Climate policy: Separating fact from fantasy

Harvard Environmental Law Review

Volumn 33, Issue 2, 2009, Pages 557-591

  Robert, Hahn W ^a  

^a UNIVERSITY OF OXFORD   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

CARBON SEQUESTRATION; CONFERENCE PROCEEDING; EMISSION CONTROL; GLOBAL WARMING; GREENHOUSE GAS; POLICY STRATEGY; POLLUTION POLICY; REGULATORY APPROACH; STRATEGIC APPROACH;

EID: 69649104340     PISSN: 01478257     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (210)

1. William Nordhaus, A Question of Balance: Weighing the Options on Global Warming Policies 13-14 (2008). This estimated loss includes only damages caused by temperature changes - greenhouse gas-emitting activities such as coal burning also produce health damages associated with local air pollution from soot and sulfur dioxide, which cost China as much as 3.8% of GDP in 2003. The World Bank & State Envtl. Prot. Admin., P. R. China, Cost of Pollution in China: Economic Estimates of Physical Damages, at xiii (2007), available at http://go.worldbank.org/FFCJVBTP40.
2. Developed nations recognize the problem of gaining widespread participation. In the G8 summit on July 8, 2008, they stated for the first time that developing nations would have to be included in any future climate change treaties. The G8 nations committed to cutting their greenhouse gas emissions in half by 2050, but the agreement was short on details, such as the baseline year from which reductions would be achieved and how they would be achieved. This was the first time that President George W. Bush backed an explicit target for reducing greenhouse gas emissions. The countries present at the annual summit included the United States, Britain, Canada, France, Germany, Italy, Japan, and Russia. Sheryl Gay Stolberg, Richest Nations Pledge to Halve Greenhouse Gas, N. Y. Times, July 9, 2008, at Al.
3. The costs and benefits of climate change for specific countries will vary. Richer, highemitting countries such as the United States may find it relatively easy to adapt to climate change, whereas some developing countries, which release relatively small amounts of emissions, will be "the real victims of climate change." Thomas C. Schelling, 2005 Nobel Prize Laureate in Economics and Distinguished Professor, U. Md., Address at the Fourth Annual Hans Lansberg Memorial Lecture: Global Warming: Intellectual History and Strategic Choices (Dec. 6, 2006) (transcript available at http://www.rff.org/ Events/Pages/Lansberg-Schelling.aspx);
4. see also David Anthoff & Richard J. S. Tol, On International Equity Weights and National Decision Making on Climate Change (CESifo Working Paper Series, Working Paper No. 2373, 2008);
5. Cass R. Sunstein, The Complex Climate Change Incentives of China and the United States (U. Chi. Olin Law & Econ. Working Paper Series, Working Paper No. 352, 2007);
6. Jason Scott Johnston, Climate Change Hysteria and the Supreme Court: The Economic Impact on the U. S. and the Misguided Regulation of Greenhouse Gases Under the Clean Air Act (U. Penn. Inst. Law & Econ., Res. Paper No. 08-04, 2008).
7. This is an important difference between the climate change problem and the stratospheric ozone problem, which involved a relatively small number of producers. For a comparison of the two issues, see Scott Barrett, Environment and Statecraft: The Strategy of Environmental Treaty-making (2005);
8. Sunstein, supra note 3.
9. See generally Ross Garnaut et al., Emissions in the Platinum Age: The Implications of Rapid Development for Climate-Change Mitigation, 24 Oxford Rev. Econ. Pol'y 377 (2008). In addition, scientists are still debating a number of important issues, such as whether carbon sinks will be able to soak up more or less carbon dioxide as the temperature increases. More recent evidence suggests that the latter is more likely.
10. 2 Growth from Economic Activity, Carbon Intensity, and Efficiency of Natural Sinks, 104 Proc. Nat'l Acad. Sci. 18, 866 (2007). Therefore, there are major limitations to our ability to predict the effects of a rise in emissions and in atmospheric concentrations of greenhouse gas emissions.
11. The goals include cutting greenhouse gas emissions by twenty percent (relative to 1990 levels), raising the share of renewable energy in the EU energy supply from 8.5% to 20%, and increasing the share of biofuels in the transportation energy supply to ten percent. Press Release, European Commission, Boosting Growth and Jobs by Meeting Our Climate Change Commitments (Jan. 23, 2008) (on file with the Harvard Environmental Law Review).
12. Barack Obama & Joe Biden, New Energy For America, http://my.barackobama.com/page/content/newenergy (last visited Apr. 1, 2009) (on file with the Harvard Environmental Law Review).
13. Energy Info. Admin., U. S. Dep't of Energy, World Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels, 1980-2006, http://www.eia.doe.gov/pub/international/iealf/tablehlco2.xls (last visited Apr. 23, 2009) (on file with the Harvard Environmental Law Review).
14. Geoengineering is understood here as modifying the global climate through affecting the amount of heat absorbed and re-radiated by the Earth without changing the amount of greenhouse gases in the atmosphere. Unlike reducing emissions or capturing and storing carbon, which directly address the cause of global warming, geoengineering techniques such as reflecting more sunlight away from the Earth through solar radiation management, address only certain effects of global warming.
15. See Scott Barrett, The Incredible Economics of Geoengineering, 39 Envtl. Res. Econ. 45, 45-47 (2008).
16. See, e.g., Kerry Emanuel, What We Know About Climate Change (2007).
17. Task Force on National Greenhouse Gas Inventories of the IPCC, 2006 IPCC Guidelines for National Greenhouse Gas Inventories (H. S. Eggleston et al. eds., 2006). Water vapor is also an important greenhouse gas, but in keeping with the Intergovernmental Panel on Climate Change ("IPCC"), we do not include it here. Emanuel notes that global warming will increase the atmospheric concentration of water vapor and reinforce the greenhouse effect. Emanuel, supra note 10, at 27.
