives passed the American Clean Energy and Security (ACES) Act by a razor thin margin of 219 to 212 votes. The central feature of the 1,428-page bill is a cap-and-trade program that would limit the emissions of carbon dioxide by American industry and consumers.
The Obama administration and the Democratic leadership in Congress are pressing strongly to get ACES passed and signed into law before the big United Nations Climate Change Conference in Copenhagen in December. The chief goal of that conference is to establish global limits on greenhouse gas emissions for the next decade.
If ACES becomes law, this is what the U.S. will bring to the U.N. negotiating table: Beginning in 2012, the government would set a national cap—or total maximum CO2 emissions—and then ratchet it downward annually. The U.S. would emit 17 percent less carbon dioxide in 2020 than it did in 2005, eventually falling to 83 percent below 2005 levels by 2050. The plan establishes an artificial market in emissions. Coal and gas electricity generators, oil refiners, and manufacturers who want to produce more than their allotment of carbon dioxide must purchase permits from lower emitters who are willing to sell their spares.
But Obama isn't the only one getting ready for the U.N. climate change conference. The Copenhagen Consensus Center (CCC), a think-tank in Denmark headed by Skeptical Environmentalist Bjorn Lomborg, has commissioned a number of studies from leading climate experts and economists. The studies will provide fodder for a panel of five leading economists (three of them Nobelists) to figure out and rank the best ways to address the problem of man-made global warming.
Methods for dealing with future warming fall into four broad categories: mitigation, adaptation, technology breakthroughs, and geo-engineering. Mitigation means cutting the emissions of gases that are warming the planet. Adaptation means figuring out ways to live well in a warmer world. Technology breakthroughs aim to find ways to produce energy that does not emit warming gases, and is itself a form of mitigation. And geo-engineering aims to cool the planet without reducing the emissions of greenhouse gases, and is a kind of adaptation strategy. (In an earlier column, I analyzed the various CCC geo-engineering proposals and so will not reconsider them again here.)
Let's get a brief overview of the kind of analyses that the expert panel will be ranking this week by looking at the CCC's three main analysis papers dealing with mitigation, adaptation, and green energy breakthroughs.
The chief goal of ACES and the U.N. Climate Change Conference in Copenhagen is mitigation, or reductions in emissions. Both ACES and the U.N. are promoting cap-and-trade schemes as a way to increase energy prices and push industries and consumers to use less fossil fuel energy and encourage inventors to develop new low-carbon energy technologies.
Dutch economist Richard Tol did the chief analysis of the benefits and costs of various mitigation scenarios for the Copenhagen Climate Consensus project. He began by comprehensively reviewing prior studies that tried to calculate the costs of climate change. "Projections of future emissions and future climate change have become less severe over time," Tol reports, "even though the public discourse has become shriller."
Using an econometric model that accounts for projected changes in climate, Tol finds that an optimal policy position: The equivalent to a $0.50 per ton carbon dioxide tax rising at 5 percent per year for next 90 years would yield $3 in benefits for every $2 spent.
Tol also finds that more stringent early efforts to cut greenhouse gas emissions would dramatically increase costs. For example, the equivalent of a $3 per ton carbon dioxide tax rising over time would provide $1 in benefits for every $4 spent. A $68 per ton tax would generate just $1 in benefits for every $100 spent.
A recent Environmental Protection Agency estimate finds that emissions permits would cost around $16 per ton of carbon dioxide by 2020 under the ACES cap-and-trade scheme. If Tol's calculations are right, this means that the costs of ACES and U.N. mitigation schemes under consideration will likely be much higher than the benefits. Frankly, if Tol is right, and given inevitable political chicanery, one has to wonder if it is worth it to try enacting even his optimal policy prescription.
Three Italian economists authored the main research paper on the benefits and costs of various adaptation strategies, such as responding to climate changes by preparing for floods, droughts, crop shifts, and instituting improved building codes. The researchers conclude that adaptation is more cost effective in general than trying to cut emissions in avoiding climate change damages. Adaptation and mitigation are complementary, they write, and should be pursued in tandem. However, analyses find that the lion's share of reaction to dealing with climate change should be borne by adaptation.
