THE IPCC WORKING GROUP III REPORT AND SOME KEY POLICY QUESTIONS

May 23rd, 2007 <-- by Joseph Aldy -->

The Intergovernmental Panel on Climate Change released Working Group III’s (WG-III) contribution to the Fourth Assessment Report, “Mitigation of Climate Change,” earlier this month with the Summary for Policymakers and the pre-copy edit chapters. The House Committee on Science and Technology held a hearing last week with four WG-III lead authors. Let me address some questions policymakers may have about climate change policy and how the IPCC WG-III report addresses them.

How should we choose a goal?

Unfortunately, the Summary for Policymakers does not provide much useful information to guide the identification of near-term or long-term climate policy goals. Tables 4 and 6 of the Summary provide a range of GDP loss estimates for three broad ranges of goals to stabilize atmospheric greenhouse gas concentrations: 590-710 parts per million (ppm) CO2 equivalent, 535-590 ppm, and 445-535 ppm. Drawing from a large set of models, the ranges of costs for these goals are overlapping. For models that have evaluated a wide array of goals, there is a fairly robust conclusion: moving from a 650 ppm to a 550 ppm goal increases costs somewhat, but moving from a 550 ppm to a 450 ppm goal raises costs dramatically. For example, refer to the December draft analysis of long-term stabilization scenarios, based on three models frequently cited in this IPCC report, sponsored by the U.S. Climate Change Science Program (Tables ES.3 and 4.9).

Will mitigating emissions cause a recession?

The IPCC reports that a stabilization goal in the 445-535 ppm range could result in a 3% reduction in GDP in 2030. Would this cause a recession? Jim Connaughton, Chairman of the White House Council on Environmental Quality, expressed such a concern in a May 4 press conference and quoted in the Washington Post: “GDP ranges as high as 3% to achieve certain scenarios – well, that would, of course, cause a global recession.” Of course it would not. The IPCC’s 3% figure is for the year 2030 relative to forecast economic growth. 3% lower economic output in 2030 corresponds to the global economy growing 0.12% slower each year through 2030. Suppose the U.S. economy grew 0.12% slower each year. The U.S. economy would have grown 3.14% instead of 3.26% in 2006. Or in 2030, the U.S. economy would only be 1.97 times larger than it is today instead of 2.04 times larger without any emissions mitigation policies. U.S. per capita income, with this 3% loss in GDP, would still be more than $20,000 higher in 2030 than the current value of about $38,000. The vast economic literature does not support the idea that climate change policy will cause a recession or a return to the oil shocks of the 1970s. (Refer to this backgrounder for an overview of recent modeling analyses of U.S. cap-and-trade proposals.)

How can we design a suite of policies to minimize the cost of mitigating emissions?

The IPCC report makes a strong case for putting a price on the emissions of greenhouse gases through emissions trading or an emissions tax. This creates the incentive for firms and individuals to alter their consumption and investment decisions in favor of climate-friendly options. Emissions trading or a tax would reduce emissions at lower cost than other approaches, such as command-and-control regulations or subsidies. Covering as many sources as possible, including non-CO2 greenhouse gases and carbon sinks can also lower costs. Using the revenues from an emissions tax or an auction of tradable permits to lower existing taxes on labor and capital can also reduce the costs to the economy.

A note of caution. The Summary also describes so-called “market barriers”, that if removed, could result in more emissions abatement at negative costs. The Summary identifies several examples of market barriers, including “consumer preferences,” “availability of technologies,” and “higher costs of reliable information.” It’s not clear that government should be in the job of changing consumer preferences (or has the capacity to do so), and changing the suite of technologies and providing reliable information will incur real costs – and such costs are often neglected in the types of analyses that show negative costs.

What is required, from a policy standpoint, to achieve the emissions abatement described in the Summary for Policymakers?

The Summary identifies the potential for reducing greenhouse gas emissions 25-50% in 2030 with a global carbon price of $100 per ton of CO2 equivalent. The key term in this sentence is “global carbon price.” To achieve anything approaching the scale of reductions envisioned by the modeling results reported in the Summary, a credible international climate change policy architecture will be required. This is the critical challenge: engaging the largest emitters in the world – including the U.S., China, and India – so that such emissions abatement is feasible. Without some of these countries, the cost of ambitious abatement goals could be considerably higher.

5 Responses to “THE IPCC WORKING GROUP III REPORT AND SOME KEY POLICY QUESTIONS”

  1. Paul Baer Says:

    ” but moving from a 550 ppm to a 450 ppm goal raises costs dramatically.”

    But doesn’t moving from a 450 ppm goal (roughly even odds of staying below 2ºC) to 550 ppm (order of 10-20% chance of staying below 2ºC, roughly equivalent chance of exceeding 4ºC) raise the risk of impacts dramatically? Wouldn’t we (for example) be greatly increasing the risk of melting the Greenland Ice Sheet?

    It’s not that the costs of increasingly stringent targets are irrelevant. But there’s an implicit appeal to straight-up cost-benefit analysis in this framing, and it’s pretty clear (the Stern Review notwithstanding) that there’s no way to convert climate risks into monetized impacts without extremely controversial ethical decisions (including how to treat the largely unknown risks of catastrophic impacts). We have barely as a society begun to understand and debate the meaning of the kinds of risks we are imposing on ourselves, our descendents, and on the most vulnerable (and usually least responsible) among us. We certainly don’t know how to translate those risks into reliable cost estimates, to compare with the mitigation costs reported by the IPCC.

    In brief, I don’t think Joe begins to address the issues involved in the question “How should we choose a goal.”

    –Paul Baer
    Research Director, EcoEquity

    ps I personally think 450 ppm CO2e is too high a goal and think 400 ppm CO2e (a roughly 80-90% probability of staying below 2ºC) would be much better (though still a risk we wouldn’t take if we hadn’t screwed up so badly already).

  2. Karen Street Says:

    How do you explain the enormous differences between the Stern Review’s conclusion (cost 1% of GDP each year to stabilize GHG concentration at 500 – 550 ppm) and the IPCC report (about 1/10 that to end up in the range 445 – 535 ppm)?

  3. Paul Baer Says:

    The proper comparison is the up-to-3% to end up between 445-535 (see table SPM-4) with Stern’s 1%, and the 0.12% reduction in annual economic growth with an even lower figure (by about a factor of 3) for a weaker target in 2050.

    –pb

  4. Karen Street Says:

    Thanks!

  5. toby carlson Says:

    Karen, my son heard you speak at the friends meeting and was very impressed. As a meteorologist, emeritus professor at Penn State, (one who has tried to stay out of the climate debate) I wondered what organization you were with in Berkeley, UC?

    TNC

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