18. Emanuel at 19-20.
19. IPCC, Fourth Assessment Report: Climate Change 2007 Synthesis Report 44 (2007) [hereinafter Fourth Assessment Report Synthesis], available at http://www.ipcc.ch/ipccreports/ar4-syr.htm.
20. Id. at 46. The IPCC designates an event as "likely" if the evidence suggests that the probability of occurrence is more than sixty-six percent, and as "very likely" if the probability of occurrence is more than ninety percent.
21. See id. For a very useful assessment of the science that is more accessible, the reader should consult Kerry Emanuel's 2007 book. Emanuel, supra note 10.
22. Temperature increases are evident throughout the world, especially on land and in the Arctic region. Fourth Assessment Report Synthesis, supra note 13, at 30.
23. 2 equivalent) in 1970 to 49.0 gigatons in 2004. Id. at 36.
24. Id. at 37.
25. Id. at 40.
26. Id. at 52.
27. Near-term rises in sea level, contrary to popular associations with melting ice caps, are likely to be caused to a much greater degree by expanding seawater due to higher ocean temperatures. See id. at 30, 65. There is a lot of uncertainty surrounding whether and how quickly the Greenland and Antarctic ice sheets will eventually melt, but the IPCC supports the claim that the Greenland ice sheet is unlikely to disappear before 2100. See id. at 47. For a competing view, see James Hansen et al., Climate Change and Trace Gases, 365 Phil. Transactions Royal Soc'y. A 1925 (2007).
28. Fourth Assessment Report Synthesis, supra note 13, at 52-53.
29. Anthony McMichael et al., Human Health and Climate Change in Oceania, A Risk Assessment 21 (2002).
30. Fourth Assessment Report Synthesis, supra note 13, at 52-53. The IPCC predicted that large abrupt changes in the Atlantic deepwater circulation during the course of the century are "very unlikely," but that it is "very likely" that intense heat waves and storms will become more frequent. Id. at 46, 54.
31. "Likely" increases in extinction risk are predicted with "medium confidence" and changes in ecosystems and biodiversity are predicted with "high confidence." Id. at 48.
32. See id. at 69-70.
33. Nordhaus, supra note 1, at 19.
34. Id.
35. Id. at 16. Recent scientific evidence suggests that climate change may be irreversible for one thousand years after zero net emissions have been achieved worldwide. Susan Solomon et al., Irreversible Climate Change Due to Carbon Dioxide Emissions, 106 Proc. Nat'L Acad. Sci. 1704 (2009). Such irreversibilities suggest that more action may be needed now to address climate change.
36. Nordhaus, supra note 1, at 163-64. All values in this paper are in 2007 dollars unless otherwise stated, adjusted using the Consumer Price Index. All tons in the paper refer to metric tons of carbon, which represents 3.67 metric tons of carbon dioxide.
37. See Nicholas Stern, The Economics of Climate Change, 98 Am. Econ. Rev. (Papers & Proc.) 1, 1 (2008).
38. Kenneth J. Arrow et al., A Statement on the Appropriate Role for Research and Development in Climate Policy, Economists' Voice, Feb. 2009, http://bepress.com/ev/vol6/issl/art6.
39. See discussion infra Part IV. B.
40. See, e.g.. Stern, supra note 31, at 7.
41. See, e.g., Nordhaus, supra note 1, at 9-11.
42. See, e.g., Martin L. Weitzman, The Role of Uncertainty in the Economics of Catastrophic Climate Change 4 (AEI-Brookings Joint Center, Working Paper No. 11, 2007).
43. See, e.g., Nordhaus, supra note 1, at 143-47.
44. By efficiency, I mean policies that maximize the discounted present value of expected net benefits. Problems with this objective will be briefly addressed below. See infra Part IV.
45. Thomas C. Schelling, Costs and Benefits of Greenhouse Gas Reduction 13-14 (1998).
46. Scott Barrett & Robert N. Stavins, Increasing Participation and Compliance in International Climate Change Agreements, 3 IntI Envtl. Agreements: Pol. L. & Econ. 349, 351 (2003).
47. Lee Lane & David Montgomery, Political Institutions and Greenhouse Gas Controls 20 (Reg-Markets Center, Working Paper No. 9, 2008).
48. Energy Info. Admin., U. S. Dep't of Energy, Weekly All Countries Spot Price FOB Weighted by Estimated Export Volume, http://tonto.eia.doe.gov/dnav/ pet/hist/wtotworldw.htm (last visited Feb. 18, 2009) (on file with the Harvard Environmental Law Review).
49. The Arctic National Wildlife Refuge in Alaska may be a notable exception to this if the existence value people give this as a pristine area is high enough.
50. The Clinton Administration estimated that an average family would pay an extra $120 a year in direct taxes and another $200 in indirect costs from businesses (in 1993 dollars). This estimate was disputed as being too low by the American Petroleum Institute.
51. Robert D. Hershey Jr., Clinton's Economic Plan; Energy Tax's Effect Understated up to 50%, Industry Officials Say, N. Y. Times, Feb. 22, 1993, at A14.
52. Kyoto Protocol to the United Nations Framework Convention on Climate Change, Dec. 10, 1997, 37 I. L. M. 22 [hereinafter Kyoto Protocol].
53. India later acceded to the Kyoto Protocol in 2002. Kyoto Protocol: Status of Ratification, http://unfccc.int/files/kyoto-protocol/status-of-ratification/ application/pdf/kp-ratification.pdf (last visited April 24, 2009) (on file with the Harvard Environmental Law Review).