The adaptation analysis looks at how climate change affects regions differentially. The study finds that markets can go a long way toward averting damages from man-made global warming. One surprising finding is that rich countries will likely adapt to negative consequences of climate change while exploiting positive changes so successfully that warming will have an overall positive effect resulting in an increase of 0.1 percent of their gross domestic product (GDP) by 2100. On the other hand, climate related losses will amount to 3 percent of GDP in less-developed countries in Africa and Asia.
One plausible calculation suggests that between now and 2100 the world should spend about $10 trillion on adaptation to obtain $16 trillion in benefits from avoided climate damages, with most of the money going to developing countries. This yields a benefit-cost ratio on $1 for every $1.60 of climate damages avoided.
The last broad category of responses to future climate change is proposals to foster the development of low-carbon and no-carbon energy technologies, or energy research and development. The CCC commissioned two McGill University economists, Isabel Galiana and Christopher Green, to look at the benefits and costs that an R&D push might yield. Galiana and Green argue that the ACES bill and the U.N. are engaged in what they call "brute force" mitigation strategies, and that those strategies have already proven to be losing propositions. "Attempts to directly control global carbon emissions will not work, and certainly not in the absence of ready-to-deploy, scalable, and transferable carbon emission-free energy technologies," assert the authors. "The technology requirements cannot be wished, priced, assumed, or targeted away."
Why won't "brute force" mitigation work? Galiana and Green point out that current emission reductions targets imply vastly faster rates of emission reduction than have been the case in past decades. Consider a global emission reduction target of 80 percent by 2100. That would require carbon emissions to fall by 1.8 percent per year. But say economic growth averages 2.2 percent between now and 2100: That implies a 4 percent average annual decline in the amount of carbon-based fuels used to produce goods and services.
To date, Galiana and Green note, the global average rate of decarbonization, the amount of carbon that is emitted per unit of goods and services produced, has been 1.3 percent. To illustrate the economic consequences of trying to boost the rate of decarbonization through brute force mitigation, they generously assume that the decarbonization rate could rise to 3.6 percent annually. But this would still entail a cut in global economic growth from 2.2 percent annually to 1.8 percent. Such a reduction in economic growth would cost an undiscounted $86 trillion in 2100 alone and add up to an undiscounted $2,280 trillion over the next 90 years. And without new low-carbon energy technologies, the authors argue that the assumption of 3.6 percent rate of annual decarbonization is just a fantasy. So likely economic damages will be even larger. "Climate change is a technology problem," Galiana and Green conclude, "and the size of the problem is huge."
Their solution is spending $100 billion per year on energy research and development financed through a $5 per ton tax on carbon dioxide emissions that would be funneled into Clean Energy Trust Funds. The tax would be scheduled to double every ten years as a way to give a forward price signal to encourage the deployment of the new low-carbon energy technologies that they hope will emerge from the labs. They calculate that every dollar spent on new low carbon energy R&D would avoid $11 in climate damages.
"It is much easier to spend on R&D than assure the monies are well spent," Galiana and Green acknowledge. Much current government R&D funding is politically directed and largely wasted. To overcome this problem, they somewhat lamely suggest creating a system of research competition overseen by a panel of independent experts. Oddly, they do not consider deregulating energy markets so as to provide greater incentives for private R&D and investment in new energy production and improvements in efficiency. In any case, Galiana and Green make a very strong case that current energy technologies cannot meet the ambitious emissions reductions goals being advocated by Congress and the United Nations without clobbering the economy.
The CCC expert panel is meeting this week to consider the various proposals for mitigation, adaptation, technology breakthroughs, and geo-engineering. At the end of the week, the panel will rank them by cost-effectiveness. I will report the results of their deliberations once they become available.
Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at Reason.com.
Disclosure: Danish taxpayers paid my travel expenses to cover the Copenhagen Consensus Center's second conference last year. There were no conditions placed on my reporting.