Let s Get Serious About Climate Change Policy: What s Really Achievable at What Cost? Billy Pizer April 8, 2008

Transcription

1 Let s Get Serious About Climate Change Policy: What s Really Achievable at What Cost? Billy Pizer April 8, 2008

2 Four Questions What kind of goals are motivated by environmental concerns? What we know about costs of these goals? What does cost-benefit analysis say? [briefly] What are key countries doing, what are the choices they face now, and how does this match up with goals? 2

3 Impacts Source: Scientific American 3

4 Impacts of Climate Change 4

5 Carbon Cycle Temperature change is driven by changes in the carbon cycle; notably burning of fossil fuels. Uncertain feedbacks with natural system. Source: 5

6 9 Likely global warming from stabilization at different greenhouse gas concentrations 16 Temperature increase from present ( C) Upper end of likely range Best estimate Lower end of likely range Temperature increase from present ( F) Eventual greenhouse gas concentration (ppm CO 2 equivalent) Projections for 2100 Note: "Likely" is defined as greater than a 66% probability of occurrence. Source: IPCC Fourth Assessment Report. 6

7 Impacts of Climate Change 7

8 Equivalent Ways of Saying the Same Thing CO 2 equivalent concentration (parts per million by volume) CO 2 concentration (parts per million by volume) Radiative forcing (watts per meter squared) 8

9 Emission Stabilization Scenarios 9

10 IPCC Scenario Exercise

11 Scenario Storylines 11

12 EMF Baselines 12

13 Baselines & Goals 13

14 Ways to think about costs Loss of income Typically expressed as a percent of future income a 1% loss of GDP in 2030 GDP is growing, perhaps almost 3% per year But per capita GDP is only growing by half that. And median GDP is only growing by half that again or about 0.7% Big or small? All existing environmental regulation ~2% Prices Impacts on industry and jobs 14

15 Annual cost of $10 CO 2 price Historic expenditures on energy $ annually. 15

16 Industry Impacts 16

17 2030 CO 2 Prices to Stabilize 17 $ per tonne CO2

18 CCSP Estimated Prices for $/ton CO IGSM MERGE MiniCAM

19 CCSP Estimated Prices for $/ton CO IGSM MERGE MiniCAM

20 2030 GDP loss to Stabilize 20 % of global income

21 CCSP Estimated GDP Loss for % loss of income IGSM MERGE MiniCAM

22 CCSP Estimated GDP Loss for % loss of income IGSM MERGE MiniCAM

23 A Word on Negative Costs Energy efficiency gains that are already cost effective Why not already done? Will CO 2 pricing create incentives to do these actions now? If not, what will? Spillovers from new technologies New carbon saving technologies lead to other discoveries with net benefits. Why does other research not do the same thing? 23

24 CCSP costs 24

25 Scenario 2. Transition Specified for Annex B (Illustrative) Kyoto Commitments Billion tons Carbon Historic Emissions Hot Air Transition Constraints Post-transition emissions cannot increase USA Kyoto Coalition EEFSU

26 From Managing the Transition to Climate Stabilization by Richels, Rutherford, Blanford and Clarke USA GDP Loss from Reference with 450 ppmv Ceiling 5.0% 4.0% 3.0% Limited Flex 2.0% 1.0% 0.0% Complete Flex %

27 Summary on Costs would require $5-35/tCO 2 prices in 2030 and cost less than 1% of income. would require $50-100/tCO 2 prices in 2030 and cost 1-2% of income. We know very little about what it would cost to stabilize at All estimates assume perfect implementation over time, countries, sectors; otherwise, more expensive easily several times more expensive 27

28 Nordhaus and Boyer (1999) INDIA W. EUR AFRICA POOR MID-POOR OECD RICH MID INC OTH RICH JAPAN RUSSIA US CHINA E. EUROPE 28

29 Bill Nordhaus Estimates Costs and Benefits My best estimate ($/ton CO 2 ): $21 $27 $33 $40 $49 (x 1.82 and converting to CO 2 ) 29

30 Derive National Target Gt CO2e/y r Global Scenario: US-CAP Led Absolute Targets starting 2010 Emissions from Trop. Def. Rest of Non-Annex I China & India Rest of Annex I US 2 degrees: 1.5% decline/yr 2.5 degrees: 1.5% decline/yr Analysis by Environmental Defense

