Climate Policy. Michael Springborn. Department of Environmental Science & Policy. springborn.faculty.ucdavis.edu.

Transcription

1 Climate Policy Michael Springborn Department of Environmental Science & Policy springborn.faculty.ucdavis.edu [image: USGCRP, 2010]

2 The intensity of CO2/GDP is falling but not fast enough to offset increases in GDP and population [Nordhaus, 2012]

3 California has reduced emissions while GDP and population have grown. ARB

4 Anthropogenic climate change represents the biggest market failure the world has ever seen -- Nicholas Stern.

5 Market failure specifies the root of the problem greatest good for the greatest number results when the actions of an agent (individual or firm) have an uncompensated effect on the wellbeing of other agents. EPA (2010)

6 Climate change externalities (External) cost (damage) from a unit of emissions associated with a given unit of economic activity is not paid for by those producing or consuming the good. Emissions inefficiently high Innovators of new technologies (of any kind which addresses the GHG problem) may not receive all of the benefits from their inventions Innovation is ineffeciently low

7 Greenhouse gases are a globally, uniformly mixed pollutant: it doesn t matter where they come from the damage is the same and it s global.

8 Various IAMs project different levels of loss from temperature increases (IWGSCC 2010)

9 According to the IWG (2010), the SCC is: an estimate of the monetized damages associated with an incremental increase of carbon emissions in a given year includes but is not limited to changes in: net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. (Greenstone et al. 2013). present value: sum of the discounted stream of annual damages expected value: the average we would expect across many stochastic simulations of the future estimated using IAMs

10 The tool used to estimate the SCC: Socio-economic GHG emissions pathways Growth (pop., economic, technology), policy Energy use; emissions per unit of energy Integrated assessment model (IAM) Changing atmospheric GHG concentration Carbon cycle (atmosphere, ocean, etc.) Changing climate Temperature*, precipitation, sea level rise Damages (valuation of impacts to ecosystems, ag., disease, etc.) as share of GDP

11 IWG s SCC estimates: 1 st published in 2010, updated in 2013 [IWGSCC, 2013]

12 IWG s SCC estimates: 1 st published in 2010, updated in 2013 [IWGSCC, 2013] Some of the relevant model updates: explicit representation of sea level rise damages in the DICE and PAGE models; updated adaptation assumptions, revisions to ensure damages are constrained by GDP, updated regional scaling of damages, revised treatment of potentially abrupt shifts in climate damages in the PAGE model; [IWGSCC, 2010]

13 SCC sensitive to uncertain estimates of damages and choice of discount rate. a truly extraordinary dependence on the choice of a discount rate Weitzman [Revesz et al. 2014]

14 Economists have generally arrived at a consensus on the bottom-line: Virtually every activity directly or indirectly involves combustion of fossil fuels, producing emissions of carbon dioxide into the atmosphere. Single bottom line for policy: correct this market failure by ensuring that: all people, everywhere, and for the indefinite future are confronted with a market price for the use of carbon that reflects the social costs of their activities. Nordhaus et al. (2008)

15 How do we chose from the large set of policy options?

16 Economists often favor marketbased instruments (MBI) Advantages of MBI s over C&C (Stavins, 1998): Cost effectiveness (least cost) Flexibility (within and between polluters) Encourage behavior change through market signals rather than with explicit behavioral requirements. Key attribute: MBI s take advantage of private information that polluters have RE: means and procedures they could use to reduce pollution Stronger incentives for technological innovation

17 Cost effectiveness comparison over alternative instruments -- Clean Air Act

18 Carbon tax versus cap and trade: can accomplish essentially the same thing but with minor differences Cap and Trade Carbon Tax Known: Unknown: Revenue: Pollution level Price per unit of pollution Permit auction: government Free allocation: industry Price per unit of pollution Pollution level Government

19 Key design components for a cap and trade policy include: (1) cap, (2) scope, (3) allocation, (4) cost containment, & (5) offsets cap scope [Newell, 2012]

20 Observed carbon prices over the last several years have been below $20/ton CO2 [Newell, 2014]

21 Most of the abatement to reach the 2020 target (1990 levels) is achieved by complementary measures outside of C&T.

22 Non-C&T based, complementary measures to reduce GHGs are led by (1) clean cars, (2) RPS, and (3) LCFS. (Clean Car Stds)

23 Robert Stavins -Professor of Business and Government, John F. Kennedy School of Government, Harvard University. -Director of the Harvard Project on Climate Agreements.

24 Setting stringency: The Policy Ramp vs. The Big Bang Climate policy ramp Efficient GHG control policy: modest rates of emissions reductions in the near term, followed by sharp reductions in the medium and long term. (Nordhaus, 2007) If implemented via a tax: ~$30/ton of CO 2 initially, rising gradually to $200/ton towards 2100 (Krugman, 2010) The Big Bang ** (**Paul Krugman s term) Immediate and aggressive GHG control Stern Review (2006): high profile challenge to the ramp

25 Regardless of whether the policy involves a tax or cap and trade, policy stringency can be expressed in terms of a carbon price Policy Ramp vs. Big Bang Stern Big-bang Policy ramp Nordhaus Nordhaus (2007)

26 Mitigation goals will be difficult/impossible to achieve for rich countries acting alone [Nordhaus, 2010]

27 Carbon offsets Carbon offsets: a tradable credit for reducing carbon emissions by some amount (e.g. ton) generated outside a regulated system, recognized within a regulated system (e.g. a cap-and-trade regime) as a substitute for holding and using an emissions permit.

28 Offsets present substantial measurement challenges grey additional (action taken for payment) verifiable? permanent [Beede and Powers, 2013]

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30 Problems with additionality have been substantial. (2009) [Fig.: Newell et al. 2012; Data: Fenhann (2012)]

31 Appendix

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33 Measurement uncertainty doesn t have to preclude mitigation projects f(y): probability density confidence y c : credited level confidence deduction E(y): expected level y: true level of mitigation Verifiability of offsets: Certainty? No. Meeting or exceeding stated/credited levels with a specified level of confidence.

34 Where should risk preferences be imposed? Aggregated market Top-down? intermediary bundle intermediary bundle Middle? site site site site site site Bottom-up? Disaggregated

35 Each externality associated with climate change motivates consideration of particular policy instruments. Stern, 2013