54. See Nordhaus, supra note 1, at 200.
55. Id. A climate policy is efficient if it maximizes the difference between discounted benefits and discounted costs.
56. Cazorla and Toman find that Latin America, China, India, and African countries will gain no matter whether 1) the developed nations unilaterally enforce emission limits, 2) the developing nations limit their emissions based on projected 2020 levels, or 3) developing countries join the emissions allowances system on a per capita basis. In contrast, net benefits are negative for Europe and the United States in every scenario.
57. Marina Cazorla & Michael A. Toman, International Equity and Climate Change Policy, in Climate Change Economics and Policy 235, 241-44 (Michael A. Toman ed., 2001).
58. Compliance Under the Kyoto Protocol, http://unfccc.int/kyoto-protocol/ compliance/items/2875.php (last visited Feb. 18, 2009) (on file with the Harvard Environmental Law Review).
59. Russia's real gross national income per capita did not return to 1990 levels until 2003. Quick Query Selected from World Development Indicators, http://ddp-ext.worldbank.org/ext/DDPQQ/member.do?method=getMembers&userid= l&queryId=135 (last visited Apr. 1, 2009) (on file with the Harvard Environmental Law Review).
60. Rudiger Dornbusch & Holger C. Wolf, East German Economic Reconstruction, in The Transition in Eastern Europe 155 (Olivier Jean Blanchard, Kenneth A. Froot & Jeffrey D. Sachs eds., 1994).
61. Regional Greenhouse Gas Initiative, http://www.rggi.org/about (last visited Apr. 7, 2009) (on file with the Harvard Environmental Law Review).
62. California Air Resource Board, AB 32 Fact Sheet - California Global Warming Solutions Act of 2006, http://www.arb.ca.gov/cc/factsheets/ ab32factsheet.pdf (last visited Apr. 1, 2009) (on file with the Harvard Environmental Law Review). A draft Scoping Plan and implementation timeline between 2009 and 2012 were approved by the Air Resources Board on December 11, 2008. For more details on the Plan, see California Air Resource Board, AB 32 Scoping Plan, http://www.arb.ca.gov/cc/scopingplan/scopingplan.htm (last visited Apr. 1, 2009) (on file with the Harvard Environmental Law Review).
63. Some argue that such initiatives may stimulate a national or global response. For an analysis of the pros and cons of local initiatives
64. see Cary Coglianese & Jocelyn D'Ambrosio, Response, Policymaking Under Pressure: The Perils of Incremental Responses to Climate Change, 40 Conn. L. Rev. 1411 (2008). For an examination of how local initiatives are unlikely to result in a difference in global behavior
65. see Jonathan B. Wiener, Think Globally, Act Globally: The Limits of Local Climate Policies, 155 U. Pa. L. Rev. 1961 (2007). For an explanation of why fragmented carbon markets are likely to be inefficient, see David G. Victor, Fragmented Carbon Markets and Reluctant Nations: Implications for the Design of Effective Architectures, in Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (Joseph E. Aldy & Robert N. Stavins eds., 2007).
66. See generally Pietro S. Nivola, The Politics of Energy Conservation (1986).
67. Bruce A. Ackerman & William T. Hassler, Clean Coal/Dirty Air: Or How the Clean Air Act Became a Multibillion-Dollar Bail-Out for High-Sulfur Coal Producers and What Should Be Done About It (1981).
68. See, e.g., Robert Mendelsohn, The Greening of Global Warming 14 (1999). These parts of the United States include higher-latitude regions and areas where agriculture and timber production are significant economic sectors.
69. See Johnston, supra note 3.
70. For information about the U. S. coal industry lobby's impact on policy, see Ackerman & Hassler, supra note 57. For a discussion of the response of the U. S. oil industry to climate change concerns
71. see Jon Birger SKIæRSETH&Tora Skodvin, Climate Change and the Oil Industry: Common Problems, Different Strategies, Global Envtl. Pol., Nov. 2001, at 43.
72. U. S. C. §7651 (2006).
73. 2 Allowance Trading, J. Econ. Persp., Summer 1998, at 69, 72.
74. Press Release, European Commission, supra note 6;
75. see also Press Release, European Commission, Saving 20% by 2020: European Commission Unveils its Action Plan on Energy Efficiency (Oct. 19, 2006) (on file with the Harvard Environmental Law Review). Australia has embarked on a similar action plan to increase the renewable share of total energy supply to twenty percent by 2020. Its emissions trading scheme is scheduled to begin operations in 2010, with the goal of reducing emissions by sixty percent of 2000 levels by 2050. Australian Government Action on Climate Change Fact Sheet, http://www.climatechange.gov. au/about/publications/fs-overview.html (last visited January 12, 2009) (on file with the Harvard Environmental Law Review).
76. Press Release, European Commission, supra note 63.
77. Dieter Helm, Climate-Change Policy: Why Has So Little Been Achieved?, 24 Oxford Rev. Econ. PolY 211, 230 (2008). The same point about politics could be made regarding national climate mitigation efforts in the United States with sound-byte titles, such as "25-25" in the case of Obama's plan for twenty-five percent of the nation's energy to be from renewable sources by 2025; and "20 in 10" in the case of Bush's plan for reducing gasoline use by twenty percent in ten years.
78. Obama & Biden, supra note 7; Press Release, Envtl. Prot. Agency, Bush Admin. Establishes Program to Reduce Foreign Oil Dependency, Greenhouse Gases (Apr. 10, 2007) (on file with author);
79. See also infra note 114.
80. Spelling out the full range of economic and environmental impacts may increase the likelihood that such policies will be opposed by various interest groups, and possibly defeated, but I believe it is something that should be done in the interest of good governance.
81. I do not focus here on whether cost and benefit estimates are unbiased either in an ex ante or ex post sense. This issue is important, but beyond the scope of this Paper.
82. See, e.g., Winston Harrington, Richard D. Morgenstern & Peter Nelson, On the Accuracy of Regulatory Cost Estimates, 19 J. PolV Analysis & Mgmt. 297 (2000).
