Emerging Policy & Technical Solutions Andrew E. Huemmler University of Pennsylvania May 5, 2008 The Academy of Natural Sciences Partnership for the Delaware Estuary January 16-18, 2008 Washington, DC Ronald Reagan Building and International Trade Center Ronald Reagan Building and International Trade Center More than 1200 attendees science, academic, policy Outline Problem Statement Problem Statement Emerging Solutions Emerging Solutions Economic Economic Cost Benefit analysis How much will it cost? Policy Policy Carbon tax Cap & Trade Lieberman-Warner Bill in U.S. Congress Technical Technical Feasible solutions? Stabilization Wedges Problem Definition Global Warming Climate Change Dangerous Anthropogenic Interference in the Climate System Catastrophic Climate Disruption Climate Change Solutions Mitigate slow down climate change Adapt Suffer Reduce GHGs in atmosphere Reduce CO 2 e emissions The Stern Review (2006) Doniger (NRDC) to Bali, December 2007 current trend 450ppm stabilization Pass 450 ppm in ~ ppm today < 2o C< 2o C > 2- 5 o Celsius current trend 450 ppm stabilization Pre-industrial average: 280 ppm There is a narrow window of opportunity for action to contain the threat of impending severe warming US needs to cut emissions 30% by 2030, 80% by 2050 and negotiate a global post-2012 agreement The Stern Review (Oct 2006) The Economics of Climate Change Extreme weather could reduce global GDP by 1%. 2 - 3 C temp rise could reduce global economic output by 3%. If temperatures rise by 5 C, up to 10% of global output could be lost with poor countries losing more. Worst case: Global consumption per head would fall 20%. Cost-Benefit of Stabilisation Stern Review (2006) To stabilize at manageable levelswould cost 1% of GDP at ppm CO2e certain principles that must guide its deliberations: This growth package must be big enough to make a difference in an economy as large and dynamic as ours -- which means it should be about 1 percent of GDP. President George W. Bush on the Economic Stimulus Act of 2008 Critiques of Stern Review The Economist; December 4, 2006 Discount rates typically 3-5% per year. A typical discount rate would assign almost no current value to benefits accruing in 100 years. So why spend money today on something with no apparent value today? Stern uses a discount rate of 0.1% per year How can we say that our great-great-great- grandchildren are worth less than we are worth ourselves? A stronger case for spending money now. 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 Policy to reduce emissions should be based on three essential elements: 1. carbon pricing, 2. technology policy, 3. removal of barriers to behavioural change. Establishing a carbon price, through tax, trading or regulation, is an essential foundation for climate- change policy. Cap & Trade or a Carbon Tax? Most economist prefer?????? Uniform tax on all CO 2 e emissions Applied upstream to the few producers Sellers of coal Producers / importers / sellers of oil Tax (cost) impacts flow downstream to consumers Price of CO2e is known Carbon Tax Certainty? Price ? Correct Price ? Emission Reductions ? Government Revenue I can emit CO 2 e if Im willing to pay for it. Cap & Trade U.S. invention Emission allowances for SO 2 Included in Clean Air Act Amendments 1990 Implemented in 1995 U.S. introduced cap & trade into text of Kyoto Protocol against will of the European Union! Pew Charitable Trusts, 1990 19 Source: NRDC RGGI AB32 VanNess Feldman Issue Alert October 22, 2007 Lieberman Warner Climate Change Cap-and-Trade Bill Americas Climate Security Act GHG emissions cap on: Electric power, industrial, transportation 75% of total GHG emissions covered Facilities that emit 10,000 t CO 2 e annually Transportation sector regulated upstream Fuel producers & importers, non-fuel chemicals Higher efficiency standards for commercial and residential sources not covered VanNess Feldman Issue Alert October 22, 2007 Targets and Timetables Cap at 2005 levels starting in 2012 Decline: 15% by 2020 70% by % reduction per year AB BAU 1000 tons CO2e % reduction MCA = $10 Firm spends $10/t internally to reduce 20% CO2e emissions MCA = $20 Firm purchases EAs from market for 10% of its production $20/t MCA Initial Market Price = $15 / ton Both firms seek to return to full production Price rises to