31 Distribution of Emissions Likely to see important transitions in relative emissions across countries Will have profound implications for distribution of emission reductions 31

32 Source: World Energy Outlook 2008

33 Source: World Energy Outlook 2008

34 Source: European Environmental Agency 34

35 Source: European Environmental Agency 35

36 January 23 rd EC Package GHG target: 20% below 1990 by Renewables: 20% by ETS reform: auctions & harmonization. Impacts of target: CO 2 price: 20 /tco 2 40 /tco 2 Additional reductions: 15% of 5B tons. Back of the envelope calculations: 750M x 30 /tco 2 = 22.5B <1% of current EU GDP. 36

37 Comparison of Emission Reduction Goals in Legislative Proposals in the 110th Congress (as of October 29, 2007) 10,000 Business-As-Usual Projections (AEO 2006) Million metric tons CO 2 equivalent 8,000 6,000 4,000 2,000 0 Historical Emissions ( ) Historical Electricity Emissions ( ) Lieberman- Warner (S. 2191) BAU Electricity Projections (AEO 2006) Bingaman-Specter 1 (S. 1766) Udall-Petri 1 (May draft) Waxman (H.R. 1590) Lieberman- McCain (S. 280) Kerry-Snowe 2 (S. 485) Sanders-Boxer (S. 309) Feinstein- Carper (S. 317) Alexander-Lieberman (S. 1168) This graph depicts emissions targets from some of the major climate change bills in Congress. Targets are based on comparison with historical year emissions. Kerry-Snowe, Sanders-Boxer, and Waxman specify future emissions as a percentage of 1990 emissions. For Lieberman-Warner, Lieberman-McCain, Udall-Petri, and Bingaman-Specter, emission targets for covered sectors are related to historical emissions for those sectors, and total emissions are assumed to match those in the corresponding historical year. 1 Bill contains flexibility mechanisms which allow actual emissions to rise above the target. 2 The Kerry-Snowe target is overlaid by others: it is nearly identical to Sanders-Boxer before 2020 and to Lieberman-Warner from