83. I emphasize that this insight depends on the accuracy of the models that are used to estimate benefits and costs. If, for example, the models tended to overstate actual costs, then this bias would push in the opposite direction.
84. See Robert W. Hahn & Paul C. Tetlock, Has Economic Analysis Improved Regulatory Decisions?, 22 J. Econ. Persp. 67, 77 (2008) for a discussion of possible biases in estimates of the costs and benefits of regulation.
85. While countries like China and India are still much lower than the United States in terms of per capita emissions, their aggregate emissions are substantial. In terms of equity, these countries argue that they should not be shouldered with the burdens of the past, because they did not contribute as much to the stock of greenhouse gases. For an examination of equity issues
86. see Eric A. Posner & Cass R. Sunstein, Should Greenhouse Gas Permits Be Allocated on a Per Capita Basis? (Univ. of Chi. Law Sch. Pub. Law & Legal Theory Working Paper Series, Paper No. 206, 2008).
87. Not all emissions are thought to lead to global warming. Sulfate particles, for example, have a transient cooling effect on the climate, even as they cause other environmental problems like acid rain.
88. Paul J. Crutzen, Albedo Enhancement by Stratospheric Sulfur Injections: A Contribution to Solve a Policy Dilemma?, 77 Climatic Change 211, 211 (2006).
89. China has increased its coal-powered plant capacity by 90 gigawatts in 2006, which is equivalent to building about two large coal power plants a week. About eighty percent of China's electricity is generated using coal. Pew Ctr. on Global Climate Change, Coal and Climate Change Facts, http://www.pewclimate. org/global-warming-basics/coalfacts.cfm (last visited Feb. 18, 2009) (on file with the Harvard Environmental Law Review). In addition, these coal power plants, which will likely operate for several decades, are not being constructed in a way that allows them to easily take advantage of carbon capture and storage technologies in the future.
90. 2 Emissions; USA in Second Position (June 19, 2007) (on file with the Harvard Environmental Law Review). There are no national data on China's emissions.
91. Energy Info. Admin., U. S. Dept't of Energy, World Carbon Dioxide Emissions from the Use of Fossil Fuels, http://www.eia.doe.gov/iea/carbon.html (last visited Apr. 7, 2009) (on file with the Harvard Environmental Law Review).
92. 2 Emissions: Near-Term Reductions and Absolute Versus Intensity-Based Targets, 36 Energy Pol'y 1927, 1930 (2008).
93. "The precise estimate is 33.7%. Energy Info. Admin., U. S. Dep'T of Energy, International Energy Outlook 2006, 93 tbl. A10 (2008), available at http://www.eia.doe.gov/oiaf/archive/ieo06/pdf/0484 (2006).pdf
94. The precise estimate is 59.9%. Id.
95. Historical data obtained from Energy Info. Admin., Dep't of Energy, International Energy Annual 2006 (Dec. 8, 2008), http://www.eia.doe.gov/pub/ international/iealf/tablehlco 2.xls (last visited Apr. 23, 2009) (on file with the Harvard Environmental Law Review). Projections obtained from Energy Info. Admin., Dep't of Energy, International Energy Outlook 2008 (2008), available at http://www.eia.doe.gov/oiaf/ieo/pdf/0484 (2008).pdf. Values for OECD Europe calculated by author.
96. See, e.g., Georg Kindermann et al., Global Cost Estimates of Reducing Carbon Emissions Through Avoided Deforestation, 105 Proc. Natl. Acad. Sci. 10, 302 (2008). The researchers point out that this approach leads to additional benefits, such as improved local water quality and increased biodiversity protection. However, their cost estimates do not account for the likely problem of leakage.
97. See, e.g., Bruce Berkowitz, Strategic Advantage: Challengers, Competitors, and Threats to America's Future 44 (2008). Berkowitz argues that there is a strong connection between energy utilization and output. Id.
98. See, e.g., Thomas C. Schelling, Some Economics of Global Warming, 82 Am. Econ. Rev. 1, 11 (1992). Another reason developing countries may prefer not to be parties to an agreement is because it may give them a competitive advantage.
99. See, e.g., Carlo Carraro, Johan Eyckmans & Michael Rnus, Optimal Transfers and Participation Decisions in International Environmental Agreements, 1 Rev. IntI Org. 379, 38687 (2006).
100. Henry D. Jacoby et al., Sharing the Burden of GHG Reductions 15 (2008), available at http://globalchange.mit.edu/files/document/MITJPSPGC-Rpt167.pdf. The United States would be footing approximately forty percent of this bill, which comes to a total of $1.5 trillion by 2050.
101. There is a basic problem related to establishing a baseline for emission reductions and making measurements.
102. See, e.g., Carsten Schmidt, Incentives for International Environmental Cooperation: Theoretical Models and Economic Instruments, in International Environmental Economics 209, 222-27 (Günther G. Schulze & Heinrich W. Ursprung eds., 2003).
103. Michael Hoel & Kerstin Schneider, Incentives to Participate in an International Environmental Agreement, 9 Envtl. & Res. Econ. 153, 167 (1997).
104. The estimates were made based on an assumption of $100 per ton of carbon emissions (in 2001 dollars) to keep per capita emissions at twenty-four tons per year and updated to 2007 dollars. Such a calculation is overestimated because it ignores the substitution effect, and because the carbon price may be too high. Richard N. Cooper, The Kyoto Protocol: A Flawed Concept 13 (FEEM Note di Lavoro Series, Working Paper No. 52, 2001). For a critique of the per capita approach to allocating emissions, see Posner & Sunstein, supra note 69.
105. Kyoto Protocol, supra note 45, art. 12.
106. See, e.g., Richard A. Liroff, Reforming Air Pollution Regulation: The Toil and Trouble of EPA's Bubble 124 (1986).
107. See Michael W. Wara & David G. Victor, A Realistic Policy on International Carbon Offsets (Stanford Program on Energy & Sustainable Dev., Working Paper No. 74, 2008) for an insightful analysis of the CDM. The authors point out that the CDM may reduce incentives for countries to agree to global limitations on emissions and to focus instead on emissions-reducing investments that are most likely to pass as "additional."
108. Brink Lindsey, The U. S. Antidumping Law: Rhetoric Versus Reality 6-7 (Cato Inst. Ctr. for Trade Policy Studies, Trade Policy Analysis No. 7, 1999).
109. See, e.g., Barrett & Stavins, supra note 40, at 370; Scott Barrett, The Credibility of Trade Sanctions in International Environmental Agreements, in Trade, Global Policy, and the Environment 161, 169 (Per G. Fredriksson ed., 2000).
110. Steve Charnovitz, Trade and Climate: Potential Conflicts and Synergies, in Beyond Kyoto: Advancing the International Effort Against Climate Change 141, 157 (Pew Ctr. on Global Climate Change ed., 2003). This remains an open issue, with other scholars arguing that border taxes on carbon could be within WTO laws.
111. See, e.g., Joost Pauwelyn, U. S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law 41-44 (Nicholas Inst, for Envtl. Policy Solutions, Working Paper No. 0702, 2007). Some analysts have suggested targeted sanctions against particular countries, such as China. It is unlikely that such sanctions would work. China could simply divert some of its exports going to the United States to other countries. Then, other countries with similar products could export them to the United States. The point is that sanctions or tariffs would need to be fairly comprehensive to have a chance of working, and they would need to be imposed by a group of countries that represent a significant part of the world economy. Even with such an approach, there are likely to be serious economic risks associated with a move away from freer trade.
112. Joseph E. Aldy, Peter R. Orszag & Joseph E. Stiglitz, Presentation at the Timing of Climate Change Policies Conference: Climate Change: An Agenda for Global Collective Action 14-15 (Oct. 2001);
113. see also Robert O. Keohane & Kal Raustiala, Toward a Post-Kyoto Climate Change Architecture: A Political Analysis 3-5 (Harvard Project on Int'l Climate Agreements, Discussion Paper No. 08-01, 2008).
114. The United States may not be ready to make technological concessions either - President Bush recently rejected a climate fund proposal put forth by China that would allow developing countries to buy patent rights of climate-friendly technologies. Erika Engelhaupt, Who Will Pay for a Global Climate-Technology Revolution?, 42 Envtl. Sci. & Tech. 1819, 1820 (2008).
115. Most economic models show that the implementation of the Kyoto Protocol under the current regime would likely lead to carbon leakage on the order of five to twenty percent. Fourth Assessment Report Synthesis, supra note 13, at 59. Mustafa Babiker, on the other hand, estimates that leakage rates could be as high as 130% in oligopolistic energy-intensive industries, causing some GHG control policies to be counterproductive.
116. Mustafa H. Babiker, Climate Change Policy, Market Structure, and Carbon Leakage, 65 J. IntI Econ. 421, 441 (2005);
117. See also Arik Levinson & M. Scott Taylor, Unmasking the Pollution Haven Effect, 49 INT'L Econ. Rev. 223 (2008) (assessing the impact on North America).
118. Jonathan B. Wiener, Incentives and Meta-Architecture, in Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World, sùpra note 55, at 67, 69.
119. Richard Tol et al. remark that "in practice there is indeed no Pareto improving transfer scheme possible."
120. Richard J. S. Tol et al., Technology Development and Diffusion and Incentives to Abate Greenhouse Gas Emissions 1, 2 (Research Unit Sustainability & Global Change, Working Paper No. 6, 2001);
121. see also Barrett & Stavins, supra note 40.
122. See, e.g., Alan S. Manne & Richard G. Richels, Buying Greenhouse Insurance: The Economic Costs of Carbon Dioxide Emission Limits (1992); Weitzman, supra note 36.
123. Even when there is a rationale for doing more because of potential catastrophes, economics can sometimes provide guidance as to how much more.
124. See Richard A. Posner, Catastrophe: Risk and Response 245-65 (2004);
125. Edward A. Parson, The Big One: A Review of Richard Posner's "Catastrophe: Risk and Response," 45 J. Econ. Literature 147, 148 (2007). If the concern is with the upper tail of the distribution, there are at least two ways to reduce risks. One is to try to move the distribution to the left by engaging in a major mitigation initiative. This would be quite costly. A second way is to consider buying some time through geoengineering, which also has its risks.
126. Press Release, European Commission, supra note 6.
127. Taxes have the advantage of making the costs of addressing climate change more transparent. In that sense, the public is less likely to support a program it may not want. Taxes may also be less prone to unforeseen consequences, such as corruption.
128. See, e.g., Nordhaus, supra note 1, at 159-61.
129. See Clean Air Act § 401, 42 U. S. C. § 7651 (2006).
130. See generally Henry D. Jacoby & A. Denny Ellerman, The Safety Valve and Climate Policy, 32 Energy Pol'y 481 (2004).
131. Over the long run, the economic costs are likely to rise. For example, in 2050, gasoline prices are projected to rise by $0.55 under the Low Carbon Economy Act and by $1.34 under the Climate Security Act.
132. See U. S. Envtl. Prot. Agency, EPA Analysis of the Low Carbon Economy Act of 2007, at 3-4 (2008), available at http://www.epa.gov/climatechange/ economics/pdfs/S 1766-EPA-Analysis.pdf; U. S. Envtl. Prot. Agency, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008, at 2-3 (2008), available at http://www.epa.gov/climatechange/downloads/s2191-EPA-Analysis.pdf. These estimates are based on a projected producer price of $55 per barrel of oil in 2030, based on the Energy Information Administration's 2006 forecasts. The 2008 forecasts project significantly higher prices for crude oil and natural gas and slower growth in energy demand, which implies lower national emissions.