38 Prices in 2030: $20-80/tCO 2 38

39 Prices in 2030: $24-160/tCO 2 39

40 Lieberman- Warner (S. 2191) Bingaman- Specter (S. 1766) Udall-Petri (May draft and staff talks) Lieberman- McCain (S. 280) Kerry-Snowe (S. 485) Waxman (H.R. 1590) Sanders- Boxer (S.309) Feinstein- Carper (S. 317) Alexander- Lieberman (S. 1168) Stark (H.R. 2069) Larson (H.R. 3416) Dingell (Summary of draft) Who s Regulated Allowance Allocation Price Stability Offsets Technology Competitiveness 33% free to industry (including electric Climate Fed with generators), with phase out; 11% to discretion to increase Technology deployment Bulk, energyintensive imports Up to 15% of obligation can be energy customers; 26.5% auctioned use of borrowing and incentives for zero- and lowcarbon generation, advanced from countries w/o met with domestic sequestration, (gradually increased to 69.5%) to fund offsets and temporarily and another 15% through technology deployment, transition expand cap. Borrowing: coal, cellulosic biomass, and comparable policy international allowances and assistance, and adaptation; 9% set aside up to 15% of advanced vehicles (52% of require permits after credits. for CCS and sequestration; 10.5% to allowances, for no auction revenues) states; 5% for early action. more than 5 years. Economy-wide cap: coal and process emissions at emitters; oil refiners, NG processors, and oil/ng importers; and F-gas producers and importers. (Over 80% of US GHG emissions covered.) HFC producers and importers have a separate cap. Economy-wide cap: coal and some industrial emissions at emitters; oil refiners, NG processors, and oil or NG importers; and F-gas producers and importers. (About 80% of emissions covered.) Economy-wide cap: upstream fossil-fuel sources (e.g., producers and importers), along with industrial emissions. (About 80% of emissions covered.) Economy-wide cap: large downstream at emitter; transport emissions regulated at refinery. (Appr. 75% of emissions covered.) Economy-wide cap: point of regulation at discretion of EPA. (Coverage TBD by EPA.) 53% free to industry (with phase out); 24% auctioned to support R&D, transition assistance, adaptation; 14% set aside for CCS and sequestration; 9% to states. 20% free to industry. 80% auctioned to support RD&D; developing country engagement; adaptation, dislocation aid; sequestration; debt reduction. Discretion of EPA, with guidance for some free allocation and an auction to fund R&D, transition assistance, adaptation measures. Discretion of the President with guidance from the EPA. $12/metric ton CO 2 safety valve, rising at 5% per year above inflation. $12/metric ton CO 2 safety valve, rising at 2-8% per year above inflation. Borrowing: up to 25% of allowances, for no more than 5 years. No provisions. Unlimited domestic offsets including methane and SF 6. Limits on international offsets (10% of cap) and domestic agricultural offsets (5% of cap). Unlimited geological sequestration offsets. 5% of allowances set aside to fund biological sequestration and 1% for CCS projects. Up to 30% of obligation can be met with domestic sequestration projects and international offsets. USDA sets rules for domestic biological sequestration. No provisions. Economy-wide cap: EPA has discretion to implement a market-based allowance program to achieve cap. (Coverage TBD by EPA.) Electricity-sector cap: power plants. (The electricity sector is 34% of US GHG emissions.) (S also covers utility SO 2, NO X, and mercury emissions.) Economy-wide tax: fossil fuels taxed by CO 2 content at the point of production and import. (Almost 80% of US GHG emissions.) Economy-wide tax: fossil fuels taxed by CO 2 content at point of production and import. Also, tax on gasoline (but diesel exempt). 85% free to industry, based on generation (updated annually), and phased out by % free to industry, based on heat input. 100% revenues to US Treasury. 1/6 of revenues to R&D, 1/12 to industry transition assistance (with phase out), remainder to payroll tax rebates. Revenues used to expand EITC and help fund entitlement programs. Gas tax revenues go to highway trust fund (40% mass transit, 60% roads). Borrowing up to 10%, for no more than 5 years. No provisions. $3/metric ton CO 2, rising $3 annually. $16.5/metric ton CO 2, rising 10% plus inflation annually. $15/metric ton CO 2, rising at inflation. $0.5/gallon gasoline tax (in addition). International offsets up to 25% of cap; extensive domestic biological offsets. Domestic offsets in five categories, including methane, SF 6, efficiency, and forest sequestration. Tax refunds for fuel CO 2 sequestered downstream: CCS, plastics. Tax refunds for domestic sequestration and HFC destruction projects. No provisions. Detailed technology development programs funded from allowance auction revenues (12-26% of auction revenues). Establishes ARPA-E to fund technology advancement projects (24% of auction revenues). Revenues from some auctioned allowances used for RD&D. Vehicle emission rules; efficiency & renewable standards for electric generation; additional billspecific mandates. Distributes auction revenues to multitude of technology programs. NSPS for CO 2 emissions from new electric generation units. No provisions. 1/6 of tax revenues up to $10 billion annually goes to clean energy technology R&D. No provisions. Bulk, energyintensive imports from countries w/o comparable policy require permits after 8 years. Inaction by developing countries can justify delay in safety valve escalation. No provisions. Tax applied to fossil fuel imports; fossil fuel exports are exempt. 40

41 International Slide from Joe. 41

42 Summary Environmental concerns low risk of >2ºC might encourage 450 CO 2 e. Economic analysis difficult <550 CO 2 e. Temp range Concentration 2030 prices 2030 GDP loss 2-5ºC 650 CO 2 e $5-35 <1% 1-4ºC 550 CO 2 e $ % Crude benefit analysis suggests ~600 CO 2 e. Costs easily several times higher with realistic policies. 42

43 Summary (2) National governments pursuing a variety of policies. European prices consistent with somewhere between 550 & 600 ppm CO 2 e. US proposed prices consistent with ppm CO 2 e (Lieberman- McCain); 550 ppm or lower CO 2 e (Lieberman-Warner). Current trends in China and India not consistent with stabilization. Debate in EU is over reforming ETS (auctions; harmonization) and complementary policies (renewables) Debate in US is over target / offsets / coverage / cost certainty. Variety of international architectures possible; unclear what will be most successful at encouraging lower emissions. Key question: what will get China engaged? 43