133. The Supreme Court ruled in 2007 that GHGs meet the definition of air pollutants and, if EPA makes the requisite endangerment finding, should be regulated under the Clean Air Act. Massachusetts v. ERA, 549 U. S. 497 (2007). For a discussion of the implications of this ruling
134. see Jonathan H. Adler, Warming Up to Climate Change Litigation, 93 Va. L. Rev. in Brief 61 (2007).
135. The shadow price for GHGs can be thought of as the marginal cost in damages of an additional ton of GHG emissions.
136. Richard Tol finds the mean of the social cost of carbon in the economics literature to be around $31 per ton in 2000.
137. Richard S. J. Tol, The Social Cost of Carbon: Trends, Outliers and Catastrophes, Econ.:Open-Access, Open-Assessment E-Journal, Aut. 2008, http://www.economics-ejournal.org/economics/journalarticles/2008-25 (on file with the Harvard Environmental Law Review).
138. The real rate of increase of the optimal tax would be around two or three percent per year. Nordhaus, supra note 1, at 16.
139. See, e.g., Marc J. Roberts & Michael Spence, Effluent Charges and Licenses Under Uncertainty, 5 J. Pub. Econ. 193 (1976) for an early discussion. See also Robert W. Hahn, The Economics and Politics of Climate Change 37-55 (1998) (discussing the price ceiling and floor in the context of climate change.
140. Auctions are generally preferable to grandfathering or giving away permits to firms based on their historical levels of emissions, provided the revenues are spent wisely.
141. See Peter Cramton & Suzi Kerr, Tradable Carbon Permits: How and Why to Auction Not Grandfather, 30 Energy Pol'y 333 (2002);
142. see also Robert W. Hahn, Greenhouse Gas Auctions and Taxes: Some Practical Considerations, 3 Rev. Envtl. Econ. &Pol'y (forthcoming 2009).
143. In certain situations command-and-control regulation may be better than market-based instruments. A recent United Nations Environment Programme ("UNEP") study, for example, finds that building codes are more effective and less costly than market-based instruments for increasing energy efficiency in buildings. Press Release, UNEP, Regulation Key to Greener Buildings (Sept. 24, 2007) (on file with the Harvard Environmental Law Review). Theory and experience, however, tend to suggest otherwise.
144. See, e.g., Thomas H. TlETENBERG, EMISSIONS TRADING: PRINCIPLES AND PRACTICE (2nd ed. 2006).
145. Although subsidies may be appropriate in cases where the technology leads to learning, such subsidies have tended to be highly politicized.
146. Energy Independence and Security Act of 2007, Pub. L. No. 110-40, 121 Stat. 1492 (codified in several volumes of the U. S. C.). Out of ten cap-and-trade bills introduced in the 110th Congress, four include setting efficiency or performance standards for vehicles and/or industry.
147. See Lane & Montgomery, supra note 41, for an excellent analysis of
148. President Obama has proposed initiatives such as setting a national low carbon fuel standard and raising automobile energy efficiency by four percent per year. He also supports increasing the renewable share of electricity production to twenty-five percent, and has set a target of sixty billion gallons of biofuels production by 2030. These ideas bear some similarity in spirit to die European Commission's "20-20-20" proposal.
149. Obama & Biden, supra note 7. However, these initiatives are likely to face significant practical obstacles. For example, there is a constraint on the amount of land available for large-scale solar installations, which may lead to competition with agricultural land use or destruction of pristine deserts. National Renewable Energy Laboratory, Parabolic Trough FAQs, http://www.nrel.gov/csp/troughnet/faqs.html (last visited Apr. 25, 2009) (on file with the Harvard Environmental Law Review). For a discussion of other renewable energy-related problems, such as siting transmission lines
150. see Irwin M. Stelzer, Energy Reality Soon to Intrude on Obama's Enviros, Wash. Examiner, Jan. 23, 2009, available at http://www.washingtonexaminer.com/ opinion/columns/IrwinStelzer/Energy-reality-soon-to-intrude-on-Obamas-enviros- 012309.html.
151. It may be politically difficult for legislators to remove the tax once the revenue has been allocated to new spending. Therefore, a tax has the advantage of reinforcing the commitment to a national price.
152. Politicians and policymakers face a difficult tradeoff in trying to design a reasonably stable policy. Because climate change policy will likely have large impacts on society and economies, politicians will want to play a role in crafting and redesigning policies periodically. However, to achieve the kind of policies that yield substantial efficiencies, politicians may need to delegate many of the key decisions on science and economics to technocratic elites.
153. See supra note 94 for a discussion of carbon leakage.
154. See, e.g., Scott Barrett, A Multitrack Climate Treaty System, in Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World, supra note 55. This Part draws on ideas contained in Arrow et al., supra note 32.
155. Some researchers suggest that the costs of carbon abatement with existing technology may be as high as some populations' annual incomes, making actual implementation in lowerincome countries very unlikely. See, e.g., Tol, supra note 107.
156. Comm. on Prospective Benefits of U. S. Dept of Energy's Energy Efficiency & Fossil Energy R&D Programs (Phase Two), Nat'L Research Council, Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) 6, 123 (2007).
157. Benefits from hybrid vehicle technology are higher in the case of high oil and gas prices - economic benefits go up to $28 billion and reduce emissions by around 51 million tons of carbon. Id. at 6.
158. See, e.g., Peter Ogden, John Podesta & John Deutch, A New Strategy to Spur Technology Innovation, Issues in Sci. & Tech., Winter 2008, at 35.
159. The U. S. Climate Change Technology Program spent $3.1 billion in the fiscal year of 2007, and has requested $4.4 billion for 2009.
160. Robert C. Marlay, Presentation at the IEA Workshop on Energy Technology Roadmaps: Roadmaps from the U. S. Climate Change Technology Program Strategic Plan (May 15-16, 2008), available at http://www.climatetechnology.gov/ presentations/CCTPBrief-Marlay-CEQ-19May2008-v2.pdf
161. Richard G. Newell, Issue Brief 9: Climate Technology, Research, Development and Demonstration: Funding Sources, Institutions and Instruments, in Assessing U. S. Climate Policy Options: A Report Summarizing Work at RFF as Part of the Inter-Industry U. S. Climate Policy Forum 117, 129 (2007). For a detailed narration of the Synthetic Fuels Corporation's origins and collapse, see The Technology Pork Barrel (Roger G. Cohen & Linda R. Noll eds., 1991).
162. See, e.g., Newell, supra note 124.
163. One way to reduce political influence and encourage high-risk R&D ventures is to ask a non-govemmental body, such as a university, to allocate funding based on merit. Universities, such as Stanford, now do this in the area of climate change with non-governmental money. The advantage of such a proposal is that it would make it more difficult for politicians to influence the process. The key issue is whether such proposals would be politically feasible, but they at least should be explored.
164. A 2006 technical review of the Climate Change Technology Program concluded that the Program should allocate more resources to high-risk projects that have prospects of high payoffs in the long term. The review also urged more basic research.
165. See Marilyn A. Brown et al., Oak Ridge Natl Laboratory, Results of a Technical Review of the U. S. Climate Change Technology Program's R&D Portfolio 12-13 (2006).
166. An intriguing policy instrument that has become more popular is offering a prize or award for productive and innovative R&D. This instrument has the advantage that governments pay only for results and not the process, and it may also attract a more diverse range of researchers. Newell, supra note 124, at 132.
167. Carolyn Fischer & Richard G. Newell, Environmental and Technology Policies for Climate Mitigation, 55 J. Envtl. Econ. &Mgmt. 142, 160 (2008). Popp shows that carbon taxes are about 8.6 times as effective at recovering welfare lost through market failure as R&D subsidies (with taxes only, gains are $2.31 trillion, while with subsidies only, gains come to $0.27 trillion (2001 dollars)).
168. David Popp, R&D Subsidies and Climate Policy: Is There a "Free Lunch"?, 11 Climatic Change 311, 326 (2006).
169. Popp, supra note 129, at 328.
170. 2 O Release from Agro-Biofuel Production Negates Global Warming Reduction by Replacing Fossil Fuels, 8 Atmospheric Chemistry & Physics 389 (2008).
171. 2 emissions is the fourth goal of the U. S. Climate Change Technology Program, which allocates funding to federal agencies, national laboratories, and universities. Marlay, supra note 123.
172. Energy Info. Admin., U. S. DepY of Energy, International Energy Outlook 2008, 89 (2008), available at http://www.eia.doe.gov/oiaf/ieo/pdf/0484 (2008).pdf. In response to recent high oil prices, Europe is set to build fifty new coal-fired plants by 2013.
173. Elisabeth Rosenthal, Europe Turns Back to Coal, Raising Climate Fears, N. Y. TImes, April 23, 2008, at Al.
174. Additionally, CCS can help to reduce emissions of "black carbon," which is produced by the open burning of solid fuels. The pollutant is not a greenhouse gas but is an important contributor to global warming. See Institute for Governance and Sustainable Development, Black Carbon, http://www.igsd.org/blackcarbon/index.php (last visited Apr. 25, 2009) (on file with the Harvard Environmental Law Review).
175. Current investment in CCS projects is very far below the levels needed to make it a major part of efforts to cut emissions in the power sector.
176. Varan Rai et al., PESD Carbon Storage Project Database 2 (Stanford Program on Energy & Dev., Working Paper No. 76, 2008).
177. Below a price of $55 per ton of carbon, firms are unlikely to voluntarily install CCS capabilities at large industrial facilities. Natalie Tawil, Cong. Budget Office, The Potential for Carbon Sequestration in the United States 14-15 (Christian Howlett ed., 2007). If carbon prices are higher in the more distant future, coal may still be relatively expensive compared to natural gas, even with ninety percent carbon capture.
178. Sergey Paltsev et al., Mass. Inst, of Tech. Joint Program on the Sci. & Policy of Climate Change, The MIT Emissions and Prediction and Policy Analysis (EPPA) Model: Version 4, at 38-39 (2005).
179. Thomas Naucler et al., McKinsey & Co., Carbon Capture and Storage: Assessing the Economics 32-33 (2008). IPCC estimates that costs of carbon capture, the costliest part of CCS, will fall by twenty to thirty percent in the next ten years.
180. IPCC Working Group III, IPCC Special Report: Carbon Dioxide Capture and Storage: Summary for Policymakers 11 (2005).
181. Irwin Stelzer, Energy Policy: Abandon Hope All Ye Who Enter Here 18 (2008).
182. More needs to be learned about the environmental consequences of storage.
183. See, e.g., Soren Anderson & Richard Newell, Prospects for Carbon Capture and Storage Technologies, 29 Ann. Rev. Envt Resources 109 (2004).
184. 2 Capture from Ambient Air, 41 Envtl. Sci. Tech. 7558, 7558 (2007).
185. Scrubbing the Skies, Economist, Mar. 5, 2009.
186. MIT Nuclear Energy Study Advisory Comm., The Future of Nuclear Power: An Interdisciplinary MIT Study 7 (2003). If the United States could halve nuclear power costs, many countries might not only consider adopting this technology, but also willingly submit to international supervision.
187. Paul L. Joskow, The Future of Nuclear Power in the United States: Economic and Regulatory Challenges 1 (MIT Ctr. for Energy & Envt I. Policy Research, Working Paper No. 19, 2006).
188. Energy Info. Admin., U. S. Dept of Energy, Status of Potential New Commercial Nuclear Reactors in the United States (2009), available at http://www.eia.doe.gov/cneaf/nuclear/page/nuc-reactors/com-reactors.pdf
189. World Nuclear Association, Nuclear Power in France, http://www.world- nuclear.org/info/inf40.html (last visited Apr. 1, 2009) (on file with the Harvard Environmental Law Review).
190. See New Harris Poll "Flashback" Finds Half of Americans Favor Building More Nuclear Power Plants, Reuters, Oct. 7, 2008, available at http://www.reuters.com/article/press release/idus 112324+07-oct- 2008£w20081007.
191. MIT researchers recommend focusing R&D efforts on open once-through fuel cycles. Closed fuel cycles are less wasteful in terms of resource use, but are more expensive and face a disadvantage in preventing proliferation of nuclear materials or technologies.
192. MIT Nuclear Energy Study Advisory Comm., supra note 142, at ix-x.
193. Energy Policy Act of 2005, 42 U. S. C. § 15801-16524 (2006).
194. For an excellent analysis of the financial risks associated with investing in nuclear energy and possible policy solutions, see Joskow, supra note 143, at 18-26.
195. Sub-Comm. on Global Climate Change, Climate Change Sci. Program, Our Changing Planet: The U. S. Climate Change Science Program for Fiscal Year 2009, at 223 (2009).
196. See Robert Repetto, The Climate Crisis and the Adaptation Myth (Yale Sch. of Forestry & Envtl. Studies, Working Paper No. 13, 2008). Economists can contribute by improving estimation of these mitigation costs and carefully evaluating the costs and benefits of different strategies for adapting to a changing climate.
197. Barrett, supra note 9; see also Lane & Montgomery, supra note 41, at 39-40. For an assessment of regulatory issues raised by geoengineering, see David G. Victor, On the Regulation of Geoengineering, 24 Oxford Rev. Econ. Pol'y 322 (2008).
198. Natl Aeronautical & Space Admin., Workshop Report on Managing Solar Radiation 13 (Lee Lane et al. eds., 2007).
199. For an ambitious proposal outlining one possible global agreement on climate change, see Cameron Hepburn & Nicholas Stern, A New Global Deal on Climate Change, 24 Oxford Rev. Econ. Poly 259 (2008).
200. 2 per year due to electricity use, this implies a willingness-to-pay of $125 per ton of carbon. Thomas E. Curry, Stephen Ansolabehere & Howard Herzog, A Survey of Public Attitudes Towards Climate Change and Climate Change Mitigation Technologies in the United States: Analyses of 2006 Results 18 (Mass. Inst, of Tech. Lab. for Energy & the Env't, Working Paper No. 1, 2007);
201. U. S. Envtl. Prot. Agency, Climate Change - Greenhouse Gas Emissions: In the Home, http://www.epa.gov/climatechange/emissions/ind-home.html (last visited Feb. 18, 2009) (on file with the Harvard Environmental Law Review). On the other hand, the 2008 Gallup poll finds that only forty percent of Americans believe that global warming will "pose a serious threat" in their lifetimes, and only thirty-four percent of Americans think that global warming warrants "immediate, drastic action." Frank Newport, Little Increase in Americans' Global Warming Worries, http://www.gallup.com/poll/106660/Little- Increase-Americans-Global-Warming-worries.aspx (last visited Feb. 18, 2009) (on file with the Harvard Environmental Law Review). Victor suggests that public opinion of global warming can be "highly malleable" and is especially sensitive to economic conditions. David G. Victor, Climate Change: Debating America's Policy Options 64 (2004).
202. I think that Victor is correct, and would add that the estimate of willingness to pay is likely to be very sensitive to how the question is framed.
203. For some suggestions of how specific developing countries could be persuaded to make significant contributions to mitigation efforts, see David G. Victor, Climate Accession Deals: New Strategies for Taming Growth of Greenhouse Gases in Developing Countries (Harvard Project on Int'l Climate Agreements, Working Paper No. 08-18, 2008).
204. Fbr an example of a presidential speech that promotes adaptation, see Victor, supra note 155, at 76-88.
205. See, e.g., Tony Blair, Prime Minister of the U. K., Address at the Institute of Public Policy Research: Future Challenges: Living with Risk (May 26, 2005) (transcript available at http://www.number10.gov. uk/Page7561).
206. I believe that President Obama faces a unique challenge and opportunity here. The challenge will be to avoid having climate policy (and energy policy more generally) get bogged down in traditional pork barrel politics. The opportunity for the President is to introduce a new, innovative approach to the climate problem based on sound economics and game theory.
207. William D. Nordhaus, Reflections on the Economics of Climate Change, J. Econ. Persp., Fall 1993, at 11, 18.
208. Economic models that identify the welfare advantages associated with a first-best solution can be useful for at least three reasons. First, they can demonstrate potential welfare gains over the status quo; second, in cases where such gains are small, they may suggest that such gains may not be worth fighting over; third, in cases where such gains are large, such modeling efforts can help nudge policy in the direction of achieving some of those gains. Still, it would be useful for economists to be clearer about some of the limitations of their modeling as it applies to policy. These include highlighting the importance of a host of simplifying assumptions related to the response of firms and government and estimations of the costs and benefits of climate change.
209. There are competing scientific views on the timeline of worst-case scenarios. One of the most widely cited fears, the disappearance of the Greenland ice sheet leading to a rapid rise in sea levels, is unlikely to occur within the century. See Fourth Assessment Report Synthesis, supra note 13, at 47. However, many other damages such as weather pattern changes are likely to occur before then, and the effects are likely to be long-lasting. Solomon et al., supra note 29.
210. Yale Book of Quotations 86 (Fred R. Shapiro ed., 2006) (remark by Otto von Bismarck to Meyer von Waldeck).